Tag Archive for: home loans

Reverse Mortgages: All You Need to Know

September 24, 2021
reverse mortgages pros and cons

Lately, we’ve been getting a lot of questions from homeowners about reverse mortgages. It’s understandable. Economic uncertainty seems to be standard fare for homeowners across the country right now, and information about reverse mortgages can appear conflicting and confusing.

If you’ve got a substantial amount of equity in your home and you’re over the age of 62, can a reverse mortgage provide financial stability? When is a reverse mortgage a good idea? Are there hidden dangers of a reverse mortgage?

We hear you.

After all, one of the biggest benefits of homeownership is accessing your home equity when you need it most. Keep reading to learn the pros and cons of a reverse mortgage and decide if it’s a good fit.

Related: How to fast-track your loan application and refinance your mortgage while rates are still low

TOP 7 QUESTIONS ABOUT REVERSE MORTGAGES (answered)

1. What is a reverse mortgage and how does it work?

At its core, a reverse mortgage is one way to refinance your mortgage. A reverse mortgage allows homeowners to turn their home equity into cash while deferring mortgage payments. As with every mortgage, your home is the collateral for the new loan.

A reverse mortgage is similar to refinancing with cash-out. But with a reverse mortgage, you can defer your mortgage payments. In fact, with a reverse mortgage, you don’t need to pay back the loan until the homeowner moves out, sells the property, or passes away.

For example, let’s say you own a home and you’ve been making monthly mortgage payments on a 30-year mortgage for several years, and now your mortgage balance is $100k. Your home has also increased in value and is now worth $650k.

A reverse mortgage allows you to borrow against the equity in your home ($550k) and receive the funds in a lump sum or monthly payments over a set term. There are limits to how much a homeowner can borrow.

There are no restrictions on how you use the funds.

Once you’ve qualified for a reverse mortgage, you can defer your mortgage payments until you move or sell the house. Interest will accrue on your new mortgage, but rarely will your mortgage balance surpass the value of your home.

2. When is a reverse mortgage a good idea?

If you’re a homeowner over the age of 62 with substantial equity in your home, a reverse mortgage might be worth considering. You can access your home equity and use the cash any way you like, without restrictions. Funds are disbursed as a lump sum, regular monthly payments or even a line of credit.

Highlights:

  •  Access to home equity as spendable cash
  •  Option to defer mortgage payments
  •  Option to receive in a lump sum or monthly payments
  •  Use funds to supplement retirement income
  •  No taxes due on the income since they are loan proceeds
  •  Protected if the mortgage surpasses your home’s value

3. Do I need to make monthly mortgage payments on a reverse mortgage?

No. One of the main benefits of a reverse mortgage is that you have options for paying your mortgage. The main benefit is that you can access your equity now and have it disbursed to you monthly, as a lump sum, or even a line of credit.

You get to decide how you want to pay back your mortgage:

  •  Make monthly payments against your new mortgage balance
  •  Defer payments for a limited amount of time
  •  Defer payments until you decide to move or sell the home

With a reverse mortgage, if you decide to defer mortgage payments, the interest on the loan will continue to accrue. As interest accrues, the balance will increase, but the equity in your home will also increase. Rarely will a reverse mortgage balance surpass the value of the home.

Connect with a mortgage advisor to determine which option works best with your financial goals.

4. Who is eligible for a reverse mortgage?

Homeowners must be at least 62 years old and have substantial home equity. When you apply for a reverse mortgage, it’s similar to applying for a mortgage refinance. The application process will require a home appraisal, financial documentation, a credit report, and general mortgage application information.

Connecting with a local mortgage advisor to discuss your goals can be extremely helpful since there are a few restrictions and requirements.

Once you qualify for a reverse mortgage, you can decide how much you want to borrow, up to the approved loan amount.

RELATED: Lower your mortgage payment with the FHA Streamline Refinance

5. How do I access funds with a reverse mortgage?

With a reverse mortgage, you can receive a lump sum, monthly payments, or use a line of credit. Once you qualify, you can decide how much you want to borrow and how you want to receive the funds, up to the loan amount approved by your mortgage lender.

Often, homeowners choose a reverse mortgage to help with monthly expenses, health care needs or as a supplement to retirement income.

RELATED: Home Equity Loan vs. Home Equity Line of Credit

6. Who pays off a reverse mortgage if the property owner moves or passes away?

Reverse mortgages can be paid off at any time. In most cases, a reverse mortgage is paid off when the owner moves or passes away.

With an estate, heirs can pay off the mortgage directly, refinance if the property has sufficient value, or sell the property to pay off the mortgage.

In the few instances where the home’s value falls below the loan balance, heirs can settle the loan by returning the title to the lender. This is called a non-recourse loan, and the heirs will not be liable for the balance.

Most reverse mortgages are insured by the FHA, which guarantees final payment to the mortgage lender.

RELATED: 7 Ways to Increase the Value of Your Home

7. What happens when you sell a home with a reverse mortgage?

When you sell a home with a reverse mortgage, the mortgage balance is paid in full when the sale closes. If there is equity left after you pay off the mortgage balance, that money is disbursed to you (the property owners) or the heirs if part of an estate.

