Tag Archive for: home loans

Boost Your Credit Score and Save Money on Your Mortgage

July 9, 2021
blog credit score

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

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

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

RELATED: WHY GETTING PREAPPROVED FOR A MORTGAGE IS A SMART STRATEGY

How can I raise my credit score quickly?

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

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

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

Step 1: Download a free copy of your credit report

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

Step 2: Clean up any errors on your credit report

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

Step 3: Pay down high credit card balances

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

RELATED: BECOME A HOMEOWNER WITH LESS THAN 3% DOWN

Step 4: Catch up on past-due payments

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

Step 5: Keep old accounts open

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

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

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

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

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

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

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

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

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

High credit score? Leverage your mortgage options.

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

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

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

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

RELATED: TOP 5 HOME LOANS FOR FIRST-TIME HOMEBUYERS

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

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

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

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

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

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

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

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

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

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

RELATED: HOW DO I QUALIFY FOR A MORTGAGE WITH STUDENT LOAN DEBT?

What Happens with Co-applicants or a Joint Mortgage?

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

Summary

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

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

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

Next Steps

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

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Bump Your Credit Score and Get a Better Mortgage

July 6, 2022
blog credit report

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

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

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

RELATED: WHY GETTING PREAPPROVED FOR A MORTGAGE IS A SMART STRATEGY

How can I raise my credit score quickly?

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

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

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

Step 1: Download a free copy of your credit report

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

Step 2: Clean up any errors on your credit report

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

Step 3: Pay down high credit card balances

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

RELATED: BECOME A HOMEOWNER WITH LESS THAN 3% DOWN

Step 4: Catch up on past-due payments

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

Step 5: Keep old accounts open

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

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

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

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

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

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

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

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

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

High credit score? Leverage your mortgage options.

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

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

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

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

RELATED: TOP 5 HOME LOANS FOR FIRST-TIME HOMEBUYERS

Debt-to-Income Ratios and Credit Scores

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

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

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

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

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

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

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

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

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

RELATED: HOW DO I QUALIFY FOR A MORTGAGE WITH STUDENT LOAN DEBT?

 

Summary

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

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

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

 

Next Steps

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

Buying a House With a Friend or Relative: What to Know

June 28, 2021
blog friends in home

Can you apply for a mortgage with a friend? Absolutely. The tricky part is finding the right friend and choosing a property that will help you both reach your financial goals. For people seeking financial stability through homeownership, buying a home with a friend has some clear advantages.

In this article, you’ll learn the pros and cons of buying a home with a friend, how to apply for a joint mortgage, and why a co-ownership agreement is essential for everyone.

THE PROS AND CONS OF CO-OWNING A HOME WITH A FRIEND

Buying a home with a friend is a big financial decision, no matter how you run the numbers. That said, you could reach your financial goals faster by co-owning a home as a residence, second home, or investment property. So if you’re ready to buy a home with a friend, these benefits and drawbacks are worth considering.

The Pros: Top Advantages of Buying a Home With a Friend

1. Buying a home with a friend could make it easier to qualify for a mortgage.

Qualifying for a home loan can be challenging. Lender requirements and criteria can be strict, and housing prices are high in many preferred areas.

When you apply for a mortgage with a friend, you get to combine your income to qualify for a home loan. Together with a combined income, you’ll most likely be able to afford a higher purchase price, get better loan terms, and even a lower interest rate. 

2. Buying a home with a friend could help you become a homeowner sooner.

Want to stop renting and start building equity? Sure! But coming up with a down payment, closing costs, homeowners insurance, and cash reserves for maintenance can create an obstacle for many homebuyers. 

Buying a home with a friend can alleviate this pressure while increasing your buying power. Together, you can make a larger down payment and prepare for closing costs. You’ll also have more cash reserves for immediate repairs that might be necessary. The result is a preferred mortgage with favorable terms and a lower mortgage rate.

RELATED: Is it a good idea to roll the closing costs into your new mortgage?

3. As co-owners, you can share the costs of homeownership.

Property taxes, homeowner’s insurance, maintenance and repairs: it all adds up. Co-owning a home with a friend can help share the burden. There will be predictable costs such as property taxes and homeowner’s insurance that you could decide to split 50-50. There will also be maintenance and repairs that may be unpredictable. 

