Know When to Refinance an FHA Loan to a Conventional Loan

August 7, 2021

Many first-time homebuyers get approved for an FHA loan for their first mortgage, but when is it smart to refinance an FHA loan to a conventional mortgage? An FHA loan has strong advantages for first-time homebuyers like a low down payment, use of gifted funds, and flexible requirements to qualify. After a few years, though, you might be in a better financial situation with more options. Perhaps you have more home equity, a better credit score, higher income, or your career has taken off.

No matter the reason, if you have an FHA loan and you’re thinking about refinancing, this article is for you. So if you’re thinking about refinancing an FHA loan to a conventional loan, keep reading.

Advantages to Refinancing an FHA Loan to a Conventional Loan

If you have more than 20% equity in your home, stable income, and a good credit rating, refinancing to a conventional loan could save you a lot of money.

In short, conventional mortgages have more strict requirements to qualify, but they also have lower mortgage rates and more flexible loan terms. A conventional mortgage could help you eliminate mortgage insurance payments, secure a lower rate, and even pay off your loan faster. This could amount to thousands of dollars in savings for many homeowners today.

Learn the detailed benefits along with the pros and cons of conventional mortgage which we blogged about here.

Drawbacks to refinancing an FHA loan to a conventional mortgage

The two main disadvantages to refinancing an FHA loan are closing costs and private mortgage insurance. First, closing costs include substantial one-time fees that may eclipse any expected savings. Second, if you don’t have at least 20% equity in your home, private mortgage insurance (PMI) will still be required with a conventional mortgage.

FHA Streamline Refinance: Top Alternative for Refinancing an FHA Loan

For many homeowners, qualifying for a conventional loan might not be possible. In other cases, you might qualify for a conventional loan, but it might end up costing you more to make the switch. In this case, the FHA streamline refinance is a great option for homeowners with a higher mortgage rate than current market rates.

The FHA Streamline is just what it sounds like: a streamlined process to refinance your FHA loan. Loan approval criteria are less strict, and most homeowners are not required to verify income, credit, or submit a home appraisal. This is a huge relief for many homeowners, and it keeps the cost of the refinance down as well.

FHA streamline refinance requirements:

Current mortgage must be an FHA loan
Mortgage payments must be current and on-time for the past six months
There must be at least 210 days since your FHA loan initially closed
Refinancing must result in a “net tangible benefit” such as a lower monthly payment
FHA mortgage premiums will still be required

Worth noting, an FHA streamline refinance doesn’t allow homeowners to take cash out.

Working with a qualified mortgage advisor who understands your situation is the best decision you can make. An experienced mortgage advisor can recommend home loan refinancing options to save you money and keep the process stress-free.

Summary

Refinancing an FHA loan to a conventional loan can save you a lot of money, get rid of mortgage insurance, and even secure a lower mortgage rate. But it’s not the best solution for every homeowner. Pay attention to closing costs, the pros and cons of a conventional mortgage, and recommendations from a qualified mortgage advisor. Finally, make sure to check out the FHA streamline refinance, especially if you have less than 20% equity right now.

Next Steps

When you’re thinking about refinancing a mortgage, an experienced mortgage advisor can help you decide whether or not a conventional mortgage is the best option. Connect with a mortgage advisor to discuss your options and build a custom mortgage that saves you money. We’d love to help.

How to Refinance a Mortgage Without An Appraisal

March 1, 2022

mortgage blog, refinance, no appraisal, preferred rate

For homeowners who want to refinance a mortgage in 2022, uncertainty can cloud the process. Mortgage rates and inflation are in constant flux and it’s hard to know if the time is right. But one factor that can cause unnecessary worry is the home appraisal.

For most homeowners who decide to refinance, the terms of a new home loan are often directly impacted by a formal home appraisal. If you want to refinance to lower your monthly payment or secure a lower rate, preparing for a home appraisal can be stressful.

Did you know that not every mortgage refinance requires a home appraisal? Homeowners who want to refinance a mortgage without an appraisal in 2022 have solid options.

If you’re refinancing in 2022, you might not need a home appraisal. This quick guide helps explain the process.

Mortage Basics: How Do Home Appraisals Work With a Mortgage Refinance?

Refinancing a mortgage requires the homeowner to have enough home equity to substantiate a new loan. Typically, most mortgage lenders require an 80% LTV (loan-to-value) ratio. This means that homeowners can apply to refinance a mortgage for up to 80% of their home’s value.

This is where home appraisals come in.

To determine the current market value of your home, a mortgage lender will typically require a home appraisal.

A licensed home appraiser will evaluate comparable homes in the area along with recent home sales and write up a detailed report to confirm their findings.

Home appraisers serve as neutral third parties, so they don’t represent the homeowner or the mortgage lender.

Sounds easy enough, but if a home appraisal comes back with a lower value than anticipated, it can cause added stress and potentially cause a mortgage application to fall through.

How to Refinance a Mortgage Without an Appraisal

First, talk with a local mortgage advisor to verify your current type of mortgage.

When it comes to refinancing a mortgage, all home loans are not created equal.

If you have a government-backed loan, you could be eligible to skip the appraisal with a streamline refinance. For example, if you currently have an FHA loan, VA loan, or USDA home loan, you can typically refinance your mortgage without an appraisal. A streamline refinance establishes the new mortgage with the same type of loan and keeps costs down.

