Tag Archive for: first-time homebuyer

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.

RELATED: How to get the lowest mortgage rate with an adjustable-rate mortgage (ARM)

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

RELATED: How to FAST TRACK your application with a mortgage pre-approval

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.

RELATED: Talk with a local mortgage expert to find out if you’re eligible for first-time homebuyer advantages

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.

Get a Lower Mortgage Rate with an Adjustable Rate Mortgage (ARM)

September 14, 2022
mortgage blog, adjustable rate mortgage, preferred rate

If one of your goals for 2022 is buying a home, you’re in the right place. Mortgage rates continue to rise as the Fed attempts to slow down inflation, but the housing market is also growing less competitive which is great news for new homebuyers. As a result, one of the biggest questions we hear from homebuyers is whether or not to apply for a fixed-rate mortgage or an adjustable-rate mortgage. 

This article can help you decide which mortgage better fits your financial goals.

One of the best actions you can take is to connect with a local mortgage advisor. A local advisor can guide you through your best options and even put together a custom home loan. Homeownership is one of the fastest paths to building financial stability.

RELATED: Uncover the Real Value of a Local Mortgage Advisor

Fixed-rate mortgages are the most popular type of home loan (when rates are low).

Fixed-rate home loans are typically offered for a 30-year term or 15-year term. While fixed-rate home loans offer slightly higher mortgage rates than adjustable-rate mortgages, fixed-rate loans have stable terms for the life of the loan.

The upshot is your mortgage payment stays the same for the entire 30 years (or 15), and your rate stays the same.

A fixed-rate mortgage keeps monthly mortgage payments reliable, predictable, and easy on your budget. So no matter how the mortgage market changes, you can rest secure and know that your mortgage payment won’t change.

But is it smart to lock in a 30-year loan when mortgage rates are high? All things considered, rates are still relatively low compared to past decades that were driven by inflation.

Adjustable-Rate Mortgages

Adjustable-rate mortgages often offer the lowest mortgage rates available.

ARM interest rates are set for an initial loan period (called an adjustment period), and then they shift according to the market. This is why the loan is called “adjustable.” Essentially, the mortgage rate adjusts along with market trends, after the initial period ends.

Adjustable-rate mortgages typically offer an initial adjustment period for 5 to 7 years, during which the mortgage rate does not change. When applying for a mortgage with an adjustable-rate mortgage, the first loan period (called an adjustment period) will be a lower interest rate and a lower mortgage payment compared to a fixed-rate mortgage.

This is ideal if you plan to stay in the home for less than the initial adjustment period for the loan. For example, if you expect to move for work within 5-7 years, or plan to sell the home for other reasons, an ARM could save you money in the short term.

Use this mortgage calculator to find out how much you can afford right now

An adjustable-rate mortgage is also ideal for buyers who want to purchase a home while mortgage rates are higher than usual. ARM loans can help homebuyers get into the housing market at a lower rate.

However, adjustable-rate mortgages often include complex changes after the initial adjustment period. For this reason, it’s important to discuss the full terms of your loan with a trusted mortgage advisor.  

Related: When to Stop Renting and Become a Homeowner

Benefits of an Adjustable-Rate Mortgage

  • ARM’s provide new homeowners with a lower mortgage payment and a lower mortgage rate. Compared to a fixed-rate mortgage, ARM’s often translate to lower rates and a smaller mortgage payment, which can help new homeowners save money.

  • You could become a homeowner sooner with an ARM. Lower interest rates translate to a lower initial mortgage payment and a lower DTI (debt-to-income) ratio. As a result, you could qualify for a new home loan sooner than you think.

  • ARM’s offer homeowners more buying power. Since ARM’s offer a lower interest rate, you could qualify for a higher purchase price and a bigger home.

  • When the market shifts downward, your mortgage rate decreases (after the adjustment period). This means you could have a lower mortgage payment or the option to refinance at a lower interest rate.

  • Invest your extra cash elsewhere during low-interest periods of your ARM home loan, and build your wealth.

Drawbacks of an Adjustable-Rate Mortgage

  • The market is ultimately unpredictable, and you may end up with an unexpectedly high monthly mortgage payment. This is one of the main reasons it’s wise to connect with a mortgage advisor. A qualified advisor in your area can explain the process and recommend the best options customized for you.