It’s a good idea to create a co-ownership agreement to decide who will pay these costs and what percentage. Also, you’ll need to agree on other financial details, such as who will claim mortgage interest and property taxes as a deduction on their taxes.

4. As co-owners, you can earn passive income on your investment.

Joint homeownership can set the stage for shared passive income. As homeowners, you’ll have the flexibility to rent out a bedroom, use it as a vacation property, or otherwise earn investment income.

Common drawbacks of buying a home with a friend

1. Buying a home with a friend who has bad credit or heavy debt could make it harder to qualify for a mortgage.

Qualifying for a home loan can be challenging. Lender requirements and criteria can be strict, and housing prices are still rising in many preferred areas. If you have good credit and a steady income, but your friend has a lower credit score, this might make it harder to qualify for a low-rate mortgage.

2. As co-owners, you’ll need to agree on, well, everything.

When you own a property by yourself, you can make every decision, good or bad, and deal with the consequences. But, in a joint mortgage, you’ll need to agree on how things get done and who pays—home upgrades, landscaping, house repairs, you name it. From paint colors to remodeling the bathroom, you’ll need to make every financial decision together.

3. If one of you stops making mortgage payments, you could risk foreclosure.

If one of you stops paying the mortgage down the road, the other will need to make the entire payment or risk foreclosure. Talk openly about your finances with your friend. Look at your debt-to-income ratio and be willing to share your bank statements and financial habits.

Ideally, you want to be on the same page financially and have similar financial habits and goals regarding homeownership. Also, talk about an exit plan if one of you gets laid off from work or needs to relocate. 

RELATED: Find out how to get pre-approved for a mortgage fast

HOW TO APPLY FOR A JOINT MORTGAGE

First, share financial information with each other.

When you apply for a home loan with a friend, the lender will consider you co-applicants. Both of you will need to provide complete financial documentation, including bank statements, employment status, proof of income, debt statements, and credit scores. You can get a free copy of your credit report here.

Share your information with each other and be prepared in case the lender has questions about anything.

Next, talk with a qualified mortgage expert and start your application.

Discussing your homeownership goals with a mortgage advisor can take out the stress and save you money along the way. In addition, an experienced mortgage advisor can recommend custom loan options to fit your financial situation.

Buying a home with a friend shouldn’t be stressful or complicated. The right mortgage advisor can walk you through the process and lock in a low rate early.

Finally, choose the best mortgage structure for the title.

Every home purchase comes with a title. The title is a formal document that proves who owns the property. There are two main types of title ownership when you buy a house with a friend:

Tenants in Common: You can split the ownership (equity) of your home however you’d like in this arrangement. For example, you might own 70% and your friend would own 30%. With this type of ownership, you can sell your stake in the home without the permission of your co-owner. Similarly, you can designate your ownership to a relative if you pass away.

Joint Tenancy: In this arrangement, you and your friend will split ownership equally. You will each own 50% of the home and you can each borrow against your 50%. Worth noting, if one of you passes away, the surviving owner automatically gets full ownership of the home.

WHY YOU NEED A CO-OWNERSHIP AGREEMENT

When you buy a home with a friend, creating a co-ownership agreement is in everyone’s best interest. A co-ownership agreement declares the division of equity, who is responsible for what costs, and how the owners will share the costs of homeownership.

To buy a home with a friend, consider these questions:

  •  How do you want to split the equity? (e.g., 50/50, 70/30)
  •  Who will be responsible for property taxes?
  •  Who will pay for homeowner’s insurance?
  •  How will you decide the cost of maintenance and repairs?
  •  What happens if one of you gets married or has children?
  •  What happens if one of you loses a job or needs to relocate?
  •  Do you have an exit plan if one of you wants to sell?
  •  Do you plan to rent out a portion of the house for passive income?

We highly recommend hiring an attorney to draw up the terms of a co-ownership agreement. The agreement can protect your homeownership interests and your friendship.

Together, you can create a plan that works for both of you as new homeowners.

