Buying a home is one of the biggest financial
decisions you’ll make in your lifetime, and it can be difficult to choose a
mortgage amid the swirl of terminology and numbers. In addition to
understanding the interest rate, points and years of repayment, changing any
one of these variables results in your paying more or less each month — and
possibly much more or less over the life of the loan.
government regulations aimed at protecting both consumers and lenders from the
misunderstandings that can arise from all this data, help make the entire
process more transparent. Known as Qualified Mortgage, these loans require
lenders to get more information from potential buyers and do more paperwork,
but in the end, it gives lenders and buyers a better understanding of the
buyers ability to repay the type of mortgage they want.
Mortgages were implemented in 2014 by the Consumer Financial Protection Bureau
as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It
aims to make sure lenders aren’t giving loans to consumers that will be
difficult to pay back. These rules were a direct result of the financial crisis
of 2008 that left many homeowners underwater on their mortgages and unable to
pay for their homes, which in turn resulted in record numbers of foreclosures
during the Great Recession.
The rules about Qualified Mortgages include the following:
may be longer than a 30-year term.
and fees must equal less than 3% of the total loan amount.
interest-only payback periods.
negative amortization, so the amount you owe in principal can never rise.
balloon payments, which are extra-large payments near the end of the loan’s
to how much of your income can go toward your debt, meaning that you can’t be
approved for a loan that takes up too much of your income.
must take into account your ability to pay back the loan before approving the
amount to avoid predatory lending situations.
a Qualified Mortgage means that you can be confident that your lender is
following these rules and that, barring any drastic changes in your income or
life circumstances, you should be able to repay the mortgage on schedule. This will help you keep
your home and avoid any damage to your credit score by defaulting on the
While these rules are helpful to homebuyers
and offer a level of protection against predatory lending practices, the
government does not regulate the interest rates charged by banks. Your rate is
largely determined by your credit score, which lenders use as a measure of
risk. A high credit score means that, based on your payment history, you are
likely to make your mortgage payments on time and in full. Likewise, late
payments or defaulting on a loan will lower your score and indicate to a bank
that you are not as good a risk for them — and they’ll likely charge you higher
interest rates as a protection for their investment in your house.
It’s in your best interest to know your credit
score and to check your credit report for any errors that
could make a bank want to charge you higher interest rates. The Fair Credit
Reporting Act (FCRA) requires Equifax, Experian and TransUnion — the big three
credit score reporting companies — to provide a free copy of your credit report
once a year.
You can access these on AnnualCreditReport.com.
You can also sign up for a free credit
monitoring service, which will alert you to any changes in your credit report
so you can nip any errors in the bud. Mistakes happen, but they can be costly when
it comes time to apply for a loan or mortgage. You also can get two free credit scores from Credit.com. This service also provides
a helpful explanation and breakdown of your score that allows you to plan for
improvements that will build your credit.
your rights as a borrower and knowing your credit score are crucial tools for
getting a great rate on your mortgage. Being able to borrow at an affordable
rate will open the doors to your dream home, so all you have to do is move in.
By Credit.com – To view
the original article click here
When you’re buying a
home, it can be exciting and frightening! If you’re a first time homebuyer, it
can be hard to know what to expect. That’s why we created this infographic that
walks you through the complete home-buying process.
buying a home doesn’t actually start with looking at homes. It starts with
looking at your budget to see how much of a mortgage payment you could afford
each month. Then, you begin saving for a down payment and shop around for the
best mortgage with the least expensive interest rate. During this time, you can
hire a highly recommended buyer’s agent who can help you find your dream home.
getting your finances in order, you should decide what you want and need in a
home, and then give that list to your buyer’s agent. The agent can take this
list and find possible houses that you may be interested in at your price
you have found the perfect home, make an offer. Depending on your offer, you
and the seller may haggle until you agree on a price, in which time you will
enter into contract on the home. While the home is under contract you as the
buyer must finalize the mortgage, have the home appraised, surveyed and
inspected, and purchase title and home insurance.
you and the seller enter closing, where you will pay for the down payment and
provided services that got the home ready. (Title insurance, appraisals and
home inspections.) The seller hands over the keys, and with that you’re the
owner of a home!
By Whitney Bennett – To
view the original article click here
More than 3,000 counties to see increases
Housing Administration announced Thursday that nearly every area of the U.S.
will see FHA loan limits increase in 2018.
The new loan limits will take effect for FHA case numbers
assigned on or after Jan. 1, 2018.
is required by the National Housing Act, as amended by the Housing and Economic
Recovery Act of 2008, to set Single Family forward loan limits at 115% of
median house prices, subject to a floor and a ceiling on the limits. FHA
calculates forward mortgage limits by Metropolitan Statistical Area and county.
in 2016, the FHA increased loan limits for just 188 counties.
Then, in 2017, this number jumped to 2,948 counties that
saw an increase. And now, the number of counties increased even further to
3,011 counties for 2018.
high-cost areas, the FHA’s loan limit ceiling will increase to $679,650, up
from $636,150 this year. The floor will also increase from $275,665 to $294,515
in 223 counties, the FHA loan limits will remain the same.
