home equity can be a cost-effective way for homeowners to borrow cash to fund home
improvement projects or pay off higher-interest debt. If you
have substantial equity in your home — either through paying down your mortgage
or a spike in your home’s value — you might be able to snag a sizable loan.
are three ways to tap into your home’s equity: a home equity loan, home equity line of
credit or cash-out refinance.
loan has its own set of pros and cons,
so it’s important to consider your
needs and how the loans fit in with your budget and
are three things you should do before you apply for a loan:
equity is the difference between how much you owe and how much your home is
worth. Lenders use this number to calculate your loan-to-value ratio,
or LTV, a determining factor in whether you’re approved for a loan. To get your
LTV, divide your current loan balance by the current appraised value.
say your loan balance is $150,000 and your home is appraised at $450,000. By
dividing the balance by the appraisal, you get 0.33, or 33
percent. This is your LTV.
your home’s value requires an appraisal.
Your lender might request a certified appraiser to inspect your home.
HELOCs, you need to figure out your combined loan-to-value ratio, or CLTV. This
is determined by adding how much money you want — either in a lump sum or as a
line of credit — with how much you owe.
example, if you want $30,000 and you owe $150,000, then you would add those
numbers together and divide them by the appraised amount. If the home is valued
at $450,000, then the equation would look like this: ($150,000 + $30,000) /
$450,000 = 0.4 or 40 percent. Your CLTV is 40 percent.
lenders will require a CLTV of 85 percent or less to be approved for a
equity itself is not enough to secure a loan from most banks. A favorable
credit score is essential.
Shekhtman, mortgage broker at LBC Mortgage in Los Angeles, explains that banks
are still weary from the 2008 housing crash.
you don’t have good credit or you owe a lot already, it’s going to be more
challenging to get a loan from one of the big banks,” Shekhtman says.
“Banks lost a lot of money during the recession, and now they’re much more
careful about who they lend to.”
credit score above 700 most likely will qualify you for a loan, given
that the equity requirements are met. Scores in the 699 to 621 range might get
approval but will likely face higher interest rates. Those with scores below
620 probably won’t qualify for an unsecured loan.
can get your credit report and score for free with myBankrate. Some credit card companies and
banks will offer cardholders their score for free, so be sure to check with
your financial institution before you pay for your score.
credit reports to make sure there are no errors on them. If you find a mistake,
like a late payment or a fraudulent charge, report the problem to the bureau
that’s showing the information. Your score likely will improve once the
errors are removed. Consumers are entitled to a free credit report every
year from each of the three main credit reporting agencies: Experian,
TransUnion and Equifax.
Your debt-to-income ratio,
or DTI, is also part of the qualification equation. The lower the percentage,
the better. The maximum allowed DTI varies from lender to lender, but most
require your DTI to be under 50 percent.
will add up the total monthly payment for the house, which includes principal,
interest, taxes, homeowners insurance, direct liens and homeowners association
dues, along with any other outstanding debt that is a legal liability.
total debt is divided by a borrower’s gross monthly income, which comprises
base salary, commissions, bonuses and any other income such as rental income or
on-time, up-to-date spousal support, to come up with your DTI.
can improve your DTI by earning more money, lowering your debt or doing both.
Before you apply, be sure to calculate your DTI. If you’re over the limit, then
try to pay off as much as you can or consider a part-time job. Pay off loans
with the highest interest rates first; the money you save on interest can be
put toward paying off any other debt you might have.
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FHA versus conventional loan: If you need a mortgage to buy a house, you may find yourself
weighing these two options. What's the difference, and which one is right for
the majority of home buyers might assume they should get a
conventional home loan, about 40% end up with FHA loans, which are insured
by the Federal Housing Administration. To help you decide
whether an FHA or conventional loan is better for your circumstances,
here's more information about each, including their distinct advantages to
you as a home buyer as well as what you'll need to qualify (which may
vary by lender).
Minimum down payment: 5% to 20%
debt-to-income ratio: 43%
Conventional lenders look for borrowers who
have well-established credit scores, solid assets, and steady income, says Todd Sheinin, mortgage lender
and chief operating officer at Homespire Mortgage in Gaithersburg, MD. As such,
these loans have higher barriers to entry than the FHA-backed options.