If your home’s current market value is lower than the current mortgage balance and you no longer want to live in the home, the mortgage is settled as a non-recourse loan. 

A non-recourse loan means that the loan can be settled by giving the title back to the lender. Neither the owner nor the heirs will be liable for the balance. Almost all reverse mortgages are insured by the FHA, which guarantees full payment to the mortgage lender.

  • Worth noting— foreclosures can still happen if property taxes or homeowner’s insurance are not paid on time.

Taking Action

Connect with a mortgage advisor to determine whether or not a reverse mortgage is a good fit. Remember, you can access your home equity in many different ways — with a reverse mortgage, cash-out refinancing, a line of credit, or a home equity loan. We can help you decide which path will save you money and provide financial stability. Connect with a local mortgage advisor to get started. We’d love to help.

How to Buy a Duplex with FHA Financing

November 9, 2021
mortgage blog, buy a duplex, preferred rate

Deciding to buy a duplex or multi-family property can put you on a path toward financial freedom. Whether you’re a first-time homebuyer or you already own property, buying a multi-family property can generate passive income, extra cash flow, and build home equity. You can buy a duplex with FHA financing or conventional financing. Each option comes with a different set of requirements and benefits.

In short, a duplex is a residential property with two units. A multi-family property is a residential property with up to four units. To get approved with FHA financing, you’ll need to be the owner-occupant in one of the units. This holds true for duplexes, triplexes, and multi-family properties up to four units.

Note: If you’re looking to buy a multi-family property with five units or more, it’s considered commercial property. Getting financing for commercial property is a different process with a number of requirements.

Connect with a mortgage advisor if you’re ready to take action and discuss the advantages.

Top 3 Mortgage Options to Buy a Duplex or Multi-Family Property

FHA Loans

FHA loans are government-backed home loans. To get approved when you buy a duplex, you’ll need to live in one of the units. By living in one of the units, the property is considered your primary residence, and you can also use rental income to help you qualify. FHA financing is often the best choice for first-time homebuyers and buyers who want a small down payment. FHA loans have fewer requirements, lower closing costs and down payments as small as 3.5%.

Conventional Home Loans

Conventional loans are the best option if you have excellent credit and plan to make a large down payment. Getting approved for a conventional mortgage offers more flexibility since they’re offered through private lenders (mortgage lenders, credit unions, and banks). You can buy a duplex or multi-unit property with a conventional mortgage. In general, a conventional mortgage may be the best option if you have strong credit and plan to make a large down payment.

VA Loans

If you qualify, VA loans offer several advantages — no minimum credit score, no down payment requirement, and no private mortgage insurance (PMI). To be eligible for a VA loan with 100% financing when you buy a duplex, you must be one of the following:

  • An active-duty service member
  • Military veteran
  • Surviving spouse of qualifying service members
  • Eligible members of the National Guard and Reserves

Do I need to occupy the property if I buy a duplex or multi-family property?

When you apply for a mortgage, you’ll need to declare the property type: principal residence, a second home, or investment property. So when you buy a duplex as an investment property, declaring it as your principal residence will give you the best mortgage options and the lowest mortgage rates.

You can declare yourself the owner-occupant by living in one of the units then get the benefits of a principal residence mortgage.

If you decide on a conventional mortgage, you don’t need to live at the property. However, it’s a requirement to live in one of the units if you want FHA financing. What’s more, there are a number of discounts, low down-payment options, and other advantages when you declare your property as a primary residence, which we blogged about here.

RELATED: How to declare your property as a primary residence (and why it matters)

Can I use the FHA 203K loan to buy a duplex that needs work?

With the FHA 203k loan, you can buy a duplex that needs a lot of work and make the repairs manageable with one mortgage. The 203k combines the price of the property with all renovation costs and finances the total with one mortgage. With an FHA 203k, the mortgage includes the purchase price plus all the renovations, so you’re able to spread the renovation cost over the life of the loan. One mortgage, one monthly payment. There are great benefits and a few restrictions, which we blogged about here. 

RELATED: When is it smart to use a home equity loan or home equity line of credit for home renovations?

What credit score do I need to buy a duplex?

Buying a duplex or fourplex as an investment property can be a lot less stressful when you know what to expect. Mortgage lenders look at your credit report and your debt-to-income ratio to evaluate risk, which affects the terms of your loan offer. 

Conventional mortgages typically require a credit score above 700, though mortgage lenders have flexibility. FHA financing requires a credit score above 580. Find out your credit score by downloading your free credit report. You can fix any errors, dispute negative marks, and take action to boost your credit score in less than 60 days, which we blogged about here.

A good credit score will help you secure the lowest mortgage rate. What’s more, there are specialty loan programs available for homebuyers who want to buy a duplex or multi-unit property.

Talk to a mortgage advisor (for free) to discuss options that can save you money.

Take Action

If you’re ready to buy a duplex or multi-family property, we can guide you through the process and help secure the best financing. There are several loan options and different advantages available depending on your homeownership goals. Connect with a local mortgage advisor to get started. We’d love to help.