National Mortgage Limit for FHA-insured Home Equity Conversion Mortgages, or
reverse mortgages, will also increase, rising from $636,150 to $679,650.
Currently, the FHA regulations implementing the National Housing Act’s HECM
limits do not allow loan limits for reverse mortgages to vary by MSA or county;
instead, the single limit applies to all mortgages regardless of where the
property is located.
FHA’s minimum national loan limit, or floor, is currently set at 65% of the
national conforming loan limit of $453,100. This floor applies to those areas
where 115% of the median home price is less than the floor limit. Any areas
where the loan limit exceeds this floor is considered a high-cost area, and
HERA requires FHA to set its maximum loan limit ceiling for high-cost areas at
150% of the national conforming limit.
here for a complete
list of FHA loan limits.
news follows Federal Housing Finance Agency’s recent
announcement that it plans to increase the maximum conforming
loan limits for mortgages to be acquired by Fannie Mae and Freddie
Mac in 2018.
By Kelsey Ramírez – To view
the original article click here
can make two predictions with confidence about 2018: Home sales will
accelerate, and your taxes will probably be affected in some way. As for
mortgage rates, who knows? They were low throughout 2017, and even after the
Fed raised rates twice, they remain low by historical standards.
say they often dispel the mistaken idea that homebuyers have to make down
payments of at least 20 percent. In fact, some loan programs allow qualified
people to buy homes with no down payment at all. Other loan programs allow down
payments as small as 3 percent or 3.5 percent.
Department of Veterans Affairs guarantees zero-down VA mortgages for qualified
borrowers: veterans, active-duty service members and certain members of the
National Guard and Reserves.
U.S. Department of Agriculture guarantees zero-down mortgages as part of its
Rural Development program. The loan guarantees are available in eligible areas
— mostly rural areas, though some are suburban.
Federal Credit Union offers zero-down mortgages for qualified members to buy
Federal Housing Administration-insured mortgages allow down payments as small
as 3.5 percent. And a few lenders offer conventional mortgages with down payments
of as little as 3 percent with private mortgage insurance.
Housing Administration-insured loans are appealing because they’re widely
available to borrowers with imperfect credit. In 2016, the average credit score
for an FHA homebuyer was around 686, while the average conventional homebuyer
had a credit score around 753.
need a credit score of 580 or higher to get an
FHA-insured mortgage with a down payment as low as 3.5 percent. If your credit
score is between 500 and 579, you need to make a down payment of at least 10
percent to get an FHA mortgage. But first you would have to find a lender that
would approve the loan.
are more crucial facts about FHA loans.
lenders don’t want you to deplete your savings on the down payment and closing
costs. They want you to have “reserves” — cash, or assets that can be sold
quickly, so you can take care of unexpected expenses without missing house
lender will calculate the minimum reserves you’ll need to qualify for a
mortgage. There’s a possibility that the reserve requirements will oblige you
to unexpectedly make a down payment of less than 20 percent, triggering the
need for mortgage insurance. To avoid mortgage insurance in this case, you’d
have to cancel the deal, scrape up more money for a down payment and wait while
you put aside more money.
would rather you have an emergency fund than not, even if it means you’ll have
to make higher house payments because of mortgage insurance.
people buy homes, they often “stretch” to make their initial monthly payments,
on the theory that their incomes will go up over time, making house payments
easier to cover.
it’s smarter to live within your means. You can move up to a more expensive
house after (and not before) your income rises. A conservative rule of thumb is
that all of your monthly debt obligations, including the house payment,
shouldn’t exceed 36 percent of your income before taxes.
say your household income is $5,000 a month: The monthly house payment, car
payments, student loans, credit cards, child support and other obligations
shouldn’t be more than $1,800, or 36 percent of that $5,000.
typical mortgage has thousands of dollars in mortgage fees and other closing
costs. If you pay those fees out of pocket, you tend to get the lowest interest
rate you're eligible for. But you might want to
accept a higher interest rate in exchange for the lender paying some or all of
the closing costs.
example, you might be offered an interest rate of 3.75 percent if you pay all
the closing costs, or a rate of 4.125 percent if the lender pays the closing
mortgages are attractive to people who plan to sell their homes
within five years or so. If you plan to stay longer than five or six
years, your total costs will be lower if you go ahead and pay the closing costs
out of pocket. It’s a balancing act, because paying the closing costs could
push you into making a smaller down payment, potentially forcing you to pay for
already mentioned Veterans Affairs-guaranteed mortgages, but these home loans
may be underused, even though they’re popular.
primary feature of VA loans is that they can be used to buy a primary home
without a down payment.