You'd better have your A-game on!
Typically, you need at least a 620 credit score and ideally a
20% down payment, although you can put down as little as 5% if you so wish—just
know that on any down payment under 20%, you’ll have to pay private mortgage
insurance, an extra monthly fee meant to mitigate the risk to the
lender that you might default on your loan. (PMI ranges from about 0.3% to
1.15% of your home loan.)
conventional loans also require a maximum 43% debt-to-income ratio, which compares how much money you owe
(on student loans, credit cards, car loans, and—hopefully soon—a home
loan) with your income. So for instance, if your household take-home
income amounts to $5,000 per month, that would mean you should spend
no more than $2,150 per month on your mortgage and other debts.
Minimum down payment: 3.5%
credit score: 580
debt-to-income ratio: 50%
loans are great for first-time buyers or people without sterling
credit or much money. Created by the Federal Housing Administration, these
loans are insured by this government agency, so that guarantees
that lenders won’t lose their money if borrowers default
on their mortgage. In short, it allows lenders to take on riskier
borrowers, while also helping hopeful home buyers in less-than-ideal
circumstances achieve the dream of homeownership.
qualify for an FHA loan, you need at least a 3.5% down payment and a credit
score of 580, says Tim Lucas, editor
at MyMortgageInsider.com. Applicants with lower credit scores (e.g.,
500) may not be out of the running entirely, but must cough up a larger
down payment of at least 10%.
loans also have looser debt-to-income requirements of up to 50%. So for
example, if your monthly income is $5,000, your payments for your mortgage and
other debts should not exceed $2,500.
loans may be a boon to home buyers (particularly first-timers) who might not
qualify for a loan otherwise, but they do have a few disadvantages. For
one, they’re usually capped at $417,000 (in certain high-cost areas, the limit
is $625,000)—meaning you may have limited buying power. Also, because the
federal government insures these loans, you have to pay an upfront mortgage
insurance premium (currently, the fee is about 1.75%) and annual mortgage
insurance (typically 0.85% of the borrowed loan amount), which remains
throughout the life of the loan (or until you can refinance the loan into a conventional mortgage).
if you have the means and qualifications to afford a conventional loan, this is
the one to opt for, since it has fewer restrictions (and is faster to get).
However, if you're a less-than-ideal home buyer with a mediocre credit score,
down payment, or income, then an FHA loan may be the best—or only—avenue
open to you.
with your lender to know where you stand, or plug your numbers into
an online home affordability calculator to get a ballpark idea
of whether an FHA or conventional loan is right for you.
more smart financial news and advice, head over to MarketWatch.
events are conspiring to make it more expensive for you to borrow money to buy a house.
rates have increased for five consecutive
weeks, according to Bankrate data, bringing interest on a 30-year
fixed rate loan to 4.44 percent, the highest level in 11 months, while home
prices continue to rise due to a lack of available homes.
years of tepid economic growth, animal spirits are aflame. Inflation and wage
growth recently found a groove, while the Federal Reserve’s plan to raise short-term
interest rates multiple times for a consecutive year has
reduced the value of government debt. The yield on 10-year Treasures is close
to a four-year high. (Bond prices and yields are inversely related.)
and China may reduce its appetite for U.S. bonds.
remain cheap, however, compared to historical prices. A 30-year fixed-rate
mortgage came with an interest rate above 6 percent just before the Great
Recession in 2007.
homeowners should get off the fence and make a bid, assuming you have an
affordable home target and adequate savings, because rates are likely only
mortgage rates are increasing
seen this movie before.
after the 2016 election, investors sold government debt en masse, causing the 10-year yield to rise from 1.88 percent on
Nov. 8 to 2.60 percent five weeks later. That dramatic rise was predicated on
investors thinking a newly Republican controlled Washington would bring about
faster economic growth through infrastructure spending and tax cuts.
waned throughout 2017, though, as the GOP failed to overhaul the Affordable
Care Act, casting doubt on their cohesion as a governing party. The
long-promised massive infrastructure bill never materialized, while the
prospects of a tax overhaul dampened. By the first week of September, the
10-year yield was 2.05 percent.
then Republicans made progress on a $1.5 trillion tax bill, while the employment
picture continued to brighten, and the U.S. economy grew at a solid clip over
the last six months of the year.