FHA 203(k) Home Loan is Perfect for Fixer-Uppers

June 29, 2022
mortgage blog, fha 203(k) home loan, preferred rate

As mortgage rates increase and inflation continues to rise, buying a fixer-upper can be a strong option for new homebuyers. Buying a fixer-upper with the FHA 203(k) home loan can be a fast way to get into a great location below market value. What’s more, you can build home equity fast in today’s housing market. That said, buying a home that needs a lot of repairs and remodeling isn’t for everyone. A fixer-upper can quickly become a money pit with endless surprises and a non-stop list of expensive repairs for homebuyers who rush in too quickly. Not to mention extra stress and tackling what it looks like to bring an old home up to code with current city standards.

So here’s the good news: if you’re ready to dive into a home renovation project or buy a fixer-upper, then the FHA 203(k) home loan can help you save money, plan ahead, and build equity fast. Without losing money along the way.

RELATED: Top 7 Ways to Increase the Value of Your Home in 2022

FHA 203(k) Home Loan Explained

The FHA 203(k) home loan is a government-backed loan by the FHA (Federal Housing Administration) created specifically for new homeowners who are ready and eager to take on a fixer-upper or remodel a home that needs substantial work. It has a few different names, but they are all the same home loan and work the same: FHA 203(k) Home Loan, Mortgage Rehab Loan, Section 203(k) Home Loan.

In short, the FHA 203(k) mortgage finances the home’s purchase price and the cost of repairs into a single home loan. One mortgage payment covers everything.

For many who buy a fixer-upper, there turns out to be a lot of extra work once the project gets underway. The FHA 203(k) eliminates that stress. However, there is a fair amount of preparation and planning that goes into an FHA 203(k) home loan. This article lays out the process so you know what to expect.

Related: How to Finance a Renovation with the Fannie Mae Homestyle Loan

 

When the FHA 203(k) Home Loan is a Smart Move

An FHA 203(k) home loan takes the initial purchase price of your new home and combines it with the total estimated costs of repairs and renovation. The result is one home loan that covers your new home and all pending repairs and puts everything into one mortgage payment.

This means you can buy a fixer-upper and you’ll have one mortgage—instead of multiple loans or lines of credit to finance the renovation. With all the costs rolled into one home loan, homeowners are less likely to get stuck in a money pit or a surprise property with endless unexpected repairs. 

 

RELATED: Refinance your mortgage and pay off your debt in 2022

How it Works

The FHA 203k loan combines the purchase price of your home with the total cost of repairs into one mortgage, including labor and materials.

With the FHA 203(k) home loan, the entire cost of the remodel must be estimated and accepted before the home loan is approved. To qualify for the FHA 203(k) home loan, all estimated repairs, including labor and materials, have to be approved upfront which can protect the homeowner from unexpected costs down the road.

Once your loan is approved, you can rest easy and know that you’ve got the financing needed to finish the work on your new home.

The FHA 203(k) loan has a built-in safety net that can help buyers build equity fast without over-extending their finances, especially if this is your first fixer-upper.

How to Apply: FHA 203(k) Home Loan Mortgage Options

The Section 203(k) home loan is typically offered as a 15-year fixed or 30-year fixed-rate loan, but you can also apply for an adjustable-rate mortgage (ARM). The rates might run a little higher than conventional home loans, but once the repair work is finished, refinance options may be available. 

If you’re looking to stay in the home long-term, a fixed-rate mortgage will give you greater financial security and a mortgage payment that won’t change no matter how the market is moving.

On the other hand, if you’re planning to own the home for less than 5 years, then an ARM might give you a lower rate and the flexibility you want.

 

RELATED: How to find the best mortgage lender in your area

 

Can I refinance a home renovation with the FHA 203(k) loan?

The FHA 203(k) mortgage has refinance options available for current homeowners who want to do a big remodel. It’s an especially good option if you don’t want to open a line of credit or take out a second loan against your home equity.

Are there any restrictions with an FHA fixer-upper loan?

A few rules and regulations to get approved for a 203(k) mortgage:

  • The property must be your primary residence
  • Renovations can cost no more than $5k
  • You must work with a HUD consultant
  • A licensed contractor must complete all repairs
  • All renovations must be finished within six months
  • FHA 203k loan requires mortgage insurance
  • An FHA appraiser approves final estimates

The 203k loan isn’t available for investment properties (or secondary properties) or homes priced above current conforming limits ($822,275 in high-cost areas, $510,400 in lower-cost areas). 

What kinds of repairs are covered with the FHA 203k?

Homebuyers can use a standard FHA 203(k) mortgage to do almost any type of renovation except for luxury amenities (e.g., a swimming pool or backyard kitchen). Also, all updates and repairs must be considered “permanent” for the home. A few popular renovations that are covered:

  • Upgrades to remove health and safety hazards
  • Improve accessibility for a disabled person
  • Update plumbing and sewer systems
  • Structural changes such as adding bedrooms
  • Remodel bathrooms and kitchens
  • Install or replace flooring, windows, roofing
  • Major landscaping projects

It’s a good idea to meet with contractors early to make sure your project can begin as soon as the loan closes. Make sure to find a contractor with experience working on projects financed with an FHA 203k loan. 