RELATED: TOP 5 HOME LOANS FOR FIRST-TIME HOMEBUYERS

Final Takeaway

There are clear pros and cons to purchasing a home with friends or relatives. Buying a home with a friend could increase your buying power, help you qualify for a better mortgage, and get you into a home sooner. On the other hand, if one of you cannot keep up with the payments or walks away, it might be hard to refinance and qualify on your own.

Homeownership is a big financial decision, especially when you’re thinking about buying a home with a friend or relative. Working with a mortgage advisor can help you know what to expect and get a better mortgage.

Next Steps

Talk to a mortgage advisor to discuss custom mortgage options that can help you save money and get started. Buying a home with a friend can put you on the fast track to homeownership and financial freedom. If you’d like to understand more about co-ownership and how to apply for a joint mortgage, give us a call. We’d love to help.

 

Refinance Your Mortgage and Lock in the Best Rate (How To)

June 12, 2021
blog refinance

The recent dip in 10-year Treasury bonds is good news for homeowners ready to refinance a mortgage and first-time homebuyers. Whether you want to refinance your mortgage for a lower payment, apply for a cash-out refinance, or refinance your mortgage for a lower rate, now’s the time to take action.

Historically, a dip in Treasury yields translates to lower mortgage rates. Still, the economy is opening up, and rates have been near historic lows for months. Despite the downshift, mortgage experts predict rates to begin an upward rise soon.

Connect with a mortgage advisor to start the process early and lock in a low mortgage rate before they start to rise again.

Related: First-Time Homebuyer Advantages for 2021

How to Refinance Your Mortgage and Save Money in 5 Steps

Every borrower wants the best rate possible, and lenders will compete for your business if you’ve got a good financial track record. Borrowers with a good credit score and a low debt-to-income ratio will have leverage when deciding to shop around. But even if you’re financial picture isn’t where you’d like it to be right now, these tips will help you prepare.

When you apply for a mortgage refinance, the top three factors that will impact your mortgage application are your credit score, debt-to-income ratio, and home equity (loan-to-value ratio).

Take note of these five steps to leverage your knowledge and approach lenders with confidence.

Step 1: Protect your credit score.

Download a free copy of your credit report so you can resolve any errors or misinformation. If you have high consumer debt or multiple loans, pay down the balances to improve your credit score.

Keep making your payments on time and don’t take on any new debt or apply for new credit lines. Now’s not the time to open a new credit card or apply for a car loan. Keep your credit report as clean and consistent as possible when you’re ready to refinance.

Step 2: Shop around for the best mortgage refinance lender.

Just because rates are low doesn’t mean lenders will give you the best mortgage rate. Shopping for the best rate is a common strategy for most homeowners, but it’s smarter to shop around for the best mortgage advisor.

Yes, mortgage rates are one of the main factors borrowers consider when refinancing a mortgage. But the best loan terms are part of an overall package that goes beyond your interest rate. Fees, closing costs, points, and mortgage insurance are a few costs that can overshadow a low mortgage rate.

You don’t want to end up with a mortgage refinance that ends up costing you more and keeps you from meeting your long-term financial goals. 

We recommend shopping around for the best mortgage advisor. Read reviews, check in with colleagues, follow up directly when you find a low rate.

A great mortgage advisor will talk with you about your financial and homeownership goals. Together, you can refinance your mortgage with a custom solution that checks all the boxes. You should be able to refinance your mortgage with a low-interest rate, a better mortgage payment, and loan terms that meet your financial goals.

  • Do they deliver exceptional customer service?
  • Do they offer the refinance product you want (fixed, adjustable, streamline, cash-out, etc.)?
  • Do they understand your financial goals?
  • Do they have great customer reviews?

Related: When is it a good time to change mortgage lenders?

Step 3: Compare mortgage refinance offers to find the best loan.

Advertised rates are helpful metrics to find out where the market is trending, but refinancing a mortgage can end up costing you a lot of money if you’re not careful.

So, shopping for the lowest rate won’t always get you the best mortgage refinance. Instead, compare your refinance offers side-by-side using the loan estimates provided by your lender.

The truth is, mortgage rates vary based on the borrower’s information, the loan product, and the lender. Certain lenders might advertise super low rates, but they might offer you higher rates than other lenders based on your credit score. The same goes for your debt-to-income ratio and your home equity.