Second, ask your mortgage advisor about an appraisal waiver.

If you want to refinance your mortgage without cash-out, you could be eligible for an appraisal waiver through Fannie Mae. There are a few extra requirements, and it’s not always a fast process.

Third, find out if you’re eligible to use the AVM (Automated Valuation Model)

In the mortgage industry today, some mortgage lenders use the Automated Valuation Model (AVM) to estimate the current market value of a property. If you have over 30% home equity, you could be eligible to skip the home appraisal.

3 Top Loans to Refinance a Mortgage Without a Home Appraisal

1. FHA Streamline Mortgage Refinance – Home Appraisal Not Required

The FHA home loan is government-backed. If mortgage rates have dropped since you first closed on your mortgage, an FHA streamline can help you secure a lower mortgage rate (based on the current rates) and reduce your monthly mortgage payment.

Eligibility:

present mortgage must be an FHA loan
mortgage must be at least 210 days old
on-time payments for the past 6 months are required
must have no more than one late payment in the past 12 months
homeowner must show a “net tangible benefit” to qualify

2. VA Streamline Mortgage Refinance – Home Appraisal Not Required

Homeowners who currently have a VA loan are typically eligible. Also called IRRRLs (Interest Rate Reduction Refinance Loans), the VA streamline refinance loan doesn’t require proof of equity. Homeowners can also borrow up to 120% of their home’s value, as long as there is a net tangible benefit to the refinance. As a result, there is no appraisal required.

Eligibility:

present mortgage must be a VA loan
home must be your full-time residence
current mortgage must be at least 270 days old
on-time payments for the past 6 months are required
homeowner must show a “net tangible benefit” to qualify

3. USDA Streamline Mortgage Refinance – Home Appraisal Not Required

Like other government-backed home loans, a USDA mortgage refinance typically doesn’t require a home appraisal. Therefore, homeowners who currently have a USDA loan are often eligible. In addition, a USDA streamline refinance loans doesn’t require proof of equity, so there is no appraisal required.

Eligibility:

present mortgage must be a USDA loan
current mortgage must be at least 12 months old
on-time payments for the past 6 months are required
homeowner must show a “net tangible benefit” to qualify
homeowner must meet the USDA debt-to-income ratio required

Summary

When it comes to getting a home appraisal, a lot of homeowners worry about the final number. What is my house worth? Will the home appraisal meet the criteria I need for a mortgage refinance? If my house appraises too low, should I wait and see if the market ticks upwards?

Skipping the home appraisal can streamline the process, save you money, and help you refinance a mortgage faster.

A no-appraisal refinance often costs less and requires less documentation. What’s more, a mortgage refinance without an appraisal will close faster than a standard mortgage refinance.

Taking Action

If you want to refinance a mortgage without an appraisal, connect with a local mortgage advisor to discuss your goals. The right home loan can help you build financial security and save money on your mortgage. There are several custom mortgage refinance options available for 2022. We’d love to help.

Save Money with the Best Home Loans for First-Time Homebuyers

October 5, 2022

mortgage blog, first time homebuyer, home loans

First-time homebuyers have access to top mortgage programs that can save you money and help you become a homeowner faster. So if you’re getting ready to buy your first home, keep reading! There are several advantages to being a first-time homeowner, and many people qualify, even if you’ve owned a home before. This article will highlight the benefits and the top 5 home loans that are a great match for first-time homebuyers. What’s more, you’ll find the first steps to get started.

If you’re trying to decide whether to keep renting or become a homeowner right now, you’re not the only one. A lot of homebuyers have been wondering if it’s better to wait and see if the rates come back down. Check out this article from last week if you’re trying to decide whether it’s time to stop renting and become a homeowner.

2022 Home Loan Benefits for First-Time Homebuyers

Down payments as low as 0% – 3.5% down
Fewer income restrictions
More flexible credit score requirements
Use of gift funds to help with closing costs
HUD-issued grants and down payment assistance
Government-backed loans with lower interest rates
Access to withdraw IRA funds without a penalty
Tax deductions for points and origination fees

Top 5 Most Popular Home Loans for First-Time Homebuyers

One of the biggest obstacles for many first-time homebuyers is the down payment.

The good news is you don’t need to put 20% down to get a competitive rate on your mortgage.

In high-cost areas, the average home could be around $750k, requiring a 20% down payment of $150k. Even if you have the funds available, is it still a smart move to invest the full amount into your home? High-income buyers might want to invest that money elsewhere. And for lower-income buyers, a large down payment might not be possible.

The following mortgages are a popular option for first-time homebuyers. Why? They can help lower your down payment and get you into a house without making you cash-poor or depleting your assets.

Use this MORTGAGE CALCULATOR to find out how much you can afford right now

1. FHA Loan – 3.5% Down Payment

FHA (Federal Housing Administration) home loans are government-backed mortgages. This mortgage is a popular mortgage option for first-time homebuyers because borrowers can qualify with a lower credit score and a low down payment.