How much do you have to put down on a 203k loan?

  • Down payment is typically 3.5% of the purchase price plus the cost of repairs
  • The maximum loan amount is 110% of the formal appraisal
  • Mortgage insurance is required
  • A minimum credit score of 580 (most lenders may require 620+)

For homebuyers with a credit score between 500-580, the typical down payment required is 10%. Gifted funds are allowed from friends and family, and down payment assistance programs might also be available. Connect with a local mortgage advisor to decide which mortgage program will save you the most money.

Compare: Should I use a Home Equity Loan or HELOC for a home remodel?

 

Summary

Buying a fixer-upper can be a smart financial decision for homeowners looking to enter today’s housing market. Especially in locations with higher prices. In general, the FHA 203k loan is a good fit for any primary residence that needs a substantial amount of work. Loan requirements, such as how much you can borrow and how you can spend the money, are set by the FHA during the loan approval process.

The main benefit is that all the construction work and repairs are estimated at the onset and rolled into one mortgage. So you’ll be protected from over-extending yourself or falling into a money pit after you buy the property.

A few quick reminders: Properties that need less than $5k in repairs won’t qualify for a 203k loan. Also, it’s not a good fit for luxury renovations since the FHA limits how much a homeowner can borrow.

Take Action

If you’re considering buying a fixer-upper, we can help you decide which mortgage is best for your renovation. There is a lot of paperwork and requirements to get approved for an FHA 203k loan, but it’s worth it.  Plan your renovation, save money, and no surprises. We can help you be fully prepared before you make an offer. Connect with a local mortgage advisor to get started. We’d love to help.

Top Home Renovation Loans for 2022

June 8, 2022
blog renovation interior

Financing a home renovation in 2022 can help you update your home, build equity, and finally get that backyard kitchen you’ve been dreaming about.

If you’re like a lot of homeowners, 2022 is looking a lot like 2021 at the moment. This means remote work is still the norm, kids are home for summer, and your home is the main hub for everything you do in life.

Financing your home renovation doesn’t need to break the bank either. You can do a cash-out refinance, apply for a new renovation loan, access your equity through a home equity line of credit and more.

Whether you want to build out your current home or buy a fixer-upper, these mortgage options will help you finance the whole renovation top to bottom.

 

RELATED: Top 7 Ways to Increase the Value of Your Home in 2022

How to Use Your Home Equity for a Home Renovation

Home equity is the financial difference between your mortgage balance and the appraised value of your home. For example, if your current mortgage balance is $475k and the current market value of your home is $720k, then you’ve got $245k in home equity.

The most popular ways to access your home equity for a home renovation are:

  • Cash-out Refinance
  • Home Equity Loan
  • Home Equity Line of Credit

When you want to access the equity in your home, most lenders will only approve up to 80% of your home’s value. This allows for market fluctuations in property value and lowers risk in the eyes of the lender. In the example above, the 80% Loan-to-Value ratio means you could borrow up to $576k, giving you potential access to $100k.

 

Cash-Out Refinancing for a Home Renovation

 

Refinancing your mortgage with a cash-out refinance gives you the most flexibility. You can choose whether to refinance with a fixed-rate, adjustable-rate, 15-year, 30-year, or custom options. 

Once your new mortgage closes, you’ll receive your cash (equity) in a lump sum, and you can spend it however you want. There are no limitations, no requirements, and no accountability. You can also take your time using the funds or even use the funds on things outside your home renovation.

 

RELATED: Refinance your mortgage and pay off your debt in 2022

Home Equity Loan

Home equity loans are almost always fixed-rate loans with set terms, fixed monthly payments, and a fixed payment schedule. You get the full amount in one lump sum once you’re approved. Then you pay off the loan in fixed payments over the life of the loan.

Highlights:

  • A low-interest rate that is locked in for the life of the loan
  • Fixed monthly payments which make it easy to budget and plan
  • Lump-sum disbursement so you can start a big project right away
  • No limitation on the use of funds
  • The interest on your home equity loan may be tax-deductible

Worth noting: higher credit scores mean lower rates. Check for prepayment penalties in case you decide to pay it off sooner than scheduled or if you might want to refinance later.

Home Equity Line of Credit (HELOC)

A home equity line of credit operates like a revolving credit account. Instead of having a set payment schedule and a fixed rate, HELOCs give you access to a line of credit with a maximum limit.

You can use the funds at any time, and you won’t accrue any interest until you draw from the account. HELOC’s have a set draw period (typically 10 years) and a variable APR based on the prime rate and market trends.

Highlights:

  • Access as much or as little money as you want to meet the needs of your projects
  • Interest doesn’t accrue until you access the funds
  • Repayment terms are flexible (pay it off or make minimum monthly payments)
  • Use the funds for whatever you want
  • The interest on your HELOC may be tax-deductible

 

RELATED: How to find the best mortgage lender in your area

 

Fannie Mae HomeStyle Renovation Home Loan

The Fannie Mae HomeStyle Renovation Home Loan is a great opportunity for current homeowners who want to do some big updates, as well as homebuyers looking for a fixer-upper. 