When you apply for a mortgage refinance, you’ll receive a quote, also called a loan estimate. Your loan estimate will offer a line-by-line breakdown that shows the terms of your home loan.

Prepare ahead of time and review this sample Loan Estimate. All lenders use the same format, so this will make it easier to compare refinance offers.

Step 4: Estimate the closing costs for a mortgage refinance.

Refinancing your mortgage is about saving money for most borrowers. So if your mortgage refinance has a lower rate but high closing costs, it might not be a great solution.

Check out your Loan Estimate again to verify closing costs and any other fees that might be negotiable. Closing costs will be written in a different section and cover one-time expenses.

When you refinance a mortgage, many borrowers have the option to pay closing costs up front, roll them into the loan, or get a lender credit in exchange for a higher rate. 

To find out which fees are negotiable, check out this sample Loan Estimate.

Closing costs typically include:

  • Origination Fee
  • Appraisal Fee
  • Credit Report Fee
  • Prepaid Homeowner’s Insurance
  • Prepaid Interest
  • Property Taxes
  • Mortgage Insurance

Remember these are one-time fees that you wouldn’t incur without refinancing your mortgage. One way to know whether refinancing your mortgage will save you money is to calculate your closing costs.

Related: The Truth About Closing Costs and No-Closing Cost Loans

Step 5: Lock your rate when you apply for refinancing.

Lenders vary in how and when they offer mortgage rate locks, so be sure to ask your mortgage advisor about the terms. Often, borrowers have the option to lock in a mortgage rate early in the application process.

A float-down option often allows rate flexibility that protects the borrower: if market rates drop, the borrower’s rate “floats down” with the market; but if rates rise, the quoted rate stays secure. Mortgage lenders typically offer rate locks for 30 to 60 days. 

Ask your mortgage lender about locking your rate and what happens if mortgage rates shift. If the refinance process takes longer than anticipated, you don’t want the uncertainty of a fluctuating mortgage rate in the mix.

Related: Your Complete Guide To Refinancing Your Mortgage

Final Takeaway

Refinancing a mortgage can help you reach your financial goals faster. Take a minute to clarify your goals to make an informed decision once you get a loan estimate from your lender. Keep your credit report in check, take a close look at closing costs, and lock your rate if possible. Most importantly, shop around for the right mortgage lender and make sure you’re comparing apples to apples when you evaluate the terms of your refinance.

Next Steps

To get the best refinance rates and loan terms, work with a local mortgage expert who understands your financial situation. We’d love to discuss your financial goals and build a custom mortgage refinance that saves you money. 

The Truth About Closing Costs and No-Closing-Cost Loans

April 22, 2021
blog young couple on couch

Each time you refinance your mortgage or purchase a new home, closing costs will be an inevitable part of the transaction. Depending on the amount, this can be an unwelcome surprise to new homeowners. The good news is that you have options. A great mortgage advisor can help explain the benefits and drawbacks unique to your situation. Even better, you can secure a custom home loan that covers your closing fees and meet your financial goals sooner.

The truth is, you get to decide how your home loan is structured. There are some tradeoffs to consider: You can choose to pay more points upfront and lower your interest rate, or you can increase your down payment for better long-term rates. You can also roll your closing costs into your mortgage or pay the costs out of pocket.

What are My Options When it Comes to Closing Costs?

With so many variables, it makes sense to look at a few alternatives:

  • Pay closing costs out of pocket
  • Roll closing costs into your loan
  • Negotiate with the seller to cover partial fees
  • Agree to have the lender cover closing costs in exchange for a slightly higher rate

Mortgage interest rates are still low enough that it’s worth considering.

The bottom line is that every new mortgage and refinance will have closing costs, but you have a few options about how you decide to pay them.

What Do Closing Costs Include and How Much Will I Have to Pay?

Closing costs are one-time fees and expenses a homeowner pays when you close on a new home purchase or refinance your mortgage. It’s the final chunk of money required after you’ve covered your down payment.

Closing costs run anywhere from 2-5% of the home loan amount and typically include title insurance, appraisal fees, property taxes, loan origination fees, and more.