2016, approximately one-eighth of mortgages were guaranteed by the VA,
according to the Mortgage Bankers Association. But a 2010 survey found that
many home-buying veterans weren’t aware of the VA loan benefit or didn’t know
much about it. About a quarter of active-duty military personnel weren’t aware
that they were eligible for VA loans.
for a VA loan today.
those active-duty personnel believed that the VA loan benefit was available
only to retirees or veterans who have been discharged. In fact, VA loans are
available to honorably discharged veterans, those who are on active duty, or
who have completed at least six years of service in the National Guard or
selected Reserve units. Certain surviving spouses of veterans are eligible,
too. See a detailed
cash-out refinance happens when the homeowner refinances the mortgage for more
than the amount owed. The borrower pockets the difference.
refinances were popular during the real estate boom of the early 2000s. Then
they almost disappeared after the housing bust wiped out billions of dollars in
home equity. Now that home values have climbed near their pre-recession peaks
in many markets, cash-out refinances have returned.
Compare rates on
a mortgage refinance.
you’re eligible for a VA-guaranteed mortgage, you might be able to refinance
from a conventional mortgage (or an FHA-insured mortgage) into a VA loan.
for a VA loan today.
many cases, you can refinance for up to 100 percent of the home’s current
value. This means you can do a cash-out refinance using a VA loan. Funding fees
for cash-out VA refinances vary from 2.15 percent to 3.3 percent, and the fee
can be added to the loan balance.
your finances as boring and steady as possible between the time you apply for a
mortgage and the time you close on the loan.
sounds simple in theory, but it’s sometimes difficult in practice, especially
for first-time homebuyers. What it means is this: Don’t charge up your credit
cards and don’t apply for new credit while the mortgage is going through the
you apply for the mortgage, the lender looks at your credit report and your
credit score. Then, shortly before closing, the lender surveys your credit
again. If there’s a substantial change — say you maxed out your credit cards to
buy furniture and appliances, or you got a loan to buy a car — the lender might
have to delay your mortgage closing. In drastic cases, you could torpedo your
mortgage and have to apply all over again.
By Robin Saks Frankel –
To view the original article click here
Thinking about buying a home but not sure
whether you qualify for a mortgage? Consider the following facts.
Mac buys mortgages that meet our requirements from lenders — we don't make the
loans. The lenders decide the standards they ultimately apply in making loans.
deciding whether to make a loan, lenders evaluate the four Cs:
Visit My Home for
information, resources, and tools to help you gauge your options and understand
what's involved in looking for, buying, and maintaining your own home.
Courtesy of Freddie Mac – To view the original article click here
are six distinct phases of the mortgage loan process: pre-approval, house
shopping; mortgage application; loan processing; underwriting and closing.
Here’s what you need to know about each step.
loan pre-approval sets you up for a smooth home buying experience.
few things have changed since the real estate meltdown a few years ago. For
purchase transactions, real estate agents will first want to know if you can
get a loan. In the old
days, financial institutions were doling out money to anyone with a
heartbeat. Unfortunately, soft lending standards helped fuel an eventual rash
of foreclosures. Suffice it to say, conditions on the ground have changed since
then. Today, the best way to approach a real estate agent is with a lender
pre-approval in hand. It shows that you’re ready and able to
don’t take much time. They involve pulling a three-bureau credit report (called
a tri-merge) that shows your credit score and credit
history as reported by third-party, respected institutions. Within
the credit report, a lender can see your payment history (to see if payment
obligations have been on-time and in-full) and your
lines of credit (past and present).
lender will be able to pinpoint a loan amount for which you qualify. This
pre-approval will save you a lot of time since you will be able to focus
exclusively on houses in your price range.
pre-approvals also signal to the seller that
you’re a serious buyer. Being prepared is particularly useful
when making an offer on a house. If you intend to negotiate the
deal (and why wouldn’t you?), a pre-approval gives your offer a little extra
gravity. Being ready
to go can also help in a hot market where it’s not uncommon
for sellers to entertain multiple, simultaneous offers. Sellers tend to focus
on the path of least resistance: the buyer who is pre-approved.
As you do your online research,
you may read the term mortgage pre-qualification.
It is not the same as pre-approval, and it’s important to know the
A pre-qualification is a less
meaningful measure of a person’s actual ability to get a loan. It’s a very
lightweight “at a glance” look at a borrower’s credit and capacity to repay a
mortgage. It’s usually determined by a loan officer asking a potential borrower
a few basic questions like,
“How is your credit?” There’s
no third-party verification of the borrower’s answers. While the conversation
with a loan officer can be helpful for other reasons, there’s no tangible
result that proves anything to anyone (like to your real estate agent or a
During the pre-approval phase,
one of the best things to do is to gather up documents needed for mortgage pre-approval. Anything
you can do, to prepare in advance, will reduce the stress when you find the
right home and make an offer. At that stage, you’ll be able to hand over all
your paperwork to your loan officer at once. Being ready is a solid move! You
can even download a pre-approval document checklist.
may have already started shopping online via real estate portals like Zillow,
Trulia or Redfin. At this stage, it’s a good idea to start working with a real
estate agent and viewing homes.
for houses online is convenient, easy and fun. There are a few things you’ll
want to know in advance.
none of the online resources are 100% accurate. In fact, Zillow’s home price
estimates, called Zestimates, are off nationally by about 8%. And that’s at a very broad, national
level. The accuracy can drop even more as shoppers drill down to specific towns
and neighborhoods. Zestimate inaccuracy isn’t necessarily a bad thing,
it’s just something a smart shopper should know. There’re still a lot of
reasons to use a real estate shopping and comparison.