The HomeStyle renovation loan has a lot more flexibility than the FHA 203(k). For example, you could put in permanent landscaping features such as a pool or an outdoor kitchen, build an accessory dwelling unit (ADU), or upgrade your windows. Consider full kitchen and bathroom upgrades for the interior or build an extensive remodel.

The HomeStyle renovation loan estimates the cost of repairs and renovation ahead of time, so you have one mortgage that includes the entire amount (renovation costs + purchase price). Once your approved mortgage closes, you’ll be able to start improvements right away and enjoy the financial security that comes with one mortgage payment.

The Fannie Mae Home Renovation loan is extremely flexible with a full suite of advantages which we blogged about here.

The FHA 203(k) Home Loan

With the FHA 203k loan, you can buy a home that needs a fair amount of work and make the repairs affordable with one mortgage and a single monthly payment. The 203k combines the price of the home with all renovation costs and finances everything with one mortgage at a fixed rate.

Since the home loan covers the purchase price plus all the renovations, you’re able to spread the cost of repairs over the life of the loan with one affordable mortgage payment. 

There are a few restrictions with the FHA 203(k) loan along with great benefits, which we blogged about here. 

VA Renovation Home Loan

The VA home renovation loan is a unique program offered to active members of the military, veterans, and their spouses. The VA renovation loan is government-backed (guaranteed by the government). For this reason, mortgage lenders can offer low mortgage rates and great terms. 

Like other home renovation loans, the VA renovation home loan puts the costs of repairs, upgrades, labor costs, and materials into one loan. This means one mortgage payment and financial stability while the repairs are completed. 

One caveat: borrowers need to use a VA-approved contractor for the work in order for the loan to get approved.

 

Take Action

If you’re ready to start your home renovation in 2022, connect with a mortgage advisor to discuss your goals. There are several custom loan options in addition to home equity loans and cash-out refinancing. Whether you are a homeowner with equity or looking to buy a fixer-upper, starting a home renovation in 2022 is a smart move. Connect with a local mortgage advisor to discuss your loan options and get busy. We’d love to help.

Save Money on Your Home Renovation in 2022

January 18, 2022
mortgage blog, home renovation, 2022, preferred rate

Financing a home renovation in 2022 can give you the extra cash you need to update your home, build equity, and finally get that backyard kitchen you’ve been dreaming about.

If you’re like a lot of homeowners, 2022 is looking a lot like 2021 at the moment. This means remote work, kids home from school and using your home as the main hub for everything you do in life.

Financing your home renovation doesn’t have to break the bank either. You can do a cash-out refinance, apply for a new renovation loan, access your equity through a home equity line of credit and more.

Whether you want to build out your current home or buy a fixer-upper, these mortgage options will help you finance the whole renovation top to bottom.

RELATED: Top 7 Ways to Increase the Value of Your Home in 2022

How to Use Your Home Equity for a Home Renovation

Home equity is the financial difference between your mortgage balance and the appraised value of your home. For example, if your current mortgage balance is $475k and the current market value of your home is $720k, then you’ve got $245k in home equity.

The most popular ways to access your home equity for a home renovation are:

  • Cash-out Refinance
  • Home Equity Loan
  • Home Equity Line of Credit

When you want to access the equity in your home, most lenders will only approve up to 80% of your home’s value. This allows for market fluctuations in property value and lowers risk in the eyes of the lender. In the example above, the 80% Loan-to-Value ratio means you could borrow up to $576k, giving you potential access to $100k.

Cash-Out Refinancing for a Home Renovation

Refinancing your mortgage with a cash-out refinance gives you the most flexibility. You can choose whether to refinance with a fixed-rate, adjustable-rate, 15-year, 30-year, or custom options. 

Once your new mortgage closes, you’ll receive your cash (equity) in a lump sum, and you can spend it however you want. There are no limitations, no requirements, and no accountability. You can also take your time using the funds or even use the funds on things outside your home renovation.

RELATED: Refinance your mortgage and pay off your debt in 2022

Home Equity Loan

Home equity loans are almost always fixed-rate loans with set terms, fixed monthly payments, and a fixed payment schedule. You get the full amount in one lump sum once you’re approved. Then you pay off the loan in fixed payments over the life of the loan.

Highlights:

  • A low-interest rate that is locked in for the life of the loan
  • Fixed monthly payments which make it easy to budget and plan
  • Lump-sum disbursement so you can start a big project right away
  • No limitation on the use of funds
  • The interest on your home equity loan may be tax-deductible

Worth noting: higher credit scores mean lower rates. Check for prepayment penalties in case you decide to pay it off sooner than scheduled or if you might want to refinance later.

Home Equity Line of Credit (HELOC)

Home equity line of credit operates like a revolving credit account. Instead of having a set payment schedule and a fixed rate, HELOCs give you access to a line of credit with a maximum limit.

You can use the funds at any time, and you won’t accrue any interest until you draw from the account. HELOC’s have a set draw period (typically 10 years) and a variable APR based on the prime rate and market trends.