Congress agreeing to a $300 billion spending bill, which will only throw
more coal on the burning economy, investors see fewer reasons to own bonds.
Economic growth and higher pay could result in long-awaited inflation gains.
Prices have been rising below the Fed’s 2 percent target, according to the
central bank’s preferred prices gauge, for years now.
inflation is a boon for fixed-rate borrowers but hurts debtors. The January jobs report, which showed a 2.9
percent-year-over year earnings increase, was a signal to market observers that
inflation may be coming.
reported in January that China, the largest foreign holder of
U.S. debt, may reduce or cease U.S. debt purchases, causing market jitters.
you be worried?
the recent run-up in yields, you may be worried. But don’t panic just yet.
is not alarming,” notes Chris
Vincent, fixed income portfolio manager at William Blair. “There is no
significant drama in the credit markets.”
after nearly a decade of low rates and low growth, are adjusting to the new
normal and corresponding volatility.
while China may own over a trillion dollars of U.S. debt, that’s less than 20
percent of all debt owned by foreign nations, and a fifth of what America owes
are entering a world where it’s going to become more expensive to borrow money.
It’s time to get used to it.
More and more people are refinancing their homes to solve their
financial woes...but why? One reason is that refinancing saves homeowners
an average of $4,264/year.
In fact, just last year almost
2,000,000 people refinanced their homes to the tune of $749 billion. While
many have already taken advantage of historically low rates, there
are still 6.7 million homeowners that have yet to cash in on the potential
see, this opportunity was born out of the 2008 Housing Crisis. The Fed
dropped rates to historical lows to fight off the recession and opened a window
where many Americans could refinance and save. But recently the Fed has
signaled interest rates are about to rise.
That’s why it’s important to see
if you could benefit from refinancing, before it’s
So, what should you do if you
still haven’t refinanced?
You can start by checking out LendingTree a free
calculator that lets you see how much money you can save every
LendingTree has already helped fund over $60 billion in mortgage loans in
just the last five years...it’s no wonder that they are one of the largest
and most trusted players in the space.
Need more convincing on why refinancing is right for you?
Well just keep reading for the top five reasons, and you'll quickly
discover that refinancing is the biggest financial “no-brainer” of 2017!
Reason #1 - Take Advantage Of Historically
Low Rates Before They Go Back Up
As we mentioned above, borrowing rates have dropped to
historical lows and they can’t stay this low for much longer. In fact, the Fed
has already taken steps towards the next rate hike. That’s why it’s so
important you take advantage of this opportunity now.
And we’ll make it easy for you…
Use the calculator below to estimate your new payment and
potential savings - chances are, you'll like what you see.
Not bad! You could save a total of $57,618 off your entire
mortgage or $160 per month!
this estimate is pretty accurate and based on average rates, it only takes a
few moments to find your exact savings. Just hit the orange "calculate
your payment" button
above to lock-in your rate today.
Reason #2 - Your Financial Situation Has Changed
Life is always changing, we
know that. You might have taken a new job that pays more… or you might have
new expenses that stretch your money further and further every month.
So another loan type might
make more sense for you today.
You might be able to cut your
30-year mortgage down by years and still repay the same amount of money.
For example, say you took out a 30-year loan at 6% in 2007.
refinanced that in 2014 at 3.55% and paid off your house 9 years earlier
Or if you’re looking for an
extra $250 per month, you might be able to refinance your 30-year mortgage at a
lower rate and make smaller monthly payments.
Another option is if you have
an adjustable rate mortgage, you could refinance to a fixed-rate
mortgage. You'll lock-in one of the lowest rates ever to protect yourself
against the likelihood of rates rising in the future. And it'll be much
easier to plan and budget for the long term.
Of course, you could do a lot
of things… but to find out what’s best for you, answer a few questions about
your unique situation to find out how much you can save, and then speak to an
expert for free if you like what you see:
You might have other debt…
credit cards, auto-loans, personal loans.