3.5% down payment with a credit score of 580
10% down payment with a credit score of 500
Flexible income requirements
Mortgage insurance premium (MIP) is required

2. VA Home Loan – 0% Down Payment

If you’re a member of the military, the VA home loan is one of the best home loan options for first-time homebuyers. The VA home loan is available to active-duty service members, veterans, and military spouses.

0% down payment required
Low mortgage rates
Lower credit score requirements
Reduced closing costs
No mortgage insurance requirements

Find a qualified mortgage expert in your area who specializes in VA Loans

3. USDA Home Loan – 0% Down Payment

Government-backed USDA home loans offer solid advantages for first-time homebuyers who want to buy a home in a rural area. USDA home loans offer low-interest rates and no-money-down mortgages for qualified borrowers.

0% down payment
A government-based mortgage with low-interest rates
Benefits to lower-income buyers
Lower mortgage insurance premiums

Check out the USDA eligibility map and find out which areas qualify.

4. Conventional 97 Mortgage – 3.0% Down Payment

The conventional 97 mortgage program is ideal for higher-income buyers with excellent credit that want a low 3% down payment. It’s more flexible, and you can keep your assets invested elsewhere.

3% down payment
Opportunity to cancel PMI without refinancing
620 credit score minimum
No limitations on areas or neighborhoods
No income limitations

5. HomeReady by Fannie Mae and HomePossible by Freddie Mac – 3% Down Payment

HomeReady and HomePossible are perfect for first-time homebuyers who want a conventional home loan with a low rate and a low down payment.

3% down payment
Use gift funds for up to 100% of your down payment (HomePossible)
Use gift funds for your closing costs
Down Payment Assistance (DPA) is available for closing costs
You might be able to count rental income on your loan application
You can count income from relatives or other people living with you (HomeReady)

The Fannie Mae HomeReady home loan is also a great loan for borrowers who plan to buy a multi-unit property (up to 4 units). One of the units must be your primary residence.

Downpayment Assistance

To find out more information about downpayment assistance for 2021, along with housing grants and vouchers, check out this site for local and state-based programs.

Summary

If you’re considering becoming a homeowner right now, it’s time to take action and lock in your rate. Rates are still affordable, and these top home loan terms are favorable for first-time homebuyers. Connect with a local mortgage advisor to discuss your goals. The right mortgage can help you build financial security and put you on the fast track toward building wealth through homeownership.

Taking Action

Connect with a mortgage advisor. There are several custom loan options in addition to these top home loans for first-time homebuyers, with great mortgage rates right now. So whether you’re a first-time homebuyer or becoming a homeowner for the third time, the right mortgage can help you build financial freedom. We’d love to help.

How to Qualify for a Mortgage if You’re Self-Employed

July 16, 2021

Qualifying for a mortgage if you’re self-employed isn’t always easy. The good news is self-employed homebuyers have several mortgage options available right now. It will take a bit more effort to prepare, but partnering with the right mortgage advisor can help you get qualified.

Best strategy? Learn what to expect, put your documents in order, and work with a qualified mortgage expert. This post will help.

How to Qualify for a Mortgage When You’re Self-Employed

When a mortgage lender is considering a self-employed borrower, they will evaluate your financial health and the financial health of your business. Since your business is most likely your primary source of income, mortgage lenders will look at your business to evaluate risk.

In general, mortgage lenders will want to verify income, creditworthiness (credit score), and proof of self-employment. Quick side note — if you’re self-employed, qualifying for a mortgage will be easier with a low debt-to-income ratio and high cash reserves.

Are there any tips on getting a mortgage if you’re self-employed?

Keep your credit report clean, and don’t add any new debt or loans
Pay down your debt to improve your debt-to-income ratio
Build up cash reserves
Pull together your down payment (the bigger, the better)
Get your documentation ready

Last week we blogged on how to boost your credit score in 60 days, which is a smart strategy if you’re self-employed. Similarly, pay down your debts to improve your debt-to-income ratio. Together, these improvements will make your mortgage application more attractive to mortgage lenders.

What documentation do you need to provide if you’re self-employed?

When you apply for a mortgage as a self-employed individual, you’re essentially applying for a mortgage just like anyone else. In addition, be prepared to provide the following:

Two year’s tax returns, business and personal
K-1 earnings statement (if a partnership or S-Corp)
Proof of self-employment (business license, signed letter from your CPA)
Proof of ongoing business (client contracts, recent invoices)
Annual profit and loss statements (along with bank statements)
Income verification (e.g., additional income, investments)

In most cases, self-employed mortgage applicants must provide additional documentation. In short, mortgage lenders want to determine if you’ll be able to pay back the mortgage. So when you’re applying for a mortgage while self-employed, the process will be faster if you have your paperwork ready.

Working with a qualified mortgage advisor who understands your goals is a smart choice. A qualified mortgage expert can recommend strategic home loan options that will save you money and help you get approved.

Top Mortgage Options for Self-Employed Borrowers

1. Conventional Loan

Conventional loans (aka conventional mortgages) are one of the most popular types of home loans. Since conventional loans are backed by private lenders (and not guaranteed by the government), they offer flexible terms to meet the custom needs of many homebuyers. Self-employed borrowers might see conventional loans as a good fit, offering lower rates and more flexibility on loan terms. If you’re self-employed with cash reserves, a high credit score, and consistent income, then a conventional mortgage could be your best option.