There’s a strategy that can
help you deal with Zestimates. The 8% inaccuracy cited above can swing in
either direction. Zestimates can be high or low. Here’s what
that means to you. If you are pre-approved for a $400,000 loan, that means you
could include searches on homes up to $432,000 (8% greater than the $400,000
baseline approval). You real estate agent can help you fine tune your
choices. An experienced realtor, with a good understanding of the local
market, will have a sense about which homes may be negotiated down
to a price you can afford.
second thing you’ll want to know is that listings on big real estate portals
are not always up-to-date. Multiple Listing Services (MLS), used by real estate
agents, reflect the most up-to-date inventory.
for whatever technical reason, portals don’t show 100% of the
available inventory. Furthermore, agents may know about homes
that are coming on the market before the listings are made public. It’s
good to have a professional with his or her ear on the ground in the market
where you want to buy.
Real estate shopping engines are great for:
Searching by location using map-based queries
Getting ideas about neighborhoods that fall in your price range
Putting together a list of properties you want to see in person
They are not as good at:
Predicting a precise and final sales price
Showing all listings in the market
Revealing listings that will hit the market soon
When you’ve visited properties
with your agent and picked out the home you want, it’s time to make an offer.
Your real estate agent will know the ins-and-outs of how to structure it. It
will include contingencies (or conditions) that must
be satisfied before the deal is complete. Here are a few common ones:
Appraisal must come in close to the loan amount,
Home inspection does not find issues with property
Borrower is approved for loan
fact, HUD mandates a VA Escape Clause on every purchase offer.
expressly agreed that, notwithstanding any other provisions of this contract,
the purchaser shall not incur any penalty by forfeiture of earnest money or
otherwise or be obligated to complete the purchase of the property described
herein, if the contract purchase price or cost exceeds the reasonable value of
the property established by the Department of Veterans Affairs.
Contingencies protect you and
your earnest money, a deposit that tells the
seller you’re a committed buyer. Typical earnest money deposits are 1% to 2% of
the sale price. The funds are released from escrow and applied to your down
payment at closing.
With terms of the deal
approved by both parties, the purchase agreement (a
binding offer) is signed by the seller and buyer. At this point, you can move
forward to finalize the loan.
Applying for a Mortgage
A few documents are needed
to get a loan file through underwriting. Some of the information will be
gathered online or over the phone. A lot of it will already be stated on some
documents you’ll provide, like employer address which can be found on a pay stub.
While the list looks long, it won’t take much effort to round them up. The
lists below will help you keep track. Your loan officer will also indicate
which items will not be needed and also help you prioritize which items to send
Name of current employer, phone and street address
Length of time at current employer
Salary including overtime, bonuses or commissions
Two years of W-2s
Profit & Loss statement if self-employed
Pensions, Social Security
Bank accounts (savings, checking, brokerage accounts)
Investments (stocks, bonds, retirement accounts)
Proceeds from sale of current home
Gifted funds from relatives (e.g. down payment gift for FHA
real estate agent will be able to grab some of the harder-to-find items such as
Expected sales price
Type of home (single family residence, condo, etc.)
Size of property
Real estate taxes (annual)
Homeowner’s association dues (HOA)
Estimated closing date
prepared to explain any missteps in your financial background. It’s good to have
dates, amounts and causes for any of the following:
Fixed or adjustable
Forward or reverse
Government insured: VA, FHA, USDA
you are applying for a VA loan you will need proof of your military
service. The VA can provide a Certificate of Eligibility (COE). Your lender
will be able to pull it for you. If you want to get it yourself, you can do so
via the eBenefits website.
All the documentation from
above is pulled together to produce the Loan
Estimate. The Loan Estimate describes
the terms and predicts the costs associated
with your loan. By law, you must receive it within three days of your
Loan Estimate includes closing costs, the interest rate and monthly payments
(principal, interest, taxes and insurance). A notification is included
if interest rates can change in the future, as would be the case with
Adjustable Rate Loans (ARMs). It also includes information about any special
features such as pre-payment penalties or if the loan balance can ever increase
in spite of you paying on time (called negative amortization).
this stage, you’re not yet approved nor denied a loan. A loan estimate
is simply a statement of the terms and estimated fees in plain
English. It’s like getting an estimate for car repairs; no one has picked up a
wrench yet, you’re just getting a sense of the work that will be done and
how much it’ll cost.
Quick note: Most types of loans — but not
all — use the Loan Estimate at the application stage. Some loan products, like
reverse mortgages, still use two older forms – the Good Faith Estimate (GFE)
and Truth-in-Lending (TIL) disclosure.
can get a sneak peek of what Loan Estimates look like plus an even more
detailed explanation of each section of it on the Consumer Financial Protection
Bureau (CFPB) website.
processors gather documentation about the borrower and property, review all
information in the loan file and assemble an orderly and complete
package for the underwriter. They’ll open the file and get the following
wheels in motion:
Order credit report (if not already pulled for a pre-approval)
Start verifying employment (VOE) and bank deposits (VOD)
Order property inspection if required
Order property appraisal
Order title search
underwriter is the key decision-maker. They closely evaluate all the
documentation prepared by the loan processor in the loan package. They cross
check to see if the borrower and property match the eligibility requirements of
the loan product for which the borrower applied. For example, for a VA loan,
the underwriter will verify the borrower’s military service.
review at the borrower’s credit history and their capacity to repay the loan.