And with average rates for
these sitting at 4.77% to anywhere north of 15.96%, it makes sense to
consolidate your debt through the lower rates of
your mortgage loan.
All you need to do is refinance
with a cash-out option or pick up a home equity loan. You’ll be getting a
much better rate - and cutting your monthly payments down.
Another lesser-known bonus that
most people don’t think about, is that mortgage interest is
tax-deductible. So you can cut down on your tax bill too (if this seems
like a good fix, make sure to consult with a tax advisor too). Even
But should you refinance or
take out a home equity loan? The best way to find out is to enter your
home info into the free LendingTree
calculator You’ll discover which is best for you and can
set up a free consultation for answers to any other questions you might have.
Reason #4 - You Were Hit Hard By The Housing Crash
In the aftermath of the Housing
Crisis, the Government created the Home Affordable Refinance Program (or HARP).
It helps help people with little or no equity refinance their homes at a much
better rate. And they’ve already helped 3.3 million people save
in helping people like you do the same. And they’ve put together a free
questionnaire here so
you can quickly discover if you qualify.
Reason #5 - You Want To Make a Big Purchase or Go Back to
We all get squeezed
So when it comes to big money
expenses like a new car or wedding, refinancing is better than taking out
another loan at a much higher rate.
The same goes for going back
into education to boost your long-term income...And for any investments in your
own home (like a renovation that increases the property value, but you can also
enjoy), a business, or a rental property!
Whether your financial
situation has changed, you need to consolidate other types of debt, or you need
to make a purchase you’ve been thinking about for a while.
You should refinance your home
to take advantage of historically low interest rates. You could go to the
bank and be given their so-called ‘best-rate’... Of course, they won’t tell you
about the better deals on the market. Or you could use LendingTree's
free online calculator to find out right now!
Remember, this a free service.
No-strings-attached. But you need to act now - rates won’t stay this low for
Click on your state below to
get started now and let us know what you think...good luck!
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you get a mortgage and
are ready to complete the purchase of your next home, reviewing your closing costs can
feel like visiting a country where you don’t speak the language.
terms. Odd-sounding services. And a sizable menu of fees for things you don’t
bright spot: Many of these fees can be reduced or eliminated.
first thing you need to do is understand that some items here are movable and
negotiable,” says Bruce McClary, spokesman for the National Foundation for
mortgage origination fee is an upfront fee charged by the lender for
processing. It’s a percentage of the loan amount — often about 1 percent.
underwriting fee is charged by lenders to analyze a mortgage application, calculating the
riskiness of the loan.
this is broken out separately from origination fees, it’s something you should
be able to negotiate for
a reduction or elimination, McClary says.
already paying an origination fee,” he says. “Why are you having me pay for an
tax service fee covers the cost of hiring a company that will monitor your
property taxes to verify the amount due each year and make sure the taxes are
paid on time.
tax service company is a subcontractor for the mortgage loan servicer. The
servicer is the company that collects your monthly payments and distributes the
money to local and state tax agencies, the homeowners insurance company and to
the investors that own the loan. Your lender might be the servicer, or it might
pass along that task to another company.
some lenders, you’ll see line item fees for courier or delivery, or similar
costs for transporting documents. You might even see “overnight” or “express
fees can be relatively minor, so it may be better to challenge larger fees than
these types of itemized costs. It’s a more “efficient use of your time to try
and make the biggest cut,” McClary says.
appraisal fee covers the cost of the quick home examination to determine the
value of the home for a mortgage. “(These fees) will vary widely
across the country and even across the state,” says Andrew Pizor, staff
attorney with the National Consumer Law Center.
lender usually picks the appraiser or the appraisalmanagement company. “It should be
passed along at cost,” he says.
of the National Foundation for Credit Counseling, says that if you have
motivated sellers, you could negotiate with them to cover the cost.
insurance covers the cost of doing a title search to make sure no one else has
a claim to the property. It also pays for an insurance policy that will offer
protection if claims surface later.
are usually two policies. One covers the buyer, the other covers the lender.
may be able to trim these costs.
ask about the reissue rate,” Pizor says. The reissue rate is a homebuyer
discount on the cost of an owner’s title insurance policy.
your house has been sold relatively recently, most of the heavy lifting on a
title search already has been done and there is less risk and less to check.