2. FHA Loan

The FHA loan is a government-backed mortgage insured by the Federal Housing Administration (FHA). FHA loans typically offer low-interest rates, and a low down payment (3.5%). FHA loans have flexible criteria to qualify, such as a lower credit score and low-to-moderate income requirements. However, FHA loans can take longer to get approved and are sometimes more strict in verifying income.

3. Bank Statement Loan

Bank statement loans allow homebuyers to apply for a mortgage without providing traditional documentation to prove income (such as W-2s or paystubs). Instead, mortgage lenders review 12-24 months of bank statements to confirm self-employment income.

A bank statement loan might be a good alternative if you don’t have traditional forms of documentation to verify your income or if your tax returns vary from year to year. In short, self-employed mortgage applicants who don’t have traditional forms of income verification might see bank statement home loans as a good fit.

4. Apply for a Joint Mortgage

Applying for a joint mortgage with a family member, partner, spouse, or good friend is another option that might help you qualify for a mortgage when you’re self-employed. Learn how to qualify for a joint mortgage with friends or family which we blogged about here.

Remember that both applicants will need to provide qualifying documentation such as credit reports, proof of income, and employment verification for a joint mortgage.

Another option is to ask a friend or family member to co-sign your mortgage. They might help you qualify, but keep in mind that the cosigner will be fully responsible for the loan if you default.

Summary

Qualifying for a mortgage if you’re self-employed might take a little more work, but homeownership is within reach. Be prepared to provide additional documentation to show income stability, proof of self-employment, and tax returns for at least two years.

Mortgage lenders look for consistent income, a low debt-to-income ratio, and a high credit score. So pay down your debts if needed and do what you can to increase your credit score. Most importantly, partner with an experienced mortgage advisor who understands your financial goals and has experience with self-employed homebuyers.

Next Steps

When you’re self-employed and ready to apply for a mortgage, work with a local mortgage advisor who understands your financial situation. An experienced mortgage advisor can help you get qualified and keep the mortgage process stress-free. Whether you’ve been self-employed for decades or just a few years, we can help you save money on your mortgage.

Boost Your Credit Score and Save Money on Your Mortgage

July 9, 2021

Applying for a mortgage can feel stressful, especially if you don’t know your credit score or if your credit score is low. Your credit score directly impacts the terms of your loan, mortgage interest rates, and whether or not you might qualify.

The great news is you can save thousands of dollars on your mortgage by boosting your credit score. Why? Lenders look at credit scores as an important factor in determining your ability to repay the loan. Lower risk (for the lender) means a better mortgage for you.

Together, a better credit score and low debt-to-income ratio can help you save thousands of dollars on your mortgage.

How can I raise my credit score quickly?

A better credit score means a better mortgage. However, if your credit score isn’t where you want it right now, there’s a lot you can do to improve it. Follow the steps below to boost your credit score fast.

Excellent credit: 740 +
Good credit: 700 – 739
Fair credit: 620 – 699
Not so great: 580 – 619

Smart tips to boost your credit score in less than 60 days

Step 1: Download a free copy of your credit report

Review your credit report for accuracy and look for any errors or negative marks that need your attention. Get a free copy of your credit report here from the Federal Trade Commission.

Step 2: Clean up any errors on your credit report

First, check to confirm that your personal information is correct (name, address, past addresses, etc.) Next, check for collection accounts, late payments, credit inquiries, or anything else that shouldn’t be there. If needed, you can also dispute credit inquiries or negative items that might hurt your credit score. Most errors can be cleared within 30 days.

Step 3: Pay down high credit card balances

The lower your balances are, the higher your credit score will be. Ideally, you want to aim for a balance below 30% of your available credit (also called your credit utilization ratio). This is because lenders consider it a lower risk when a borrower isn’t maxed out on their credit.

Step 4: Catch up on past-due payments

Bringing your accounts current will boost your credit score. If needed, call your creditors to make a payment arrangement so that you bring your accounts current.

Step 5: Keep old accounts open

Payment history can help your credit score. So even if you have old accounts that you haven’t used in years, keeping them open with a zero balance is a smart move.

Step 6: Don’t apply for new credit cards or loans

Each time you apply for a new credit card or loan, it negatively impacts your credit score. So when you’re ready to apply for a mortgage, hold off on buying that car or opening a new line of credit.

Does it hurt my credit score when I apply for a mortgage?

No. When you apply for a mortgage, it shows up on your credit report as a new inquiry, but it doesn’t negatively affect your credit rating for the first 45 days. However, if you apply to multiple lenders beyond the first 45 days, the additional inquiries will begin to affect your credit score.

Should I pay off my loans early to improve my credit score?

In most cases, no. Believe it or not, keeping installment loans open and making your payments on time is the best way to keep your credit score in check.

Should I pay off my credit cards to boost my credit score?

Probably not. The best strategy is to pay down your balances significantly and keep your credit line open with a low balance. If possible, pay down your highest balance credit cards first and push your balance below 30% of the credit line.

High credit score? Leverage your mortgage options.

A high credit score means lenders will compete for your business. Download a free copy of your credit report so you can resolve any errors or misinformation. Keep making your payments on time and don’t take on any new debt or apply for new credit lines.