The collateral (the property) is also weighed into the decision. They verify
information and double check for accuracy. They’ll sniff out any red flags that
indicate potential fraud.
everything reviewed, the underwriter approves or rejects the loan. Sometimes
underwriters approve the loan with conditions. For example, they might ask for
a written explanation of borrower’s credit history, such as late payments
Lock Interest Rate
some point after initial approval and before closing, the interest rate for
your loan is locked. Interest rates trade up and down every day that bond
markets are open for business. You and your loan officer will choose
the time to make the commitment.
insurance is ordered before the closing meeting so that you can walk
away with the keys to your new home, ready to move in. This is also the
time to make sure that all the offer contingencies have
been satisfied. Once any conditions are satisfied, the closing is scheduled.
Documents (everyone in the
mortgage industry calls them loan docs) are
drawn, meaning they are printed out and sent to the title company (or
attorney’s office) where the closing meeting takes place. You can expect
a big stack of papers.
of the documents worth calling attention to is the Closing
Disclosure. It should look somewhat familiar. Think of it as the companion
to one the first documents you received in the mortgage loan process, the Loan
Estimate. The Loan Estimate gave you the expected costs.
The Closing Disclosure confirms those
costs. In fact, the two should match pretty
closely. Laws prevent them from differing too much.
Three-Day Review Period
have the right to review the Closing Disclosure three
days prior to the closing meeting. This quite period gives you
a chance to review all of the terms of the loan. In most cases, you’ll compare
the Loan Estimate to the Closing Disclosure but in some cases, you’ll compare
the GFE to the HUD-1 Settlement Statement.
this stage, you’re like a space ship on the launching pad. The countdown has
begun. Most of the time, everything goes as planned. Small things in the loan
docs are allowed to change, like typos. However, bigger changes
reset the three-day review period. Continuing with the space launch
metaphor, the “countdown” would start over if:
The APR on the loan changes by more than 1/8th of a percent
(most fixed loans) or 1/4th of a percent (most adjustable rate loans).
A prepayment penalty is added to the mortgage.
There’s a change of loan products (e.g. change from a fixed rate
loan to an adjustable rate loan).
have the right to a final walk-through of property 24 hours before your closing
meeting. You can make sure the seller has vacated property. You can make
sure any contractually stipulated repairs are complete.
closing is the moment for which you’ve been waiting. It’s time to sign a bunch
of documents and complete your purchase or refinance. Some docs seal the
deal between you and the lender. Other docs seal the deal between you and
the seller (if it’s a purchase transaction).
bring two official forms of identification such as a driver’s license and
passport to the closing.
closing costs are not rolled into the loan amount, talk to your loan officer
about how you will transfer funds either electronically or via cashier’s check.
Closing costs include settlement fees (the
cost of doing the loan) plus any prepaid expenses
(put in an escrow account) for homeowner’s insurance, mortgage insurance and
checkbook will come in handy for any small differences in the estimated balance
owed and the final amount.
closing meeting will take a couple hours, and there’s a lot of paperwork. Your
hand will be tired when it’s all over.
Disclosure (or HUD-1 and TIL in some cases) – a summary of loan
terms, monthly payments and closing costs.
Note – as it sounds, it’s the promise that you’ll repay the
loan. It shows the loan amount and terms of the loan and the lender’s recourse
if you fail to make payments.
of Trust – secures the note above and gives the lender a claim
against the home if you fail to live up to the terms.
of Occupancy – if the house is newly constructed, this is the legal
document you’ll need to move in.
sure to read all documents. And ask questions! Lastly, don’t sign any forms
with blank lines or space.
everything is signed, your participation in the closing meeting is done.
Congrats! The very last closing items happen in the background; the title
company will complete the recording and funding.
Right of Rescission
law provides an opt-out or cancellation of some types of mortgage transactions
called a Right of Rescission. You have until midnight of
the third business day
after signing the closing docs to rescind (cancel) the following:
A refinance transaction on an owner-occupied home
transactions do not have this feature.
you have it, the six distinct phases of the mortgage loan process! Hopefully,
you feel a little more educated about each step and feel more comfortable about
what to expect along the way.
Tony Mariotti – To view the original article click here
a home loan can cut your payments, let you swap an adjustable interest rate for
a fixed one and put some cash in your hand from your equity.
With all those benefits, it’s no wondering so many homeowners refinance their
mortgages every year.
Refinancing can be time-consuming,
and you may have to pay some fees out of pocket even if you choose a
here are some numbers to help convince you it’s worth your while: Recent
declines in mortgage rates mean about 4.4 million borrowers could save an
average of $260 per month by refinancing, according to a report from Black Knight Financial
what to expect before you get started can make refinancing easier and faster.