  • Initial loan caps might make the first readjustment period costly. Ask your mortgage advisor how to plan ahead.

  • Mortgage lenders have more options when it comes to ARM home loans. As a result, some lenders introduce a number of complicated factors like high fees and caps, and various restrictions. This could put you in a mortgage contract that might work against your financial goals.

Related: Check out the best custom loan options for 2022

How to Decide Between a Fixed-Rate Mortgage vs. Adjustable-Rate Mortgage

1. Think about how long you expect to live in the home.

An adjustable-rate mortgage is ideal for homeowners looking to stay put for 5 to 7 years, which is the typical adjustment period for ARM home loans. The “initial adjustment period” is the length of time that your mortgage rate will stay the same. After this period is over, your rate will change with the market, which could increase or decrease your mortgage payment. 

If you expect to live in your new home for a longer period of time, a fixed-rate mortgage can bring stability. You won’t need to worry about mortgage rates or your mortgage payment changing with a fixed-rate mortgage.

You’ll always have the option to refinance, no matter which home loan you have initially.

Just be aware that you’ll be subject to current mortgage rates, closing costs, and one-time fees to secure your new home loan when you refinance. In addition, many ARMs have restrictions that result in pre-payment penalties and unexpected balloon payments.

Be sure to connect with a trusted mortgage advisor who can guide you through your best options.

2. Understand the ARM adjustment period for your home loan.

Most ARM home loans offer adjustment periods of 3 to 10 years (5-7 is the most common). Shorter adjustment periods offer lower rates, securing a low mortgage payment. However, your mortgage rate will fluctuate with the market once the adjustment period ends. Talk to your mortgage advisor about the detailed terms of your home loan including caps, added fees, and potential balloon payments.

A fixed-rate mortgage sets your mortgage payment (and your interest) for the entire loan term. The rate and payment will remain unchanged for the life of your loan. The longer the term, the lower your mortgage payment will be. For example, a 30-year fixed-rate mortgage will have a lower mortgage payment since you have 30 years to pay off the loan. A 15-year fixed-rate loan will have a higher payment, but you’ll pay much less in interest over the life of the loan.

RELATED: Talk with a local mortgage expert to find out if you qualify for first-time homebuyer advantages

3. Evaluate current mortgage rates and market trends. 

With current trends, inflation, and recent action taken by the Fed, it might be a smart move to apply for an adjustable-rate loan. While mortgage rates are increasing, it’s possible to lock in a rate for a typical ARM adjustment period (5-7 years).

Market experts expect mortgage rates to continue to rise until the economy stabilizes, though it’s unknown when this could take effect and for how long.

When the market fluctuates, adjustable-rate mortgages change along with it once the adjustment period ends.

RELATED: How to FAST TRACK your application with a mortgage pre-approval

Summary

Applying for an adjustable-rate mortgage can help you get a lower mortgage rate and a lower mortgage payment. For first-time homebuyers, an adjustable-rate mortgage provides flexibility, especially if you think you might move or sell your home within 5 to 7 years.

A fixed-rate mortgage promises a mortgage rate that won’t change and steady mortgage payments for the life of the home loan. If you’re refinancing your mortgage, a fixed-rate mortgage can bring stability for years to come.

Connecting with a mortgage advisor is the best move you can make to get your best mortgage and meet your homeownership goals.

Next Steps

When you’re ready to buy a home, applying for an adjustable-rate mortgage could help you become a homeowner sooner than you think. In addition, an ARM could provide a lower mortgage payment or help you afford a bigger home. Whether you’re a new homeowner or refinancing your third home, take time to connect with a local mortgage advisor and start building financial stability through homeownership. We’d love to help.

Is an ARM Better Than a Fixed-Rate Mortgage for New Homebuyers?

January 4, 2022
mortgage blog, arm, adjustable-rate mortgage, preferred rate

If one of your goals for 2022 is buying a home, you’re in the right place. Mortgage rates continue to stay low, but the market is beginning to show signs that rates could be shifting upwards. As a result, one of the biggest questions we hear from homebuyers is whether or not to apply for a fixed-rate mortgage or an adjustable-rate mortgage. 