Now’s not the time to open a new credit card or apply for a new loan. Instead, keep your credit report as clean as possible when you’re ready to apply for a mortgage.

Low credit score? The FHA home loan might be the best fit.

A good credit score will typically get you the lowest mortgage rate. But there are also specialty loan programs available for homebuyers who have a lower credit score. In addition, your credit score isn’t the only factor when it comes to qualifying for a mortgage. Talk to a mortgage expert who understands the big picture and can help you reach your homeownership goals.

Let’s talk about Debt-to-Income Ratios and Credit Scores

When you apply for a mortgage, your debt-to-income ratio impacts your mortgage application right along with your credit score.

Why? Lenders compare your total monthly income with your monthly debt repayments to determine how much you can afford. If your monthly debt payments are higher than 40% of your pre-tax income, it might be harder to qualify for the best rate.

It might be worth it to pay down your debt when it comes to your credit score, so your debt-to-income ratio is favorable.

How to Calculate Debt-to-Income Ratio (DTI)

To calculate your DTI, combine your required monthly payments (e.g., monthly rent or mortgage, minimum credit card payments, student loans, car payments), and subtract the total from your gross monthly income.

For example, if your gross monthly income is $6,000, then 43% would be $2,580. This is the maximum amount a lender would approve for a monthly mortgage payment for a conventional loan. Next, subtract your monthly debt repayments:

Monthly car payment = $200
Credit card payment = $135
Student loan payment = $250

In this scenario, your monthly debt obligation would be $585. From the lender’s perspective, this means you have $1,995 available to make a monthly mortgage payment ($2,580 – $585 = $1,995.)

Note that your new monthly payment will need to cover your mortgage payment, homeowner’s insurance, property taxes, and mortgage insurance if required.

What Happens with Co-applicants or a Joint Mortgage?

If you want to buy a house with a partner, spouse, friend, or relative, your mortgage application will require a credit report for everyone on the application. We blogged about this recently, which you can check out here: How to apply for a joint mortgage with a friend or relative (their credit score might help you qualify).

Summary

Buying a home or refinancing a mortgage can be a lot less stressful when you know what to expect. Mortgage lenders look at your credit report to evaluate risk and determine if you’ll be able to pay back your loan. Talk to a mortgage advisor (for free) to discuss options that can save you money.

The best way to boost your credit score is to make your payments on time, fix any errors on your credit report, and lower your balance on revolving credit cards.

Find out your credit score and download your free credit report. You can clean up any errors, dispute negative marks, and take action to boost your credit score in less than 60 days.

Next Steps

To get the best mortgage interest rate and terms, work with a local mortgage expert who understands your financial situation. No matter your credit score, we’re dedicated to helping you save money on your mortgage. Financial freedom might be closer than you think.

Share This Post

Bump Your Credit Score and Get a Better Mortgage

July 6, 2022

Applying for a mortgage can be a stressful process, especially for new homebuyers. While mortgage rates begin to steady, it’s a little easier to make a budget and determine how much you can afford. But if you really want to get your best mortgage, one of the best actions you can take is to boost your credit score. Most people can bump it up several points in less than 60 days. Your credit score directly impacts the terms of your loan, mortgage interest rates, and whether or not you might qualify.

The great news is you can save thousands of dollars on your mortgage by boosting your credit score. Why? Lenders look at credit scores as an important factor in determining your ability to repay the loan. Lower risk (for the lender) means a better mortgage for you.

Together, a better credit score and low debt-to-income ratio can help you save thousands of dollars on your mortgage.

How can I raise my credit score quickly?

A better credit score means a better mortgage. However, if your credit score isn’t where you want it right now, there’s a lot you can do to improve it. Follow the steps below to boost your credit score fast.

Excellent credit: 740 +
Good credit: 700 – 739
Fair credit: 620 – 699
Not so great: 580 – 619

Smart tips to bump up your credit score in less than 60 days

Step 1: Download a free copy of your credit report

Review your credit report for accuracy and look for any errors or negative marks that need your attention. Get a free copy of your credit report here from the Federal Trade Commission.

Step 2: Clean up any errors on your credit report

First, check to confirm that your personal information is correct (name, address, past addresses, etc.) Next, check for collection accounts, late payments, credit inquiries, or anything else that shouldn’t be there. If needed, you can also dispute credit inquiries or negative items that might hurt your credit score. Most errors can be cleared within 30 days.

Step 3: Pay down high credit card balances

The lower your balances are, the higher your credit score will be. Ideally, you want to aim for a balance below 30% of your available credit (also called your credit utilization ratio). This is because lenders consider it a lower risk when a borrower isn’t maxed out on their credit.

Step 4: Catch up on past-due payments

Bringing your accounts current will boost your credit score. If needed, call your creditors to make a payment arrangement so that you bring your accounts current.

Step 5: Keep old accounts open

Payment history can help your credit score. So even if you have old accounts that you haven’t used in years, keeping them open with a zero balance is a smart move.

Step 6: Don’t apply for new credit cards or loans

Each time you apply for a new credit card or loan, it negatively impacts your credit score. So when you’re ready to apply for a mortgage, hold off on buying that car or opening a new line of credit.

Does it hurt my credit score when I apply for a mortgage?