Here are seven steps to refinancing your home loan.
banks, mortgage companies, credit unions and loan brokers can help you
refinance, so it’s a good idea to shop around and talk to a few lenders before you pick one to
work with. Choose someone who’s responsible, knowledgeable and patient about
answering your questions about different loan programs. Getting a low rate is
attractive, but it shouldn’t be the only reason you choose a lender.
Shop for the best
mortgage rates today at Bankrate.com.
next steps are to complete a loan application and review the Loan Estimate you
should have received from your lender. You may need to provide documentation of
your income. If your lender hasn’t checked your credit, you should do that now,
your lender to help you decide whether to lock your rate or float your rate. If
your rate’s locked, it shouldn’t change unless the terms of your new loan
change. If you let your rate float, it could end up being lower or higher.
ago, homeowners could refinance with very little paperwork, but today, you’ll
need to supply copies of
many documents. Examples include your driver’s license or passport,
W-2 tax forms if you’re an employee, and income tax returns or profit-and-loss
statements if you’re self-employed.
give your lender every page of every document, even if a page is blank.
you’ve submitted your documents and your appraisal has been completed, your
loan should be ready for your lender’s final approval. At this time, you’ll
receive your Closing Disclosure form, which you’ll need to review, sign and
return to your lender.
next step will be to sign your loan documents. You might do this electronically
online or at your title, escrow, settlement or closing attorney’s office.
Closing a loan involves a lot of documents, so it could take an hour or longer
for you to sign all of them.
last step is for your lender to reverify your credit and employment to make
sure nothing significant has changed during the loan process. If everything is
in order, your existing loan will be paid off and your new one will be recorded
with the public records office in the county where your home is located.
Depending on the type of loan you’ve chosen, you may need to
pay some fees or costs at closing.
you decided to cash out some of your equity, you’ll receive a check or wire
transfer of the funds. Your lender will update you about how and when to make
your new monthly mortgage payment.
By Marcie Geffner – To view
the original article click here
While Spring is traditionally thought of as
the peak season for buying a new home, new data suggests that those looking for
a starter home should wait until the leaves start to fall.
According to Trulia's Inventory and Price Watch report,
the inventory for starter homes increases by 7 percent in the fall. Trulia
considers the fall to run from October to the end of the December — also known
as the fourth quarter. During this time, 70 of the largest 100 metro areas see
their starter home inventory peak.
important to differentiate "starter" homes from "trade–up"
homes and "premium" homes. For starter homebuyers, an affordable
price is typically a much more important factor. So, when inventory is low and
prices are high, finding the right fit becomes much harder. According to
Trulia's report, the number of starter homes available have dropped over 20
percent from last year, causing first–time homebuyers to shell out 39.7 percent
of their income to buy a starter home — a 2.3 percentage–point increase from
last year. To put that into perspective, a premium homebuyer only needs to
spend 14.2 percent of their income to buy a home.
the current market for starter homes favors the seller over the buyer, things
start to even out when the weather cools. And just as low inventory leads to
higher prices, when inventory spikes in the fall, the listing prices follow
suit and move lower.
should be noted that not all inventory spikes uniformly across the country.
Some metros see more available starter houses than others. So, where is the
best place to look for a home? Go west, young homebuyer! Seven of the top 10
metros with the largest inventory spikes in the fourth quarter are on the West
Coast or close to it. Here are the top 10 metros where starter home inventory is
higher in the fourth quarter compared to when inventory is at its lowest,
according to Trulia:
So, if you're looking to buy a new starter home, I hear that the
Plaza de Cesar Chavez in Downtown San Jose is really nice
this time of year.
Courtesy of Freddie Mac –
To view the original article click here
You may have heard that “government loans” are available for
would-be homeowners who are saddled with bad credit and/or a history of bankruptcies or foreclosures. In reality, though, it’s not quite that simple.
federal government is not in the home-loan business. However, in the
interest of promoting home ownership – especially for low-income Americans – it
may be willing to guarantee a mortgage for you if you have less-than-optimum credit. In
other words, the government promises the lender that it will make good on the loan if you
federal government agency charged with encouraging individual home ownership is
Department of Housing and Urban Development (HUD) through one
of its offices, the Federal
Housing Administration (FHA). While HUD does some loan
guarantees on its own, its focus is on multifamily units, not
individual homes (with the exception of HUD Section 184 loan guarantees, which
are available only to Native Americans buying homes or other real estate). It is
solely the FHA that insures mortgages for single-family-home buyers.
secure an FHA-guaranteed mortgage, you have to go to an FHA-approved lender,
typically a bank.