It’s common for the buyer and seller to negotiate some of these costs in the final purchase contract. Often the buyer will pay most of the closing costs, and the seller will cover some of them, but this isn’t always the case.

In some situations, the buyer will pay the full amount, especially if the property is in high demand with multiple offers.

If you’d like a detailed behind-the-scenes look at closing costs, go here to check out the breakdown of loan-related fees and mortgage insurance costs that your mortgage could include.

What Happens When a Lender Covers the Closing Costs?

With a no-closing-cost mortgage, this typically means that your lender will cover most or all of your closing costs upfront. For the lender, this is a profitable alternative since the closing costs are a set amount. By charging a slightly higher mortgage interest rate in exchange, the lender will have a higher return over the life of the loan.

Depending on your situation, this might be a great choice to consider as a new homeowner facing closing costs. Less out-of-pocket expenses mean you might be able to become a homeowner sooner. As a homeowner, you’ll be able to start building equity right away, take advantage of tax breaks, and have the option to refinance in the future.

What Happens When I Roll Closing Costs into my Mortgage?

Folding the closing costs of your mortgage into your new home loan is different than having the lender cover the closing costs. When you roll your closing costs into your mortgage, it doesn’t necessarily raise your interest rate. Instead, the amount of your home loan increases by the value of your closing costs.

For example, if your purchase price is $350,000 and you put a down payment of $35,000 (10%), your starting mortgage would be $315,000. If the closing costs for your new mortgage are $10,500 (3%), your lender can roll it into your mortgage so that your home loan would be $325,100.

Rolling your closing costs into your mortgage might change your monthly payment by only a nominal amount, making it an attractive option for new homeowners short on cash. Just remember that you’ll be paying off that $10,500 with interest over the life of the loan, which in some cases might be 30 years.

What Happens If I Can’t Afford the Closing Costs?

Adding the closing costs to the home loan might cause the loan amount to jump beyond the approved loan amount in certain circumstances. In other situations, a borrower might not have the funds to cover closing costs for various reasons and might qualify for a government grant.

Borrowers with low-to-moderate income can apply for grants to help with closing costs through HUD-approved housing agencies. If you think you might qualify, give us a call. We can connect you with some information that might help.

Final Takeaway

Every home purchase and refinance will incur closing costs. If you don’t want to pay out of pocket, schedule a time to talk with your mortgage advisor about possible options:

  • no-closing-cost mortgages
  • lender credits or rebates
  • lender-paid closing costs
  • zero-cost or no-cost mortgages

What’s Next

Working with an expert mortgage advisor makes all the difference when it comes to managing your closing costs on a new home purchase or refinancing your mortgage. If you’d like to understand more about your options, give us a call. We can help.

Home Equity Loan vs. HELOC for Home Renovation

April 17, 2021
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Building equity in your home is one of the great advantages of being a homeowner. Accessing your home equity when you need it is even better. So when it comes to home improvement and house repairs, what’s the best way to tap into your home equity? For homeowners who have seen a big jump in the value of their home in 2020, you have a lot of options. This short article breaks down the benefits and drawbacks of using a Home Equity Loan vs. HELOC (Home Equity Line of Credit) for home repairs and renovations.

Home Equity Basics

Home equity is the financial difference between what you owe on your home (your mortgage balance) and the value of your home (based on a formal appraisal). For example, if your current mortgage balance is $478k and the current market value of your home is $680k, then you’ve got a little over $200,000 in home equity.

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 the risk of foreclosure in the eyes of the lender. In the example above, the 80% Loan-to-Value maximum would be $544k, giving you potential access to $65k.

How to Use Home Equity Funds: Home Renovations, Repairs, and Remodels

To decide if a home equity loan or home equity line of credit might be a good fit, it’s a good idea to figure out how you want to use the funds. A few popular updates are:

  • kitchen remodels
  • bathroom remodels
  • new roofing, siding, windows
  • major landscaping & backyard improvements
  • home office additions

Since both a home equity loan and a home equity line of credit are big financial commitments, take time to consider the value of the improvements you want to make. Renovations don’t necessarily have to improve the value of your home but they will work to your benefit if they do. Both loans are designed to help maintain and improve the value of your home. Ideally, you want to increase your property value in the process. If you need to sell your house for an unexpected reason, you won’t be upside down when it comes to your mortgage.