No. When you apply for a mortgage, it shows up on your credit report as a new inquiry, but it doesn’t negatively affect your credit rating for the first 45 days. However, if you apply to multiple lenders beyond the first 45 days, the additional inquiries will begin to affect your credit score.

Should I pay off my loans early to improve my credit score?

In most cases, no. Believe it or not, keeping installment loans open and making your payments on time is the best way to keep your credit score in check.

Should I pay off my credit cards to bump up my credit score?

Probably not. The best strategy is to pay down your balances significantly and keep your credit line open with a low balance. If possible, pay down your highest balance credit cards first and push your balance below 30% of the credit line.

High credit score? Leverage your mortgage options.

A high credit score means lenders will compete for your business. Download a free copy of your credit report so you can resolve any errors or misinformation. Keep making your payments on time and don’t take on any new debt or apply for new credit lines.

Now’s not the time to open a new credit card or apply for a new loan. Instead, keep your credit report as clean as possible when you’re ready to apply for a mortgage.

Low credit score? The FHA home loan might be the best fit.

A good credit score will typically get you the lowest mortgage rate. But there are also specialty loan programs available for homebuyers who have a lower credit score. In addition, your credit score isn’t the only factor when it comes to qualifying for a mortgage. Talk to a mortgage expert who understands the big picture and can help you reach your homeownership goals.

Debt-to-Income Ratios and Credit Scores

When you apply for a mortgage, your debt-to-income ratio impacts your mortgage application right along with your credit score.

Why? Lenders compare your total monthly income with your monthly debt repayments to determine how much you can afford. If your monthly debt payments are higher than 40% of your pre-tax income, it might be harder to qualify for the best rate.

It might be worth it to pay down your debt when it comes to your credit score, so your debt-to-income ratio is favorable.

How to Calculate Debt-to-Income Ratio (DTI)

To calculate your DTI, combine your required monthly payments (e.g., monthly rent or mortgage, minimum credit card payments, student loans, car payments), and subtract the total from your gross monthly income.

For example, if your gross monthly income is $6,000, then 43% would be $2,580. This is the maximum amount a lender would approve for a monthly mortgage payment for a conventional loan. Next, subtract your monthly debt repayments:

Monthly car payment = $200
Credit card payment = $135
Student loan payment = $250

In this scenario, your monthly debt obligation would be $585. From the lender’s perspective, this means you have $1,995 available to make a monthly mortgage payment ($2,580 – $585 = $1,995.)

Note that your new monthly payment will need to cover your mortgage payment, homeowner’s insurance, property taxes, and mortgage insurance if required.

Summary

Buying a home or refinancing a mortgage can be a lot less stressful when you know what to expect. Mortgage lenders look at your credit report to evaluate risk and determine if you’ll be able to pay back your loan. Talk to a mortgage advisor (for free) to discuss options that can save you money.

The best way to boost your credit score is to make your payments on time, fix any errors on your credit report, and lower your balance on revolving credit cards.

Find out your credit score and download your free credit report. You can clean up any errors, dispute negative marks, and take action to boost your credit score in less than 60 days.

Next Steps

To get the best mortgage interest rate and terms, work with a local mortgage expert who understands your financial situation. No matter your credit score, we’re dedicated to helping you save money on your mortgage. Financial freedom might be closer than you think.

How Do I Qualify for a Mortgage With Student Loan Debt?

May 26, 2021

Student loan debt can cause a lot of financial stress, especially when you’re getting ready to buy a house for the first time. If you’ve got a steady job and a good handle on your monthly expenses, becoming a first-time homeowner is within reach.

So if you feel overwhelmed by your student loans, you’re not alone. A lot of first-time homebuyers wonder how they’ll qualify for a mortgage with student loan debt.

So You Want to Buy a House? Don’t Let Student Loan Debt Stop You.

This article will explain how student loans affect your home loan eligibility and how to qualify for a mortgage. Specifically, how to apply for a mortgage and get a home loan while you’re still paying off your student loan debt.

Let’s dig in.

Three Factors That Affect Your Eligibility When You Apply for a Mortgage

1. Debt to Income Ratio (DTI)

Your debt-to-income ratio impacts your buying power the most. Lenders compare your gross monthly income against your monthly debt obligations to determine how much you can afford to borrow. A DTI ratio higher than 43% can make it difficult to qualify. But there are select options for borrowers with student loan debt.

2. Credit Score

A good credit score will get you a better home loan and a lower mortgage rate. But there are also special programs available for first-time homebuyers who have a lower credit score. Check out your credit report for free here.

3. Down Payment

A larger down payment can often lock in a better rate and a more affordable mortgage payment. Ask your mortgage advisor about using investment stocks, retirement funds, gift funds, or borrowing from other sources.

Home Loan Opportunities for Borrowers With Student Loan Debt

Conventional Loan: 3% down payment, debt-to-income ratio < 43%
FHA Loan: 3.5% down payment, debt-to-income ratio < 50%
Fannie Mae HomeReady Mortgage: 3% down payment, debt-to-income ratio < 50%
VA Loan: 0% down payment, debt-to-income ratio < 41%

Let’s Talk About Debt-to-Income Ratios and Mortgage Applications

When you apply for a mortgage, your debt-to-income ratio directly impacts your eligibility.