The reissue rate takes that into account.
you can take advantage of a reissue rate, it can mean “a decent savings,” Pizor
states charge an escrow fee. “Escrow is the neutral party between the buyer and
the seller sometimes used in lieu of an attorney,” says Beth Peerce, a vice
president with the National Association of Realtors and a real estate broker in
is licensed by the state, and it can be a less expensive option than attorney
fees, she says. Instead, a fee is paid to the title or escrow company, for
conducting the closing.
on where you’re buying a home, the closing will be handled by an escrow agent
or an attorney, and the charge is often listed as the “settlement fee.”
fees typically run from $400 to more than $1,000, depending on location, says
Mike Dimech, senior vice president of operations for Norcom Mortgage.
confuse escrow fees with money held in escrow. The latter is money held for
payments made periodically for flood insurance, property taxes and property
Recording fees, title fees and
transfer taxes are costs that local municipalities charge when a property
changes hands. The exact terms will vary, but these costs are incurred to
record that the property now belongs to someone new.
If you’re unsure of these
costs, call your county or municipality to make sure the charges right. “There
shouldn’t be any padding here,” Pizor, of the National Consumer Law Center,
property taxes often catches buyers by surprise.
taxes are often collected by lenders in advance, she says. And while the
current owner has paid property taxes up to the closing, this cost covers the
buyer’s portion from the closing date to the end of the tax year.
Be alert for phony fees listed
under vague names for services. In this category are prep fees, quality control
fees, file storage fees and email fees.
“I saw an email fee once for
$50,” Pizor says. “That took some gall.”
The key to spotting bogus
charges is to question them. “If you don’t know the vocabulary or it’s new to
them, don’t be afraid to ask questions,” says Ron Phipps, former president of
the National Association of Realtors. “Get over that.”
FHA loan is a mortgage issued by federally qualified lenders and insured by the Federal
Housing Administration (FHA). FHA loans are designed for
low-to-moderate income borrowers who are unable to make a large down payment.
of 2018, these loans allow the borrower to borrow up to 96.5% of the value of
the home (with a credit score of at least 580; otherwise, a 10% down payment is
required). The 3.5% down payment requirement can come from a gift or a grant,
which makes FHA loans popular with first-time
loans were introduced after the Great Depression in the 1930s. During this
time, defaults and foreclosures skyrocketed.
In response, the government created federally insured loans that gave mortgage
lenders peace of mind, reduced lender risk and stimulated the housing
market. By insuring mortgages, lenders were (and still are) more inclined to
issue large mortgages in cases where they normally would not have approved the
loans are offered to low-income individuals who have credit scores as
low as 500. Individuals with a credit score between 500-579 can obtain an FHA
loan with a down payment of 10%; individuals with a credit score higher than
580 can get an FHA loan with as little as 3.5% down. The Federal Housing
Administration does not lend the borrower the money to take on a mortgage or to
buy the house. Rather, the borrower pays a monthly or annual mortgage
insurance premium to the FHA to insure the loan, which the
lending institution issues to him or her. In case of default, the lender’s
financial risk is minimized because the FHA would step in to cover the
history is not a problem with an FHA loan. Instead of your credit report, the
lender may look at other payment-history records, such as utility and rent
payments. Even people who have gone through bankruptcy and foreclosure may
still qualify for an FHA loan. However, the lower the credit score and the
lower the down payment, the higher the interest rate.
In addition to the traditional first mortgages, the FHA offers a
reverse mortgage program known as Home Equity Conversion Mortgage (HECM). This program
helps seniors convert the equity in their homes to cash while retaining the
titles to their homes. FHA also offers a special product known as an FHA 203(k) loan, which factors in the cost of certain repairs
and renovations into the loan. This one loan allows an individual to borrow
money for both a home purchase and home improvement. This can make a big
difference for a borrower who does not have a lot of cash on hand after making
the down payment. The FHA’s Energy Efficient Mortgage program is a similar
concept, but aimed at upgrades that lower the utility bill. The cost of newer,
more efficient appliances, for example, becomes part of the loan.