Home Equity Loan Advantages

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

Highlights and Advantages:
  • 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) Advantages

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 which is based on the prime rate and market trends.

Main Benefits:
  • Access as much or as little money as you want to meet the needs of your projects
  • Interest accrues only when 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

Additional Resources for Home Renovations

Home equity loans and HELOC’s are both set up as a second loan using your home as collateral. If you don’t want a second loan, or you want to refinance your mortgage and take advantage of other financing options, you’re not alone. A few other options to consider:

  1. Fannie Mae HomeStyle Renovation Loan
    A conventional home loan that wraps everything into one mortgage: purchase price (or mortgage balance), repairs, updates, labor, and materials.
  2. FHA 203(k) Home Loan
    A government-backed home loan to purchase a fixer-upper or refinance a home loan to cover major repairs or renovations. One mortgage will cover the purchase price (or refinance) plus the costs of all upgrades and repairs.
  3. VA Renovation Home Loan
    The VA renovation home loan is a government-backed mortgage with exclusive benefits for active-duty service members, veterans, and eligible spouses. It rolls the cost of the mortgage plus the cost of repairs and upgrades all into one home loan

Each of these renovation home loans has various requirements and limitations for loan approval. Talking with a mortgage expert can help decide which options will save you the most money and help you reach your financial goals.

TAKING ACTION

If you’re thinking about tapping into the equity in your home, talk with an experienced mortgage advisor. A great loan advisor can save you money and keep the process moving easy and stress-free. Just knowing what to expect can help you decide the best action to reach your goals. When it comes to saving money on your mortgage, we can help.

VA Loans: Smart Benefits and Guidelines for 2021

April 12, 2021
blog miltary family in home

VA Loans are still one of the smartest mortgage options for members of the military and their spouses. If you’re starting 2021 with new financial goals, getting a great mortgage is going to be a big part of your success. And if you’re thinking of refinancing or buying a new home, VA Loans offers some smart benefits: Dream homes, fixer-uppers, and first-time homebuyers included.

So who qualifies? What are the benefits? How much will I need to save for a down payment? Has anything changed for VA Loans in 2021? This quick read will help.

VA Home Loan Advantages and New Guidelines for 2021

VA Loans are government-backed mortgages available through banks and qualified mortgage lenders. Since VA loans are partially guaranteed by the U.S. Department of Veteran’s Affairs, lenders can pass along savings in the form of lower interest rates, lower down payment requirements, and flexible credit score qualifications.

Top Advantages of VA Home Loans

  • No down payment requirements – 0% down
  • No private mortgage insurance (PMI) requirements
  • Lower interest rates than FHA loans and conventional mortgages
  • Lower closing costs
  • Maximum 1% origination fee

Main Types of VA Loans

  • Purchase Mortgage — Secure a VA home loan based on the purchase price of your new home.
  • Cash-out Refinance — Refinance an existing VA loan or conventional loan with the option to cash-out on some of the equity in your home.
  • Streamline Refinance — Refinance an existing VA loan to a lower interest rate and better terms without getting cash out.
  • Renovation Loans — Finance the cost of repairs and home improvements and roll it all into a new VA Loan.

VA Loan Guidelines

As of December 2020, the VA loan no longer has a limit on the purchase price for qualified borrowers. This means that there is no cap on the size of your loan and you can still qualify for a zero down payment. Qualified borrowers will still need to meet income requirements and debt-to-income ratios set by their lender for final loan approval on the amount they’ll be able to borrow.

The VA home loan requires a funding fee (0.5 – 3.6%) for home purchases and refinances. Veterans Affairs sets this fee which helps make the loans available to all qualified service members and eligible spouses. The funding fee is a one-time fee and can often be rolled into the loan.

Who Qualifies for a VA Loan

Qualifying for a VA Loan is a fairly straightforward process. You’ll need a VA certificate of eligibility (COE) before the loan closes, which you can request from the U.S. Department of Veteran’s Affairs.