It’s not a quick answer, but this article can help you decide which home loan fits your financial goals. 

RELATED: See the Top 5 home loans most popular for first-time homebuyers

Fixed-Rate Mortgages

Fixed-rate mortgages are the most popular type of home loan.

Fixed-rate home loans are typically offered for a 30-year term or 15-year term. While fixed-rate home loans offer slightly higher mortgage rates than adjustable-rate mortgages, fixed-rate loans have stable terms for the life of the loan.

The upshot is your mortgage payment stays the same for the entire 30 years (or 15), and your rate stays the same.

A fixed-rate mortgage keeps monthly mortgage payments reliable, predictable, and easy on your budget. So no matter how the mortgage market changes, you can rest secure and know that your mortgage payment won’t change.

Adjustable-Rate Mortgages

Adjustable-rate mortgages often offer the lowest mortgage rates available.

ARM interest rates are set for an initial loan period (called an adjustment period), and then they shift according to the market. This is why the loan is called “adjustable.” Essentially, the mortgage rate adjusts along with market trends.

Adjustable-rate mortgages typically offer an initial adjustment period for 5 to 7 years, during which the mortgage rate does not change. When applying for a mortgage with an adjustable-rate mortgage, the first loan period (called an adjustment period) will be a lower interest rate and a lower mortgage payment compared to a fixed-rate mortgage.

This is ideal if you plan to stay in the home for less than the initial adjustment period for the loan. For example, if you expect to move for work within 3-5 years, or plan to sell the home for other reasons, an ARM could save you money.

Use this mortgage calculator to find out how much you can afford right now

An adjustable-rate mortgage is also ideal for buyers who want to purchase a home while mortgage rates are higher than usual. ARM loans can help homebuyers get into the housing market at a lower rate.

However, adjustable-rate mortgages often include complex changes after the initial adjustment period. For this reason, it’s important to discuss the full terms of your loan with a trusted mortgage advisor.  

Find a qualified mortgage expert in your local area

Benefits of an Adjustable-Rate Mortgage

  • ARM’s provide a lower mortgage payment and lower initial interest rates, benefiting homeowners who expect to own their home for only a few years.

  • You could become a homeowner sooner with an ARM. Lower interest rates translate to a lower initial mortgage payment and a lower DTI (debt-to-income) ratio.

  • ARM’s offer homeowners more buying power. Since ARM’s offer a lower interest rate, you could qualify for a higher purchase price and a bigger home.

  • When the market shifts downward, your mortgage rate automatically decreases. This means a lower mortgage payment or the option to refinance at a lower interest rate.

  • Invest your extra cash elsewhere during low-interest periods of your ARM home loan, and your mortgage payment drops.

Drawbacks of an Adjustable-Rate Mortgage

  • The market is ultimately unpredictable, and you may end up with an unexpectedly high monthly mortgage payment.

  • Initial loan caps might make the first readjustment period costly.

  • Mortgage lenders have more options when it comes to ARM home loans. A customized ARM loan could introduce a number of complicated factors like high fees and caps. This could put you in a mortgage contract that is difficult to understand. 

Related: Check out the best custom loan options for 2022

How to Decide Between a Fixed-Rate Mortgage vs. Adjustable-Rate Mortgage

1. Think about how long you expect to live in the home.

An adjustable-rate mortgage is ideal for homeowners looking to stay put for 5 to 7 years, which is the typical adjustment period for ARM home loans. The “initial adjustment period” is the length of time that your mortgage rate will stay the same. After this period is over, your rate will change with the market, which could increase your mortgage payment. 

If you expect to live in your new home for a longer period of time, a fixed-rate mortgage can bring stability. You won’t need to worry about mortgage rates or your mortgage payment changing with a fixed-rate mortgage.

You’ll always have the option to refinance, no matter which home loan you have initially. Just be aware that you’ll be subject to current mortgage rates, closing costs, and one-time fees to secure your new home loan when you refinance.

2. Understand the ARM adjustment period for your home loan.

Most ARM home loans offer adjustment periods of 3 to 10 years (5-7 is the most common). Shorter adjustment periods offer lower rates, securing a low mortgage payment. However, your mortgage rate will fluctuate with the market once the adjustment period ends. Talk to your mortgage advisor about the detailed terms of your home loan including caps, added fees, and potential balloon payments.