Highlights:

  • Access as much or as little money as you want to meet the needs of your projects
  • Interest doesn’t accrue until you access the funds
  • Repayment terms are flexible (pay it off or make minimum monthly payments)
  • Use the funds for whatever you want
  • The interest on your HELOC may be tax-deductible

RELATED: How to find the best mortgage lender in your area

Fannie Mae HomeStyle Renovation Home Loan

The Fannie Mae HomeStyle Renovation Home Loan is a great opportunity for current homeowners who want to do some big updates, as well as homebuyers looking for a fixer-upper. 

The HomeStyle renovation loan has a lot more flexibility than the FHA 203(k). For example, you could put in permanent landscaping features such as a pool or an outdoor kitchen, build an accessory dwelling unit (ADU), or upgrade your windows. Consider full kitchen and bathroom upgrades for the interior or build an extensive remodel.

The HomeStyle renovation loan estimates the cost of repairs and renovation ahead of time, so you have one mortgage that includes the entire amount (renovation costs + purchase price). Once your approved mortgage closes, you’ll be able to start improvements right away and enjoy the financial security that comes with one mortgage payment.

The Fannie Mae Home Renovation loan is extremely flexible with a full suite of advantages which we blogged about here.

The FHA 203(k) Home Loan

With the FHA 203k loan, you can buy a home that needs a fair amount of work and make the repairs affordable with one mortgage and a single monthly payment . The 203k combines the price of the home with all renovation costs and finances everything with one mortgage at a fixed rate.

Since the home loan covers the purchase price plus all the renovations, you’re able to spread the cost of repairs over the life of the loan with one affordable mortgage payment. 

There are a few restrictions with the FHA 203(k) loan along with great benefits, which we blogged about here. 

VA Renovation Home Loan

The VA home renovation loan is a unique program offered to active members of the military, veterans, and their spouses. The VA renovation loan is government-backed (guaranteed by the government). For this reason, mortgage lenders can offer low mortgage rates and great terms. 

Like other home renovation loans, the VA renovation home loan puts the costs of repairs, upgrades, labor costs, and materials into one loan. This means one mortgage payment and financial stability while the repairs are completed. 

One caveat: borrowers need to use a VA-approved contractor for the work in order for the loan to get approved.

Take Action

If you’re ready to start your home renovation in 2022, connect with a mortgage advisor to discuss your goals. There are several custom loan options in addition to home equity loans and cash-out refinancing. Whether you are a homeowner with equity or looking to buy a fixer-upper, starting a home renovation in 2022 is a smart move. Connect with a local mortgage advisor to discuss your loan options and get busy. We’d love to help.

Finance a Fixer-Upper with the FHA 203(k) Home Loan

September 9, 2021
Finance a Fixer-Upper with the FHA 203(k) Loan

The FHA 203k home loan is a smart move if you’re looking to buy a fixer-upper. The housing market is still strong in many areas, bidding wars are slowing down and foreclosures are starting to pop up. Fixer-uppers offer a financial opportunity to buy a home priced below market in a great location.

With the FHA 203k loan, you can buy a home that needs a fair amount of work and make the repairs affordable with one mortgage. The 203k combines the price of the home with all renovation costs and finances everything with one mortgage. Since the home loan covers the purchase price plus all the renovations, you’re able to spread the cost of repairs over the life of the loan with one affordable mortgage payment. 

What’s more, all the repairs and renovations must be approved in advance for a 203k loan so that you won’t end up in a money pit with endless repairs. There are a few restrictions along with great benefits, which we cover in this post. 

RELATED: When is it smart to use a home equity loan or home equity line of credit for home renovations?

Is the FHA 203k loan a good idea? Here’s how it works.

The FHA 203k home loan is a government-backed mortgage that’s insured by the Federal Housing Administration. It’s created to help homeowners buy and remodel a home that needs work. It has a few common names: FHA 203(k) Home Loan, Section 203(k) Home Loan, Mortgage Rehab Loan, 203k Loan Program. 

The FHA 203k loan combines the purchase price of your home with the total cost of repairs into one mortgage, including labor and materials.

That said, there are rules and regulations you have to follow to get approved for a 203k mortgage. For example:

  • The property must be your primary residence*
  • Renovation costs must be greater than $5k
  • You must work with a HUD consultant
  • All repairs must be completed by a licensed contractor
  • FHA 203k loan requires mortgage insurance
  • An FHA appraiser approves final estimates

*If your residence isn’t safe to live in during construction, the FHA 203k loan will cover your mortgage payments. Also, the 203k loan isn’t available for investment properties or homes priced above current conforming limits ($822,275 in high-cost areas, $510,400 in lower-cost areas). 

What is covered under FHA 203k?

Homebuyers can use a standard FHA 203(k) mortgage to do almost any type of renovation except for luxury amenities (e.g., a swimming pool or backyard kitchen). Also, all updates and repairs must be considered “permanent” for the home. A few popular renovations that are covered:

  • Upgrades to remove health and safety hazards
  • Improve accessibility for a disabled person
  • Update plumbing and sewer systems
  • Structural changes such as adding bedrooms
  • Remodel bathrooms and kitchens
  • Install or replace flooring, windows, roofing
  • Major landscaping projects

It’s a good idea to meet with contractors early to make sure your project can get started as soon as the loan closes. Make sure to find a contractor with experience working on projects financed with an FHA 203k loan. 