order for an FHA loan to be approved, the borrower must have mortgage insurance. An FHA
loan requires two types of mortgage insurance premiums (MIP) to be made by the
borrower – an Upfront Mortgage Insurance Premium (UPMIP)
and an Annual MIP. The upfront MIP is equal to 1.75% of the loan amount (as of
2018) and is paid at the time of closing. A borrower who was issued a home loan
for $350,000 will have to pay a UPMIP of 1.75% x $350,000 = $6,125. The
payments are deposited into an escrow account set up by the US Treasury
Department, and the funds are used to make mortgage payments in case the borrower defaults.
annual MIP payments are made every month by the borrower. The payments
vary according to the loan amount, length of the loan, and the original loan-to-value ratio (LTV). The typical MIP cost is
usually 0.85% of the loan amount. Following our example above, the borrower
would have to make annual MIP payments of 0.85% x $350,000 = $2,975, or $247.92
monthly. This is to be paid in addition to the cost of UPMIP.
you buy a home, you may be responsible for certain out-of-pocket expenses such as loan origination fees,
attorney fees, and appraisal costs. One of the advantages of an FHA mortgage is
that the seller, home builder or lender is allowed to pay some of these closing costs on your behalf. If the seller is having a
hard time finding a buyer, he or she might just offer to help you out at
closing time as a deal sweetener.
FHA loans give mortgage opportunities to people with low income or low credit
and people who may be first-time homebuyers, there are specific lending
requirements outlined by the Federal Housing Authority.
a borrower must have a steady history of employment or worked for the same
employer for the past two years. This is important because the FHA requires a
ratio – which is the summation of the monthly mortgage
payment, HOA fees, property taxes, mortgage insurance and homeowner’s
insurance – be less than 31% of total gross income. However, it is possible to
be approved with a 40% ratio. Additionally, a borrower's back-end ratio –
which is the summation of the monthly mortgage payment and all other monthly
consumer debts – is required to be less than 43% of total gross income.
However, it is possible to be approved with a ratio as high as 50%.
who are self-employed will need two years of successful self-employment
history, documented by tax returns and a current year-to-date balance sheet and profit and loss statement.
Applicants who have been self-employed for fewer than two years but more than
one year can be eligible if they have a solid work and income history for the
two years preceding self-employment and the self-employment is in the same or a
borrowers must be at least two years out of bankruptcy, unless a borrower who
has recently gone through bankruptcy has demonstrated that it was an
uncontrollable circumstance. Borrowers must also be at least three years
removed from any foreclosures and demonstrate that they are working toward
re-establishing good credit. However, a borrower who is delinquent on his/her federal student loans or income taxes, won’t
qualify for an FHA loan. A borrower must also be of legal age in the state
where he is applying for a mortgage, have a valid Social Security
Number and be a lawful US resident.
general, a property financed with an FHA loan must be the borrower's principal
residence and must be owner-occupied. This loan program cannot
be used for investment or rental
properties. Detached and semi-detached houses, townhouses, row
houses and condos within FHA-approved condo projects are all eligible for FHA
the lending institution that the borrower is using must be approved by the FHA
board since the FHA is not a lender, but an insurer. In other words, the money
for an FHA mortgage is not given to borrowers by the FHA; rather, borrowers
receive the funds from an FHA-approved lender, and the FHA guarantees the loan.
On one hand, this means that different lending institutions might offer the
borrower a very similar mortgage (or might turn the borrower down)
because the FHA’s loan guidelines don't change based on who money can be
borrowed from. On the other hand, the FHA offers lenders flexibility in setting
their own standards for determining loan eligibility, and many lenders’ minimum
requirements are higher than those set by the FHA. As a result, one institution
may approve an FHA loan while another rejects it.
an FHA loan may sound great, it is not for everybody. People with credit scores
less than 500 will usually not be eligible for an FHA loan.
borrower who can afford a large down payment may be better off going with a conventional
mortgage as they could save more money in the long run through
the lower interest rates and mortgage insurance premium that conventional
to an FHA advisor to determine whether this type of mortgage is right for you.