VA Loan Eligibility

  • Active-duty service members and veterans who meet minimum service requirements
  • Surviving spouses of qualifying service members and veterans
  • Eligible members of the National Guard and Reserves

Finally, make sure you work with a VA-approved mortgage lender. Working with an experienced mortgage lender can help you save time and money. A VA mortgage expert can help gather required certificates if needed and put together a custom loan package to make sure you get every advantage available to you.

Taking Action

VA Loans are still one of the smartest mortgage options for members of the military. If you think you qualify for a VA home loan, connect to a loan advisor and make 2021 the year you reach your financial goals. Working with an experienced mortgage broker can make a big difference. We can help.

First-Time Homebuyer Advantages in 2021

April 2, 2021
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If you’re looking to buy a home for the first time or get back into the housing market after renting for a while, now is a great time to take action. Even if you’ve owned a home before, many repeat homeowners can still qualify as first-time homebuyers right now, so keep reading to see if you’re eligible. And take advantage of these great benefits for new homeowners.

How to Qualify as a First-Time Home Buyer

According to the U.S. Department of Housing and Urban Development (HUD), a first-time homebuyer meets any of the following conditions:

  • An individual who has not owned a principal residence for at least three years.
  • An individual who has owned a home, but their spouse has not; you can still purchase a new home together as first-time homebuyers.
  • A single parent who has only owned a home with a former spouse while married.
  • A displaced person who has only owned a home with a former spouse while married.
  • An individual who has only owned a principal residence not permanently affixed to a permanent foundation (following applicable regulations).
  • An individual who has only owned a property that was not in compliance with state, local, or model building codes, and cannot meet compliance for less than the cost of constructing a permanent structure.

Top Mortgage Benefits for First-Time Home Buyers

A few highlights:

  • Down payments as low as 3.0%
  • Use of gift funds to help with closing costs
  • HUD-issued grants and down payment assistance
  • Government-backed loans with lower interest rates
  • Withdraw IRA funds for use without penalty
  • Tax deductions for points and origination fees

Many first-time homebuyer programs allow you to use gifted funds from family or friends, withdraw from retirement funds without a penalty, and even access down payment assistance. Talking with a mortgage expert can help you get access to the best options based on your goals.

Related: Check out these no-down and low-down-payment mortgage options

Top Home Loans for First-Time Home Buyers

One of the biggest obstacles for a lot of first-time homebuyers is the down payment. These popular first-time homebuyer mortgages can help lower your down payment and get you into a house without massive fees or unexpected costs:

  1. FHA Loan – 3.5% down payment
  2. VA Loan – 0% down payment
  3. USDA Loan – 0% down payment
  4. Conventional 97 Home Loan – 3% down payment
  5. HomeReady Home Loan by Fannie Mae – 3% down payment
  6. Good Neighbor Next Door Program – $100 down
  7. 203(k) Section Loans – 3.5% down payment

Related: Top 5 Loan Programs for First-Time Home Buyers

Check with your local mortgage advisor to find out which home loan program can give you the best mortgage. Depending on your situation (including your employment status and credit rating), there are customized solutions that can take advantage of government-backed loans, get you super low rates and save you money.

You can finally stop renting and start building equity in your first home.

Down Payment Assistance for First-Time Home Buyers

FHA grant and loan programs and down payment assistance programs are available across the country, and many are state-specific.

Find out more about FHA Home Loans and Down Payment Assistance programs that are offered to first-time homebuyers available in 2021 in your state: find your state.

You can even learn about government programs that make it easier to purchase a home. Go here to check information on vouchers, state programs, and even foreclosures in your state.

Taking Action

If you’re thinking about buying a home, check in with a mortgage expert and see if you qualify as a first-time homebuyer. Start the process now and ask your lender to show you which home loan programs will give you the best advantages. Getting pre-approved early on can help you move fast when you find your dream home. We can help.

 

3% Low Down Payment Mortgage Options

March 28, 2021
mortgage blog, low down payment, preferred rate

First things first, you might be surprised to learn who qualifies as a first-time homebuyer. Even more surprising, 3% down-payment mortgage options are available for homebuyers who aren’t first-time homebuyers. There are a few limitations, so let’s see which options might be a good fit.