A fixed-rate mortgage sets your mortgage payment (and your interest) for the entire loan term. The rate and payment will remain unchanged for the life of your loan. The longer the term, the lower your mortgage payment will be. For example, a 30-year fixed-rate mortgage will have a lower mortgage payment since you have 30 years to pay off the loan. A 15-year fixed-rate loan will have a higher payment, but you’ll pay much less in interest over the life of the loan.

RELATED: Talk with a local mortgage expert to find out if you qualify for first-time homebuyers advantages

3. Evaluate current mortgage rates and market trends. 

The pandemic has created some historic lows for mortgage interest rates. With current trends, it might be a smart move to apply for a fixed-rate loan rather than an adjustable-rate loan. While mortgage rates might stay low, they most likely won’t go any lower.

Market experts expect mortgage rates to rise with inflation, though it’s unknown when this rise might begin to take effect.

When the market fluctuates, adjustable-rate mortgages change along with it. When interest rates increase, an ARM mortgage payment will increase too, once the adjustment period ends. 

RELATED: Learn the Truth About No-Closing Cost Loans

4. Take a close look at your monthly budget and financial goals.

For many homeowners, a home is one of their largest assets. As you build your wealth, consider your mortgage payment along with your other financial goals: savings, investments, career changes, overall debt, and future purchases.

If you don’t have much room for unpredictable shifts in your monthly budget, an adjustable-rate mortgage could be risky once the adjustment period ends. Not to mention, the changes to your mortgage could be costly if the market has changed dramatically or you need to refinance unexpectedly.

On the other hand, if you have a steady income, solid employment and a positive cash flow, a change in your mortgage payment might not have a noticeable impact. 

RELATED: How to FAST TRACK your application with a mortgage pre-approval

Summary

Applying for an adjustable-rate mortgage can help you get a lower mortgage rate, whether refinancing your mortgage or buying a home for the first time. For first-time homebuyers, an adjustable-rate mortgage provides flexibility, especially if you think you might sell and move to another home within 5 to 7 years.

A fixed-rate mortgage promises a mortgage rate that won’t change and steady mortgage payments for the life of the home loan. If you’re refinancing your mortgage, a fixed-rate mortgage can bring stability for years to come.

Connecting with a mortgage advisor is the best move you can make to get your best mortgage and meet your homeownership goals.

Next Steps

When you’re ready to buy a home, applying for an adjustable-rate mortgage can help you get a lower mortgage rate help you become a homeowner sooner. If you’re thinking about refinancing your mortgage, refinancing to adjustable-rate can lower your mortgage payment while keeping your options open. Connect with a local mortgage advisor to discuss your loan options and start saving money on your mortgage. We’d love to help.

Buying a Home? Ask Yourself These 5 Questions First

April 5, 2022
mortgage blog, buying a home, preferred rate

Mortgage interest rates are starting to rise, though it’s difficult to know how high they’ll go before they take a dip or level out. So if you’re thinking about buying a new home, now is a good time to take action. Spring is the season which means more houses are coming onto the market and will continue into early summer. At the same time, it can be a competitive season for new homebuyers. Often, sellers are able to secure multiple offers and homebuyers are forced to negotiate.

Before you walk into your next open house, get prepared with a bit of homework by asking yourself these top 5 questions.

Related: How to win the bidding war for new homebuyers in 2022

5 Questions to Ask Yourself Before You Buy a Home

1. How long do I want to live here?

Planning for the future can be difficult and things can change quickly. Still, having a general plan can help. For example, knowing how long you plan to live in a new home can help you decide between a fixed-rate vs. an adjustable-rate mortgage. Also, it can help you decide how much money you want to use for a down payment.

Quick tip: If you’re planning to stay in the area for less than 3-4 years, it might be better to wait before buying a new home. Why? Closing costs and real estate commissions will cost you upfront, and three years might not make the cost worth it.


2. How much do I want to use for a down payment?

For the lowest mortgage rate and the most competitive home loan, plan on putting down 20%. You’ll avoid PMI (private mortgage insurance) and secure better terms on your overall mortgage.