Why? Lenders compare your total monthly income with your monthly debt repayments to determine how much you can afford. If your monthly debt payments are higher than 40% of your pre-tax income, it won’t be easy to qualify.

This is where student loan payments make a significant impact.

Student loan payments are automatically included in your monthly debt balance, so they directly affect how much you can afford for a home loan. Since there are different student loan repayment programs, the structure of your specific student loan payment plan can make a big difference.

First, let’s look at how debt-to-income ratios are calculated. Then you can decide whether or not it’s a smart idea to restructure your student loan debt.

How to Calculate Your Debt-to-Income Ratio (DTI)

Figuring out your debt-to-income ratio (DTI) is easy. Write down your gross monthly income, then make a list of all your recurring monthly payments.

Leave out expenses that vary each month, such as utility bills, entertainment, groceries, transportation, etc.

To calculate your DTI, combine your required monthly payments such as:

Monthly rent or mortgage payment
Student loan payment
Minimum credit card payment
Monthly car payment
Any court-ordered payments (child support, back taxes, etc.)

Example: Calculating Your Debt-to-Income Ratio with Student Loans

For example, if your gross monthly income is $6,000, then 43% would be $2,580. This is the maximum amount a lender would approve for a monthly mortgage payment for a conventional loan.

Next, it’s time to subtract your monthly debt repayments. For example:

Monthly car payment = $200
Credit card payment = $135
Student loan payment = $250

In this scenario, your monthly debt repayment would be $585. From the lender’s perspective, this means you have $1,995 available to make a monthly mortgage payment ($2,580 – $585 = $1,995.)

Note that your new monthly payment will need to cover your mortgage payment, homeowner’s insurance, property taxes, and mortgage insurance if required.

How Different Student Loan Repayment Programs Affect Your Mortgage Application

Restructuring your student loans can help lower your debt-to-income ratio and be a better option than paying off your student loans.

Why? To apply for a mortgage, you’ll want to have a down payment ready as well as emergency funds. So you don’t want to deplete your savings to pay off your student loans.

If your monthly student loan payment is high, you might consider restructuring your student loan debt so that you can lower your monthly payment. This will help lower your DTI.

Contact the institution that handles your student loan debt and ask about the following options:

standard repayment plan
deferred student loan
income-driven payment plan
graduated payment plan

Takeaway: Don’t Let Student Loans Keep You From Buying a House

Buying your first home might be closer than you think, even while you’re paying off student loans. And several loan programs can work to your advantage, especially as a first-time homebuyer.

Plan for your down payment, find out your credit score and calculate your debt-to-income ratio. Once you have a clear financial picture, you can consider restructuring your student debt to lower your DTI ratio.

Next Steps

Working together early on can help navigate your best options. If you’d like to understand how your student loans will impact your mortgage application, let’s connect. We’d love to help.

Top 5 Mortgage Home Loans for First-Time Homebuyers

April 7, 2021

First-time homebuyers have unique access to mortgage programs that can save you a lot of money and help you become a homeowner faster. So if you’re getting ready to buy your first home, congratulations! Keep reading to learn how it works and find out if you’re eligible.

2021 Mortgage Benefits for First-Time Homebuyers

Down payments as low as 0% – 3.5% down
Fewer income restrictions
More flexible credit score requirements
Use of gift funds to help with closing costs
HUD-issued grants and down payment assistance
Government-backed loans with lower interest rates
Access to withdraw IRA funds without a penalty
Tax deductions for points and origination fees

Top 5 Most Popular Home Loans for First-Time Homebuyers

One of the biggest obstacles for many first-time homebuyers is the down payment.

The good news is you don’t need to put 20% down to get a competitive rate on your mortgage.

In high-cost areas, the average home could be around $750k, requiring a 20% down payment of $150k. Even if you have the funds available, is it still a smart move to invest the full amount into your home? High-income buyers might want to invest that money elsewhere. And for lower-income buyers, a large down payment might not be possible.

The following mortgages are a popular option for first-time homebuyers. Why? They can help lower your down payment and get you into a house without making you cash-poor or depleting your assets.

1. FHA Loan – 3.5% Down Payment

FHA (Federal Housing Administration) home loans are government-backed mortgages. This mortgage is a popular mortgage option for first-time homebuyers because borrowers can qualify with a lower credit score and a low down payment.

3.5% down payment with a credit score of 580
10% down payment with a credit score of 500
Flexible income requirements
Mortgage insurance premium (MIP) is required

2. VA Home Loan – 0% Down Payment

If you’re a member of the military, the VA home loan is one of the best home loan options for first-time homebuyers. The VA home loan is available to active-duty service members, veterans, and military spouses.

0% down payment required
Low mortgage rates
Lower credit score requirements
Reduced closing costs
No mortgage insurance requirements

3. USDA Home Loan – 0% Down Payment

Government-backed USDA home loans offer solid advantages for first-time homebuyers who want to buy a home in a rural area. USDA home loans offer low-interest rates and no-money-down mortgages for qualified borrowers.

0% down payment
A government-based mortgage with low-interest rates
Benefits to lower-income buyers
Lower mortgage insurance premiums

Check out the USDA eligibility map and find out which areas qualify.