One thing that makes an FHA-guaranteed home loan particularly attractive is
that you do not need a perfect credit
history. Individuals who have gone through bankruptcy or foreclosure
are eligible for an FHA loan, depending on how much time has passed and whether
good credit has
been re-established. Borrowers with a credit score of at least 580 qualify for
an FHA loan, although lenders can require a higher score. Still, if you're
approved with a FICO score of at
least 580, you are only required to put down 3.5% of the home's purchase price in cash.
your FICO score is below 580, however, you will need to come up with 10% of the
purchase price for the down payment. Still,
that’s better than the 14.8% of the purchase price that the average home buyer
put down on closing last year. Research by RealtyTrac shows that in the first
quarter of 2015 (the most recent data available), the average dollar amount
paid on closing with a conventional
mortgage was $72,590, whereas the average FHA insuree put down
your FICO score is below 580, securing an FHA-guaranteed loan can be tough,
cautions FHA mortgage expert Dennis Geist, who is engagement director at
Treliant Risk Advisors in Washington, D.C. “Approval of borrowers with credit
scores between 500 and 580 is subject to higher down payment requirements and
additional underwriting scrutiny,”
says Geist. “It’s important to note that ‘nontraditional credit’ can’t be used
to offset negative ‘traditional’ credit.” He adds that although you may see
information holding out hope for FHA-insured loans to would-be buyers with
credit scores under 500, the chances of that actually happening are nil.
not, however, mistake FHA-insured loans for
“easy credit” lending, Geist adds. "There is a misconception that FHA
loans are subprime.
Nothing could be further from the truth,” he says. “Although FHA loans provide
flexible qualifying guidelines, including lower credit scores and
ratios, the demonstrated ability
to repay is a significant factor in the approval of any FHA
plus of an FHA-insured loan is that, unlike a conventional bank loan’s terms,
an FHA loan allows you to get the cash needed for the down payment as a gift
from friends, family or a charity. The FHA will even allow the seller to pay
costs, although if they do so, it may boost your mortgage’s interest
rate, since not having enough money for even that makes you look less
loan-worthy. There are FHA-insured loans available with both fixed
rates and adjustable rates.
ratio requirement involves several calculations based on the
mortgage amount and all other debt payments. First, the amount of the mortgage
payment – including mortgage
insurance (see below) and all other escrow charges –
must be a maximum of 31% of a borrower's gross monthly income. Second, the
mortgage added to all other monthly debt payments, such as student loans or credit cards, must be no
more than 43% of gross monthly income. Using these ratios, a borrower who has a
gross monthly income of $3,000 can have a mortgage payment of up to $930 a
month. The total of the mortgage and all other monthly commitments, however,
must fall under the maximum of $1,290. For more on this, see What
is the debt ratio for an FHA loan?
you decide to pursue an FHA-guaranteed loan, do consider some of the downsides.
First, your options are more limited than with a conventional mortgage, because
you can only do business with an FHA-approved lender. That limits your ability
to shop around for the most favorable rates and terms. “A careful and complete
comparison of loan products, fees and mortgage
insurance is an important step in determining which loan
product is best for you,” notes Geist.
loans have caps on
the amount of the loan that vary by region. The absolute top amount the FHA
will insure is $625,000, which in major metropolitan areas may not go very far.
Further, many condo developments
are not FHA-approved, so some less-expensive housing options are off the table.
Also, FHA loans require the home meet a checklist of conditions and also be
appraised by an FHA-approved appraiser. They can only
be utilized for homes that serve as the buyer’s primary
also that although the cash needed up front may be low, the required FHA insurance
premiums will add considerably to your monthly mortgage
payments, since you are contributing to a HUD reserve fund that
is used to pay off the banks when an FHA-guaranteed mortgage goes bad.
And mortgage insurance payments may not always be tax deductible,
depending on your income.
will pay an upfront
mortgage insurance premium (UFMIP)
of 1.75% of the base loan amount. Then, on a 30-year mortgage, which is
the most common FHA loan term, the annual premium can run as high as .85% of
the loan amount if you choose the lowest down-payment option. At the opposite
end, on a 15-year loan with 10% or more down, the premium drops to .45%.
to your monthly payments, these premiums often tend to make the interest rate on
FHA-backed mortgages – which nominally is slightly less than that on their
conventional counterparts – actually higher than that of regular
mortgages. And, unfortunately, the FHA requires homeowners to carry mortgage
insurance for the life of the loan. With a traditional loan, homeowners can
usually cancel the mortgage insurance once they have at least 20% equity in the
why some FHA loan-guarantee recipients later seek to refinance their properties
with a conventional bank loan once their credit history has improved. To do
that, and say good-bye to the FHA mortgage-insurance payments, you will have to
get FHA approval. “The FHA mortgage insurance continues for the full term of
the loan,” says Geist, “so the primary reason to refinance an FHA-insured loan
with a conventional loan would be to eliminate mortgage insurance and/or to
reduce the term of the loan.”
the upside, however, is the fact that FHA-insured mortgages are assumable,
meaning that whoever buys your property can take it over from you, while
conventional mortgages generally are not.
The buyer has to qualify, meeting the FHA's terms (as you did).
Once he's approved, he assumes all the obligations of the mortgage upon the
sale of the property, relieving the seller of all liability. In some cases, the seller may still be responsible
for the debt if the buyer does not sign a liability release from the lender.