That said, there are several home loan options, especially for first-time homebuyers. For example, FHA loans require 3.5% down, and a conventional 97 only requires a 3% down payment. VA loans and USDA loans offer mortgages with zero down. However, many government-backed home loans require mortgage insurance premiums for the life of the loan, which increases your monthly payment.

If you know how much you’re prepared to use for a down payment, you’ll be better prepared when it’s time to make an offer. 

Connecting with a local mortgage advisor can help, too. You’ll be able to talk through your options in advance and know what to expect.

Related: How to get pre-approved and fast track your loan process

3. What’s my credit score?

Your credit score is one of the biggest factors that affect your mortgage rate. So, if you’re deciding whether to save more money for a down payment or pay down your credit cards–it can help your credit report to pay down your credit cards.

Mortgage lenders typically offer the lowest mortgage rate to borrowers with a credit score above 740. However, there are a number of great home loans available for homebuyers with credit scores of 680-740, and other loans that only require a credit score of 580.

Download a free copy of your credit report here to find out your credit score.

Look for any errors or misinformation, as most can be fixed within 30 days. Next, pay down your credit cards to improve your debt-to-income ratio. Even better, check out this blog we posted recently on how to boost your credit score in 60 days.

4. Am I prepared for home maintenance and property taxes?

Buying a new home is often exciting. Until the furnace quits or the water heater breaks. Home maintenance, necessary improvements and unexpected repairs are more common than we like to think.

Furthermore, homeowner’s insurance and property taxes will be required on top of your home loan. Many mortgages have the option to include your property taxes and HO insurance into your monthly payment. This option might help you set a clear budget while making sure you don’t fall short on property taxes or insurance.

5. Am I willing to wait to buy a house?

Buying a home can be stressful and overwhelming. It’s a good idea to take some time and shop around. Go to several open houses and be honest with your realtor about what you’re looking for in a home. Spend time researching recent homes sold in your area and current home prices. The more homework you do, the better prepared you’ll be when you find the right home. You’ll be able to make an offer with confidence.

Finally, ask yourself if you’re ready to wait. House hunting can be discouraging at times, especially if there aren’t a lot of homes on the market or the “perfect home” just sold to someone else. Almost every homeowner has gone through a similar adventure at some point, and it’s worth taking your time.

Buying a new home could be one of the biggest financial decisions you’ll ever make.

Taking Action

If you’re thinking of buying a new home, getting pre-approved for your mortgage is a great first step. A mortgage pre-approval guarantees your loan will fund up to a certain amount. With a mortgage pre-approval you can shop with confidence. Connect with a local mortgage advisor to get started. We can guide you through the process and help you decide which path meets your financial goals. We’d love to help.

Home Appraisals: What to Expect and Who Pays the Cost

June 18, 2021
blog small red house

Waiting to find out the results of a home appraisal can be stressful for homeowners and buyers alike. As a homeowner, you might need your home to appraise at a specific value before you decide to sell or refinance. As a first-time homebuyer, the appraisal could impact whether or not you qualify for a mortgage. The truth is, home appraisals can have a significant impact on your mortgage, the final terms of your refinance, or even negotiations between a buyer and seller.

In short, a home appraisal determines the fair market value for a home. A licensed home appraiser evaluates the home as a neutral third party by researching similar neighborhood homes. After assessing the home, the appraiser submits a detailed report.

Sounds easy enough, depending on the outcome. But if a home appraisal reports a much higher or lower value than anticipated, it can cause added stress for everyone. For example, the buyer and seller could restart negotiations, a buyer could walk away, or the loan could fall through.

The good news is that the home appraisal process can be less stressful when you know what to expect.

Know What to Expect Before You Get an Appraisal

Let’s look at the appraisal process, how much it might cost, and how home appraisals work.

You might be surprised to find out that some refinance loans don’t require an appraisal at all. If you’d like to refinance without an appraisal, check out the FHA streamline and the VA IRRRL to see if you qualify.

Related: Talk with a mortgage expert to find out if you qualify for a no-cost refinance

How it Works: What is a Home Appraisal?

In basic terms, a home appraisal determines the fair market value for a home. This is helpful for the buyer, seller, and lender. For buyers, a home appraisal ensures they’re paying a fair price. For sellers, it verifies that their home is priced competitively. And for lenders, an appraisal offers proof that a home is adequately valued to approve a home loan.