4. Conventional 97 Mortgage – 3.0% Down Payment

The conventional 97 mortgage program is ideal for higher-income buyers with excellent credit that want a low 3% down payment. It’s more flexible, and you can keep your assets invested elsewhere.

3% down payment
Opportunity to cancel PMI (private mortgage insurance) without refinancing
620 credit score minimum
No limitations on areas or neighborhoods
No income limitations

5. HomeReady by Fannie Mae and HomePossible by Freddie Mac – 3% Down Payment

HomeReady and HomePossible are perfect for first-time homebuyers who want a conventional home loan with a low rate and a low down payment.

3% down payment
Use gift funds for up to 100% of your down payment (HomePossible)
Use gift funds for your closing costs
Down Payment Assistance (DPA) is available for closing costs
You might be able to count rental income on your loan application
You can count income from relatives or other people living with you (HomeReady)

The Fannie Mae HomeReady home loan is also a great loan for borrowers who plan to buy a multi-unit property (up to 4 units). One of the units must be your primary residence.

Additional Resources

To find out more information about downpayment assistance for 2021, along with housing grants and vouchers, check out this site for local and state-based programs.

Taking Action

Connect with a local mortgage advisor to see if you qualify as a first-time homebuyer. Start the process early and ask your lender to show you which home loan programs will give you the best advantages. We’d love to help.

Tag Archive for: FHA loan

Advantages to Refinancing an FHA Loan to a Conventional Loan

Top Questions on Converting an FHA Loan to a Conventional Loan

Should I refinance my FHA loan to a conventional loan? What are the benefits?

Thinking about refinancing?

Can you refinance an FHA loan to get rid of PMI?

Are there closing costs to refinance an FHA loan to a conventional loan?

What documentation do I need to change my FHA loan to a conventional loan?

Start your application in less than 5 minutes.

Drawbacks to refinancing an FHA loan to a conventional mortgage

FHA Streamline Refinance: Top Alternative for Refinancing an FHA Loan

Helpful advice from friendly mortgage experts.

Summary

Next Steps

Did you know that not every mortgage refinance requires a home appraisal? Homeowners who want to refinance a mortgage without an appraisal in 2022 have solid options.

Mortage Basics: How Do Home Appraisals Work With a Mortgage Refinance?

To determine the current market value of your home, a mortgage lender will typically require a home appraisal.

Sounds easy enough, but if a home appraisal comes back with a lower value than anticipated, it can cause added stress and potentially cause a mortgage application to fall through.

Take the first step toward your best mortgage.

How to Refinance a Mortgage Without an Appraisal

First, talk with a local mortgage advisor to verify your current type of mortgage.

Second, ask your mortgage advisor about an appraisal waiver.

Third, find out if you’re eligible to use the AVM (Automated Valuation Model)

Ready to refinance your mortgage?

3 Top Loans to Refinance a Mortgage Without a Home Appraisal

1. FHA Streamline Mortgage Refinance – Home Appraisal Not Required

Eligibility:

2. VA Streamline Mortgage Refinance – Home Appraisal Not Required

Eligibility:

Start your application in less than 5 minutes.

3. USDA Streamline Mortgage Refinance – Home Appraisal Not Required

Eligibility:

Summary

Skipping the home appraisal can streamline the process, save you money, and help you refinance a mortgage faster.

Helpful advice from friendly mortgage experts.

Taking Action

2022 Home Loan Benefits for First-Time Homebuyers

Take the first step toward your best mortgage.

Top 5 Most Popular Home Loans for First-Time Homebuyers

1. FHA Loan – 3.5% Down Payment

2. VA Home Loan – 0% Down Payment

3. USDA Home Loan – 0% Down Payment

Start your application in less than 5 minutes.

4. Conventional 97 Mortgage – 3.0% Down Payment

5. HomeReady by Fannie Mae and HomePossible by Freddie Mac – 3% Down Payment

Downpayment Assistance

Helpful advice from friendly mortgage experts.

Summary

Taking Action

How to Qualify for a Mortgage When You’re Self-Employed

Are there any tips on getting a mortgage if you’re self-employed?

Take the first step toward your best mortgage.

What documentation do you need to provide if you’re self-employed?

Custom home loans are just the beginning.

Top Mortgage Options for Self-Employed Borrowers

1. Conventional Loan

2. FHA Loan

3. Bank Statement Loan

Start your application in less than 5 minutes.

4. Apply for a Joint Mortgage

Summary

Get helpful advice from friendly mortgage experts.

Next Steps

How can I raise my credit score quickly?

Smart tips to boost your credit score in less than 60 days

Step 1: Download a free copy of your credit report

Step 2: Clean up any errors on your credit report

Step 3: Pay down high credit card balances

Step 4: Catch up on past-due payments

Step 5: Keep old accounts open

Step 6: Don’t apply for new credit cards or loans

Find out how much you can afford (it’s free).

Does it hurt my credit score when I apply for a mortgage?

Should I pay off my loans early to improve my credit score?

Should I pay off my credit cards to boost my credit score?

High credit score? Leverage your mortgage options.

Low credit score? The FHA home loan might be the best fit.

Start your application in less than 5 minutes.

Let’s talk about Debt-to-Income Ratios and Credit Scores

How to Calculate Debt-to-Income Ratio (DTI)