This means that if the buyer does not make the payments, the seller's credit
could be negatively affected.
assumable FHA loan could create a competitive advantage when it’s time to sell,
especially if current interest rates are higher than the existing rate on the
FHA loan,” says Geist. “Assumption costs are also lower than costs associated
with a new loan.” Closing costs and any mortgage buyout costs are also
typically much less than those for a new conventional loan.
your FHA loan could potentially be an incentive if you find yourself selling in
a buyers’ market with rising interest rates.
loans are part of HUD’s mandate to encourage home ownership (HUD itself doesn’t
do loan guarantees for individual homes, unless you're a Native American). If
you have reasonably good credit but are short on funds for a down payment, an
FHA-insured loan can help you become a homeowner. But because of limits on property purchase price, housing type and loan choices – plus
the added cost of mortgage insurance – you’re probably better off with a
conventional mortgage if you have enough cash on hand. It all comes down to
exploring your options fully and doing the math of the upfront and lifetime
cost of each loan you are considering.
By Anne M. Russell – To view the original article click here
Financial planners don't just help people balance their
budgets or plan for retirement; they also help their clients buy
homes. After all, a house is very often the biggest financial
investment you'll ever make—so, it makes sense that these
professionals would have some strong opinions on just how to go about it.
what they want you to know? Read on for their top, no-nonsense tips.
you purchase a house, you have to shell out a significant amount of cash for closing costs—fees paid
to third parties that helped facilitate the sale. Closing costs can vary widely
by location, but they typically total 2% to 7% of the home's purchase
price. So on a $250,000 home, your closing costs would amount to anywhere from
$5,000 to $17,500. That’s a serious chunk of change!
Consequently, Craig Jaffe, a certified
financial planner at United Capital in Boca Raton, FL, says it's important
to calculate your break-even point—i.e., how long it will take for you to
recoup those costs.
“Typically, you want to own a home for at
least three years in order to recoup the initial costs of
buying the home,” says Jaffe. You can use realtor.com®’s rent or buy calculator to
see whether purchasing a house makes financial sense for you.
weighing whether it makes more sense to buy a house or continue to rent,
don’t focus solely on your mortgage payments—you’ll also have to pay property
taxes, interest, home insurance, utilities, and other expenses.
lot of people don’t budget for hidden costs” such as maintenance and repairs,
should also have an emergency fund set aside in case something goes wrong
with the house.
your roof gets damaged or a major appliance breaks, you want to have cash on
hand to pay for those costs,” Jaffe says. (If you don’t have a rainy
day fund in place for those kinds of expenses, you could be forced to take on
high-interest credit card debt.) Jaffe recommends building an emergency fund of
1% to 2% of your home’s value.
you qualify for a Department of Veteran Affairs loan or Federal Housing Administration loan,
you’re going to need to obtain a conventional home loan from a private
doing so, “you want to aim to make at least a 20% down payment,” says Jaffe.
Why? Because if you put down less, you’ll have to pay private mortgage insurance, an additional
monthly fee that protects the lender in case you default on the loan.
can be pricey, amounting to about 1% of your whole loan—or $1,000 per year per
$100,000. The good news? You can typically get PMI removed once you’ve gained
at least 20% equity in your home.
it's tempting to borrow from your IRA or 401(k) to
amass a down payment on a home, “a retirement account is the last place you’d
want to go for your down payment,” says Jaffe.
you borrow from either plan before age 59½, you’ll get slapped with a 10%
excise tax on the amount you withdraw, on top of the regular income tax you pay
on withdrawals from traditional defined contribution plans. Making early
withdrawals also obviously prevents the money from accruing interest in these
accounts, which could force you to delay retirement.
better alternative? You could qualify for one of over 2,200 down payment
assistance programs nationwide, which help out home buyers
with low-interest loans, grants, and tax credits. Home buyers who use
down payment assistance programs save an average of $17,766 over the life of
need to have solid credit—typically at least a 650 credit score—to qualify for
a conventional home loan, and you need to have excellent credit
(think 760 or above) to qualify for the lowest interest
“you want to get pre-approved for a loan when your credit is at its strongest
point,” says Jaffe.
assess where you stand, pull a free copy of your credit report from each of the
three major U.S. credit bureaus (Experian, Equifax, and TransUnion) using
AnnualCreditReport.com. Your report doesn't include your credit score—you'll
have to go to each company for that, and pay a small fee—but it shows your
credit history, including any black marks (e.g., missed credit card payments,
overdue medical bills).
you notice errors on your report, contact the credit-reporting agency
immediately, Jaffe says.
the months leading up to your home purchase, make sure you don’t take any actions that could hurt your credit
score. These mistakes include closing old credit card accounts,
opening a new credit card, maxing out your credit cards, and making a large
purchase such as a new car, says Jeremy David Schachter,
mortgage adviser and branch manager at Pinnacle Capital Mortgage in Phoenix.
one might sound obvious, but a lot of people make the mistake of buying a house
that’s simply outside what they can comfortably afford.
don’t want to stretch yourself so thin that your housing expenses are going to
stress you out each month or prevent you from saving for retirement,” says
Jaffe. You can use realtor.com’s home affordability calculator to
determine a price range that fits your budget.
Daniel Bortz – To view the original article click here