Certified home appraisers serve as neutral parties, so they don’t represent the buyer, seller, realtor, or lender. Simply put, an appraiser will evaluate comparable homes in the area along with recent home sales and write up a detailed report to confirm their findings.

Since the purpose of an appraisal is to set the fair market value of a home, both the buyer and seller have a unique interest in the outcome. Sometimes when an appraisal comes in much higher or lower than anticipated, the buyer or seller might request a new appraisal by appeal. But this is not common in practice.

Once the appraisal report is received, all interested parties take the appraisal as the current fair market value of the home.

Related: Access our FREE Homebuyer’s Guide

Common Questions About Home Appraisals

Q1: Are appraisals required for every home purchase?

No. A home appraisal is necessary in most cases, but not always. 

For example, if you’re buying a home with an all-cash offer in a competitive housing market, you can skip the appraisal as long as the seller is willing to do the same.

However, if you need a mortgage to buy a home, the lender will require an appraisal. The home appraisal will verify that the home’s value is comparable to similar homes in the area. In addition, since your home is the collateral for a mortgage, lenders look to the home appraisal to confirm its fair market value.

If you’re refinancing, you might be eligible for a no-appraisal refinance, saving time and money. Talk to a mortgage advisor to find it if you qualify.

Related: Top 5 Most Popular Home Loans for First-Time Homebuyers

Q2: Is an appraisal contingency a good idea?

Sometimes. If you’re the buyer, it can be a good idea to include an appraisal contingency in the offer. An appraisal contingency lets you walk away from the home purchase if the appraisal comes in too low.

However, if there are multiple offers and low housing inventory, a seller may choose a buyer who has fewer contingencies. In this case, an appraisal contingency might protect you as the buyer, but you could lose the house in negotiations.

Q3: Is there a difference between home inspections and home appraisals?

Yes. A home inspection provides an in-depth evaluation of the current condition of a home. 

A home inspector will do a detailed walk-thru and look for problems that might need repair or uncover areas that might need attention. For example, they’ll check the roof and the home’s foundation; they may test the furnace and outlets, along with the plumbing system, and see if the water heater is installed correctly. Often, the results of a home inspection lead to further negotiations between the buyer and seller. Especially if there are costly repairs needed.

An appraiser provides a final report to determine the fair market value by comparing similar homes, but they don’t check the home’s condition in detail. For example, an appraiser will note visible structural problems (for example, a falling roof or lack of plumbing), but not minor details. Instead, appraisers research comparable homes nearby that have sold recently using standard criteria. For example, they’ll compare homes with a similar number of bedrooms, bathrooms, square footage, acreage, and other major elements such as a backyard pool or ADU.

Q4: How much does it cost to get a home appraisal?

In general, a home appraisal for a single-family home will cost $300-$500. Most lenders require an appraisal before the loan closes, and typically the buyer pays. However, if the housing market leans in favor of the buyer, sometimes the seller will pay this fee.

Worth noting, the appraisal cost can vary widely depending on a few factors: the size of the property, location, and total acreage. For example, properties located in rural areas with additional acreage can cost more since the appraiser will need to survey the property’s boundary lines.

Related: Find Out the Truth About Closing Costs and No-Closing-Cost Loans

Final Takeaway

The home appraisal process can be a lot less stressful when you know what to expect.

In short, a home appraisal determines the fair market value of your home. For this reason, a home appraisal can have a significant impact on your mortgage, the final terms of your refinance, and negotiations between a buyer and seller. Of course, you can always appeal the appraisal, though this isn’t common practice.

The good news is that even when a home appraisal comes in different than expected, both the buyer and seller have options. As the buyer, you could walk away, bring more money to the table, or renegotiate with the seller. As the seller, talk with your realtor, see what they recommend, and decide if you’re willing to renegotiate the sales price.

Next Steps

Research comparable homes in your area and talk with your realtor about what to expect. If you’re thinking about buying a home or refinancing, we’d love to partner with you in the process. Connecting with a mortgage expert can reduce stress and save you money in the long run. We’re here to help.

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

May 26, 2021
blog student loan debt

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

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.