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It’s easy to find your dream home and envision your life there,
but harder to actually buy that home unless you know how to get a mortgage. So
let’s take a look at the main things you need to know.
qualify you, lenders look at three main factors:
Lenders use a debt-to-income (DTI) ratio which tells them what percentage of
your income will be going towards all of your bills. They will let you spend as
much as 43 percent of your income on housing and non-housing bills.
health. Lenders will run your credit report from all three
credit bureaus — Equifax, TransUnion, and Experian — and base your loan
approval on the middle of your three scores. In addition to scores, the reports
lenders pull will also show them your full credit history which they also
consider. If you run your own credit scores, your lender won’t use them — they
must use their own, and the reports they pull will most likely produce
different scores than you’re able to obtain as a consumer. See below for how to
review your credit history for free.
in the game. Lenders consider down payment and how much money
you’ll have left over after you close a home purchase — they review this
against the DTI to consider how fast you’ll be able to build up reserves. As
noted below, lenders will still allow very little down, and some loans don’t
require money left over after close. But even in situations like this, you
should consider whether you want to own a home with no reserves.
planning is not just as simple as budgeting for a down payment. You’ll need to
plan for three categories of cash-to-close when buying a home.
payment. Current or past members of the U.S. military can get a loan with zero
down, and everyone else can put as little as 3 percent down on a
conventional loan and as little as 3.5 percent on an FHA loan. If you want to
avoid the extra monthly cost of mortgage insurance, you typically need to have
a down payment of at least 20 percent.
closing costs. These include lender and appraisal fees, title
insurance and transaction settlement fees, home inspection fees to make sure
the property you’re buying is acceptable to you.
costs due at closing. When you close on a home, it might be the
middle of a month or a local property tax cycle. So the interest you’ll pay on
your mortgage for the remainder of the closing month gets prorated and you
prepay it when you close. Same with property taxes. Also lenders require you to
prepay one year of homeowner’s insurance at closing. And if you’re getting a
loan that requires you to save up for property taxes and insurance by paying
into an account monthly, you’ll have to prepay that as well — it’s called an
escrow or impound account.
Federal government has a program called Know
Before You Owe, which requires all lenders to follow a standard format for disclosing cash-to-close line items
way you can see the total cash you’ll need and nothing will be a surprise.
Therefore, it’s good to connect with a lender even if you’re
early in the home buying research process. They will give you these disclosures
so you have a very accurate assessment of cash needed to meet your home buying
homeowner’s budget isn’t just a mortgage payment. It’s also property taxes and
insurance, and mortgage insurance if the down payment is less than 20 percent.
as you plan your mortgage budget make sure to use a mortgage calculator that includes
these items. And when you’re ready to talk to a lender, the disclosures noted
above include a breakdown of these monthly cost line items.
can currently deduct mortgage interest and property taxes from their gross
income when filing tax returns to ultimately pay less tax and therefore lower
their total cost of homeownership, but when budgeting, it’s best to budget with
the pre-tax numbers because that’s what’ll be due each month — the tax benefit
comes after you file each year.
you’re buying a condo or a home within a planned development such as a gated
community, find out what the homeowner’s association (HOA) dues are and include
that in your budget.
of course as a homeowner, you are responsible for your own maintenance and
upkeep on the home, so you’ll want to build that into your budget too.
can save for a down payment and cash to close, or lenders also allow you to receive gift funds for a home purchase.
you have the ability to get gift assistance, it’s worth considering because the
rate of home appreciation in your area may outpace your savings rate, making it
more expensive to buy the same home later rather than now.
for making sure your credit is clean, there is
only one Federal government-sanctioned free credit report service — AnnualCreditReport.com.
You can use this to review your credit history to see if there are errors or
derogatory items you need to clean up.
factor that causes credit scores to fluctuate the most month over month is
credit card balances. To keep your credit score the highest, try to keep your
credit card balances at 30% or less of your credit limit.
you want to go deeper on individual topics see Zillow’s How To Get A Mortgage library.
What is the value of your home?
It depends on what you mean by "value."
This figure varies throughout
the U.S. since it is determined by the taxing authority of the city, county, or
state where you live. Sometimes it is the same as the market assessed value and
other times counties will multiply the market value by an assessment ratio to
get the tax assessed value, which is often lower than the market assessed
For example, suppose where you
live, homes are assessed at 100 percent of market value. If you have a home
that has a market value of $150,000, your home will be assessed at $150,000.