-> Read this short article to find out if you’re eligible as a first-time homebuyer.

Low Down Payment Mortgage Options for First-Time Homebuyers and Repeat Homebuyers

Did you know there are down payment options that require as little as zero percent down on your next home? Find out more about USDA Loans and VA Loans and how you could qualify for a no-down-payment mortgage.

If you’re looking for low-down-payment mortgage options, keep reading.

How to Qualify for 3% Down on Your Next Mortgage in 2021

You’ve probably heard that most new home loans require a down payment between 5%-20% to get a good mortgage. The higher the down payment, the lower the mortgage rate. But this isn’t always the case.

Low-down payment mortgage options only require 3% down and are designed to help more people become homeowners.

A quick list of qualifiers for a 3% down payment option on your next mortgage:

  • A minimum credit score of at least 620
  • Stable employment and regular income
  • No recent foreclosures or bankruptcies
  • Primary residence (live at your new home full-time)
  • Gift funds can be used for the down payment and closing costs
  • Your mortgage must meet conforming loan limits
  • 2021 Conforming limits: $548k in most areas, $822k in high-cost areas

Low Down Payment Mortgage Option #1: HomeReady Mortgage Loan by Fannie Mae

The Fannie Mae HomeReady Mortgage is a mortgage program designed to meet the specific needs of lower-income homebuyers. The income limit set by Fannie Mae is 80% of an area’s local median income. So if you’re shopping for a home in an area where your income is below 80% of that area’s median income, this is a great mortgage option.

The Fannie Mae Home Ready Mortgage has some great benefits to consider for your home loan mortgage.

One of the biggest advantages of the HomeReady Mortgage is the ability to count multiple sources of income toward your loan application. For example, you can include income from renters or relatives living with you when applying for a Fannie Mae Home Ready home loan.

A few benefits and highlights:

  • Gifted funds can be used for up to 100% of your down payment
  • Gifted funds can be used for your closing costs
  • Down Payment Assistance (DPA) can be used for closing costs
  • You can count rental income on your loan application
  • You can count income from relatives or other people living with you (if they’ve lived with you for at least one year).

The Fannie Mae HomeReady home loan can also be used to buy a multi-unit property (up to 4 units) as long as at least one of the units is your primary residence.

Low Down Payment Mortgage Option #2: HomePossible Mortgage by Freddie Mac

The Freddie Mac HomePossible Mortgage is similar to the Fannie Mae HomeReady mortgage program and can help lower-income homebuyers qualify for a home loan. The income limit set by Freddie Mac is 80% of the area’s local median income.

One key difference with the Freddie Mac HomePossible loan is that you’re only allowed to count your own income and rental income on your home loan application. The HomePossible mortgage does not include income from other relatives or occupants as qualifying income (unless they are renters).

A few benefits and highlights:

  • Gifted funds can be used for up to 100% of your down payment
  • Gifted funds can be used for your closing costs
  • Down Payment Assistance (DPA) can be used for closing costs
  • You can count rental income on your loan application

The Freddie Mac Home Possible home loan can also be used to buy a multi-unit property (up to 4 units) as long as at least one of the units is your primary residence.

Low Down Payment Mortgage Option #3: Conventional 97 Mortgage Option for Higher-Income Buyers

The conventional 97 mortgage program is a great option for buyers who have higher income and higher credit ratings but want to qualify for a 3% down payment.

It’s more flexible in some ways since there are no income restrictions, but it has tighter restrictions in other areas. For example, the Conventional 97 mortgage is not available for investment properties or multi-unit properties.

A few benefits and highlights:

  • Keep growing your savings instead of making a big down payment
  • Invest elsewhere to build wealth instead of making a big down payment
  • Ability to cancel PMI (private mortgage insurance) faster
  • Ability to purchase a more expensive home
  • No limitations on areas or neighborhoods
  • No limitations or caps on income

Taking Action

If you’re looking for a 3% down payment mortgage option, there are a wide variety of loan options. Working with an experienced mortgage broker who understands your situation will make a big difference! If you want to save money on your next mortgage and start building equity in real estate, 2021 is a great time to start. We can help.