All renovations financed with a 203k loan must be finished within six months.

RELATED: The Fannie Mae Homestyle Renovation Loan for Fixer-Uppers

How much do you have to put down on a 203k loan?

The minimum down payment is 3.5% for applicants with a credit score above 580. For homebuyers with a credit score between 500-580, the typical down payment required is 10%. Gifted funds are allowed from friends and family, and there are also down payment assistant programs that might be available. Connect with a mortgage advisor to decide which mortgage program will save you the most money.

If your credit score is wavering, learn how to improve your credit score in less than 60 days which we blogged about here.

Can I use a 203k loan to flip a house?

To qualify for a 203k loan, the property must be your primary residence. So, if you’re planning to flip a house quickly while living in a different property as your primary residence, then the FHA 203k home loan won’t be a good fit.

The upside is that all repairs and renovations must be completed within 6 months for an FHA 203k loan. When all is said and done, there’s nothing keeping you from selling the house once the repairs are complete.

If you’re buying a fixer-upper as an investment property, connect with a mortgage advisor to discuss home renovation options. You could also apply for a home equity loan or a home equity line credit to finance your remodel, which we blogged about here.

How to qualify for an FHA 203k (and why you need an FHA-approved mortgage lender)

Working with the right mortgage lender is essential when it comes to the 203k loan. For one, the Federal Housing Administration (FHA) will only approve 203k home loans from an FHA-approved mortgage lender. Second, financing a fixer-upper with an FHA 203k loan is different from other types of home loans. There is a fair amount of paperwork required to meet application requirements. You’ll need to work with approved contractors and verify all estimates for repairs and materials. In addition, you will often work with a HUD consultant. 

Talk to your mortgage advisor about home renovation loans to find out which loan is the best fit. Buying a fixer-upper in 2021 can put you on the fast track to financial freedom, and getting approved for an FHA 203k loan might be the best next step.

Once your 203k loan is approved, you can rest assured you’ve got the financing you need to finish the work on your new home. It’s a helpful safety net, especially if this is your first fixer-upper.

RELATED: How to find the best mortgage lender in your area

Summary

Buying a fixer-upper can be a smart financial decision. In general, the FHA 203k loan is a good fit for a property that needs a substantial amount of work and is priced within FHA conforming limits. The property must be your primary residence and all work must be approved by the FHA. Requirements are set by the FHA, such as limits on how much you can borrow and how you can spend the money.

The main benefit is that all the construction work and repairs are estimated at the onset and rolled into one mortgage. You’ll be protected from over-extending yourself or falling into a money pit after you buy the property.

Quick reminders: Properties that need less than $5k in repairs won’t qualify for a 203k loan. Also, the FHA 203k loan has a limit on how much you can borrow, so it’s not a good fit for luxury renovations.

Take Action

There is a lot of paperwork and requirements to get approved for an FHA 203k loan, so it’s better to be prepared before you make an offer. If you’re considering buying a home that needs work, we can help you decide what type of mortgage is best for your renovation. Connect with a local mortgage advisor to get started. We’d love to help.

Buying a Townhouse to Get an Affordable Mortgage

August 26, 2021
blog townhouse 2

Want an affordable mortgage? One strategy is to aim for a property with a low purchase price. Even better, find a low-priced property in a desired location where home values are on the rise. Enter townhouses, condos, and fixer-uppers. Buying a townhouse can be a great first step to becoming a homeowner, with a few payoffs along the way.

Townhouses and condos both offer lower maintenance and community living. On the other hand, a fixer-upper offers a solid opportunity to buy an under-priced house in a great location. But does the idea of a fixer-upper sound like a mountain of stress? Sometimes DIY is better on Netflix.

Townhouses are growing in popularity for a handful of reasons–prime locations, minimal maintenance, lifestyle amenities, and a sense of community in a home that still offers privacy. So if you’re looking to become a homeowner in 2021, buying a townhouse is worth considering. 

RELATED: Are you a first-time homebuyer? Check out these special advantages for first-time homebuyers in 2021

Condo vs. Townhouse vs. Single-Family Detached Home

What’s the difference? And which is best? In broad strokes, all three are individually owned properties and are considered single-family dwellings. As a new homeowner, it comes down to lifestyle and what’s important to you in a home. Do you want a low-maintenance property that’s close to downtown and has shared amenities? Would you rather spend your weekends on a fixer-upper with lots of privacy?

CONDOMINIUM

Condos offer lifestyle amenities similar to apartment living. Homeowners are responsible for the interior and that’s it. The exterior, landscaping, facilities and community spaces are maintained by the HOA (Homeowners Association). Be prepared to share a few walls and the noise that comes with it. The upside: condos are low-maintenance and offer shared access to amenities like fitness gyms, pools, and parks.

TOWNHOUSE

Townhouses might just be the perfect balance between condos and single-family detached homes. When you buy a townhouse, you own the dwelling plus the land (usually a small space in the front and back). As the homeowner, you’re responsible for the interior, exterior, and land maintenance within your property line.