However, if your taxing authority assesses homes at 70 percent of value, your
$150,000 market value home will have a tax assessed value of $105,000.
This is the value of real or
personal property based on the valuation established by a government tax
This is the price the
government tax assessor estimates the property would sell for on the open
market as of the effective date for the assessed value for the year in
question. The assessor’s market assessed value is based on actual historical
sales of similar properties for a specified study period.
For example, a market assessed
value with an effective date of January 1 may have been determined considering
comparable sales during the previous 12 months ending September 30 of the
previous year. Sales study periods vary by assessment jurisdiction. Because
historical sales are used, assessed values are typically less than current
Before you get the keys to the home that you're buying, you'll
go through the closing process. Besides signing lots of papers, it also
includes paying certain fees. How much money are we talking about?
A homebuyer typically pays between about 2% and 5% of the home
purchase price in closing fees, but the amount varies widely depending on where
an idea of how much you'll pay in closing fees, check out Bankrate.com's annual state–by–state survey. Be aware that the
amounts are based on good faith estimates for a hypothetical $200,000 mortgage
loan from up to 10 lenders in a city (or several cities) in each state plus
Washington, D.C. The loan in this scenario was for the purchase of an existing
single–family house, not brand–new construction. The hypothetical buyer was not
a first–time homeowner, made a 20% down payment, and had excellent credit.
Also, the estimates excluded some fees that you might need to pay.
more about what to expect at closing on My Home by Freddie Mac®, where you'll find a closing costs calculator and Meet the Experts video series as well as
lots of other information and resources.
mortgage closing is the last step in buying a home: At the end of the closing,
the buyer becomes the legal owner of the home. This article will walk you
through the details of a mortgage closing so you’ll know exactly what to expect.
a mortgage closing, all legal documents — both those related to the mortgage
loan and those related to the transfer of the property from the seller to the
buyer — are signed. These documents may include your mortgage note, in which
you promise to repay your lender;
the home deed, which grants you ownership of the home; the Real Estate
Settlement Procedures Act paperwork, which states that you understand the
closing process and financial obligations related to your mortgage; the Truth
in Lending Disclosure Statement, which lays out the terms of the loan including
the annual percentage rate and information on points; and the HUD-1 Form, which
itemizes all the costs related to the sale of the home.
not just document signing. Money may also transfer hands: The buyer and
sometimes the seller may pay costs related to escrow or closing to the lender,
and the lender gives the closing agent money to cover the mortgage amount.
Other things that may occur: The buyer shows proof of homeowners insurance so
that the lender will fund the mortgage loan, and the closing agent sets up an
escrow account for the buyer, which will help the buyer pay taxes and insurance
on the property. Finally, the buyer will receive the title to the property; the
seller or a representative of the seller will give the buyer the keys to the
new place; and the closing company, attorney or title company officially
records certain documents such as the warranty deed.
attends a mortgage closing will vary depending on where you live, but in
general, these parties are likely to attend a closing: The buyer; the seller;
the escrow/closing agent; attorneys for both the buyer and the seller (the
attorney may be the closing agent); someone from the title company; the
mortgage lender; and real estate agents.
mortgage closing is the final step in the home-buying process before you
officially own the home. So before the closing, you’ll first need to find a home you like, make an offer, get
approved for the mortgage loan and have the seller accept your offer. Once all
that is finished, you will close on the home. The closing is completed once all
the documents are signed and the required monies have changed hands (see above).
one, the parties present at a closing for a refinancing are
different (and there are fewer of them) than those at a purchase closing: There
is no seller (it’s a refinance of your existing loan) or real estate agent
present, and sometimes it’s just the owner of the home and a representative for
at a closing for a refinance loan, you’ll get something called a rescission
period. This is a three-day window during which you can walk away from the
refinance loan without penalty. The lender must then refund the fees you paid
and give up its rights in your property. If you do not decide to rescind, your
lender will fund your new loan, and the closing agent will use the funds to pay
off your previous mortgage loan.