A townhouse offers more square footage in a multi-story dwelling. You’ll have a private entrance and 1-2 shared walls (on either side of your property.)

Townhouses offer more privacy than condos, front and backyard spaces, a private driveway and garage, and community amenities. The HOA is responsible for maintaining shared amenities such as pools, tennis courts, clubhouses and the like.

SINGLE-FAMILY DETACHED HOME

Detached means no shared walls! Single story, multi-story, or a sprawling compound, your home is privately owned right up to the property line defined by the title. As the homeowner, you own both your dwelling and the land. 

You’re free to use your land however you’d like (limited by city ordinances). Build a workshop, raise chickens, install a built-in kitchen, or plant an orchard. What’s more, with a detached home you’re free to tear it down and build your dream home. You own everything within your property lines. Ask your real estate agent about any restrictions set by the city.

One Caveat on HOA fees: Many single-family detached homes are built as part of a planned community that includes a Homeowners Association. You’ll enjoy shared amenities such as pools and tennis courts, but you’ll also have to pay HOA fees. In addition, any home renovations or landscaping updates will need to meet HOA regulations. 

Find Your Neighborhood 

Location is still the biggest determiner of home prices, and buying a townhouse is no exception. Look for a townhome property that fits your lifestyle and your wallet. Consider a few things: Do you want to buy a bigger home after a few years and keep a townhouse as a rental? Are you downsizing now and the townhome is your new forever home? Take note of resale values, school districts, lifestyle and community events in the area.

Find a qualified mortgage expert in your local area

Q&A on Buying a Townhouse (what our clients are asking)

Is buying a townhouse less expensive than a single-family home?

Not always. Townhouses are often viewed as a low-cost alternative for first-time homebuyers. But townhouses can often be in a similar price range as single-family homes, especially in desired locations with rising home values. You’re paying a premium for the area, not necessarily the square footage of your home.

For example, let’s say you are looking to buy a property for under $700k in a premium location with well-rated schools, high safety ratings, and rising home values. You find a townhouse and a single-family home, and both list for $680k. Both properties are in the same school district with similar neighborhoods and access to restaurants, public transportation, parks and the like.

The difference here will most likely be the condition of the home. The $680k detached single-family home might be on the lower end of the housing market for the area. As a result, it will probably be much older and need a fair amount of work and renovation.

By contrast, the $680k townhouse will likely be newer and in better condition, updated with modern appliances and amenities.

As with any new home purchase, don’t forget about closing costs, which we blogged about here.

Do you have to pay HOA fees when you buy a townhouse?

Yes. Homeowners Association (HOA) dues are standard when you buy a townhouse. The fees are paid quarterly or monthly to cover ongoing upgrades and maintenance for all shared amenities. 

Worth noting, not all HOA fees are created equal. When you’re ready to buy a townhouse, take time to compare amenities and costs with other townhouse developments in the area. Are the grounds and facilities well maintained? Do they have the amenities that are important to you, like tennis courts or expansive poolside areas?

You get to decide if the fees are reasonable and whether or not the community spaces offer what you want.

Is it easier to qualify for a mortgage when you buy a townhouse?

The easiest way to qualify for a mortgage is to work with an experienced mortgage advisor to get pre-approved. Buying a townhouse isn’t much different when it comes to home loan options, but there are a few factors to consider. 

Buying a townhouse will require a few more steps required by mortgage lenders to get approved. Often, the home appraisal will include an inspection of the entire grounds to ensure the community spaces are well-maintained and up to code.

A mortgage advisor can keep things moving forward stress-free. Find out how to get pre-approved quickly, which we blogged about here.

Get Pre-Approved For the Best Financing

Getting pre-approved is the best way to secure an affordable mortgage at a low mortgage rate. You’ll know exactly how much you can afford and shop with confidence.

Note that financing a townhouse is different than getting a mortgage for a condo or single-family detached home. Mortgage lenders have specific regulations when it comes to buying a townhouse. Be prepared to provide additional documentation to meet mortgage requirements. 

Getting pre-approved for a mortgage will help ensure you’ve got everything in place before you make an offer.

Talk to a local mortgage advisor about your financial goals. Buying a townhouse in 2021 can put you on the fast track to financial freedom. Getting preapproved for a mortgage is the best next step!

The Final Remix

Buying a townhouse can be a perfect choice when you want a low-maintenance home with modern appliances, good square footage, and a small footprint. Enjoy the benefits of community spaces, shared amenities, and privacy without the maintenance required for a detached single-family home. When you’re ready to get pre-approved for an affordable mortgage, buying a townhouse is the perfect next step.

Take Action

Mortgage pre-approval is a smart move when you’re buying a townhouse. An experienced mortgage advisor can help you get pre-approved and get your financing secured, so you can shop with confidence. Connect with a mortgage advisor to discuss your options and get an affordable mortgage that saves you money. 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.

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.

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

July 16, 2021
blog business man

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.

RELATED: HOW TO CHOOSE THE BEST MORTGAGE LENDER IF YOU’RE SELF-EMPLOYED

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. 

RELATED: HOW TO BUY A HOME WITH FRIENDS OR FAMILY

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.