Answer: The difference between a
mortgage interest rate and an annual percentage rate is that a mortgage
interest rate is the cost you pay each year to borrow money for a mortgage. An
annual percentage rate reflects the mortgage interest rate and other charges.
There are many costs
associated with taking out a mortgage. These include:
The interest rate
The interest rate is the cost you will pay each year to borrow the
money, expressed as a percentage rate. It does not reflect fees or any other
charges you may have to pay for the loan.
An annual percentage rate (APR) is a broader measure of the cost to
you of borrowing money. The APR reflects not only the interest rate but also
the points, mortgage broker fees, and other charges that you have to pay to get
the loan. For that reason, your APR is usually higher than your interest rate.
Take care when comparing the APRs of
adjustable-rate loans. For adjustable rate
loans, the APR does not reflect the maximum interest rate of the loan. Be
careful when comparing the APRs of fixed-rate loans with adjustable-rate loans,
or among different adjustable-rate loans. Don’t look at the APR alone in
determining what loan makes the most sense for your circumstances.
If you're shopping for a
mortgage, learn how new mortgage
rules may help you shop. If you already have a mortgage, use this checklist
to see what steps you can take to make the most out of your mortgage.
If you have a problem
with your mortgage closing process, you should discuss the issue or matter with
your lender. If you’re having issues with your mortgage, you can also submit a
complaint to the CFPB online or by
calling (855) 411-CFPB (2372). We’ll forward your complaint to the company and
work to get you a response. You may also wish to get your own attorney to take
a look at your issue or matter.
Courtesy of the Consumer Financial
Protection Bureau - To view the original article click here
It’s a nightmare situation: You’ve spent months searching
for your dream house, finally get an offer accepted, and then … the house doesn’t appraise for the
Take a deep breath
can be heart-wrenching for the buyer and seller if the deal falls apart because
of the appraisal,” says Suffolk, VA real estate agent
you’re not alone. Low appraisals happen more often than you might think,
especially in rising markets.
there are insufficient comparable sales applicable to the home you want, or
maybe distressed sales in the area have skewed the appraisal.
lenders will generally only lend funds up to a certain percentage of the
appraised value [80% of appraised value as opposed to 80% of the contract
price],” says Michael R. Santana, a Florida attorney.
the appraisal is lower than your offer, you may need to come up with more cash
— but you do have other options.
Look over the appraisal
appraisal contingency clause built into your contract allows you to reevaluate
the situation or renegotiate if needed. But even with a contingency clause, you
could end up spending more or walking away to look for another house.
all parties need to join together to make the deal work: sellers, buyers, and
agents. Sellers might come down on price, you might pay closing costs, and
agents might even take less of a commission — but the deal still goes through.
Get a second opinion
the appraiser’s estimate of the home’s value was inaccurate. If so, Sam Heskel,
CEO of Nadlan Valuation Inc., recommends a value appeal.
appraiser will review the appeal and respond by reevaluating the property or
explaining why he or she did not use the comparable sales the lender sent,”
option is to try working with your lender to get a second appraisal. They might
be willing to accept the subsequent, higher appraisal.
some instances, especially if you are well qualified, sellers are willing to
pay for the second appraisal to keep the deal on the table,” says Santana.
help guard against a lower appraisal, make sure you let the appraiser know the
reason you made the offer you did.
selling agent should meet the appraiser at the property to provide comparable
sales and listings,” says Casey Fleming, a former appraiser.
Try not to pay more than
might think you have found the only house you’ll everlove, but with that
mindset, you’re liable to get hurt. Try to remove your emotions from the
equation. “The euphoria of offering and counter offering on a home can quickly
become buyer’s remorse,” says Nevada real estate professional Bruce Specter
you do pay more than the appraisal, you’ll spend more than the house is worth.
If you wouldn’t pay more than the list price for a car or even for shoes, you
generally shouldn’t do so for a house.
Forget about whether you’re in a
cash buyers are ready to swoop in, you can use the low appraisal as an
opportunity to renegotiate.
long as you’re not in a hot market, Tamela Ekstrom, owner of Haven Real Estate
in Detroit, says, “the seller
will typically drop down and sell for the appraisal amount.” Once people are
entrenched in a deal, they usually try to work things out.
By Trulia Contributor - To view the original article click here
Technological advancements lend themselves to countless
consumer-facing industries, even transforming ones such as hospitality, travel
But if you can manage numerous accounts
online without ever having to sit down for a face-to-face conversation with
another human, why is the
process of getting a mortgage so different?
The real estate financing process is often expected to be a
series of in-person meetings at banks or other offices, complete with scanning
documents of financial background information and a slow approval process.
One possible reason the mortgage industry
has been slow
to adopt new technology is because the housing crisis caused lenders
to clam up, explains Tom Rhodes, CEO of Sente Mortgage, a Texas-based lender
that opened just in time for the housing bubble burst in 2007.
But those days are rapidly changing.
Lenders are beginning to embrace more new technology, and new lenders are even
entering the game based around an automated platform.
“In the last 18 months, we’ve really
started seeing where things have gotten easier,” Rhodes says. “Companies are
using big data, companies are using more automated systems and processes and
using technology to produce a smoother experience.”
Here are four things you should know about
how technology is now playing a part in your mortgage process.
Options go beyond the online
form. An important part of the mortgage industry’s evolution is
automation – not just allowing you to fill out forms online, but also granting
access to financial and employment backgrounds without requiring repetitive
work for you.
Rather than having to provide all the same
detailed pieces of information you would when filling out a paper form, your communication
with the lender is more about borrowing programs that would fit
best and not what details you have or haven’t provided yet.
By streamlining that process, mortgage
lending moves away from a transactional business and “turns into a relationship
business,” says Dom Marchetti, chief technology officer for loanDepot, a
Other more traditional lenders – banks in
particular – are automating
their processes as well. One way is by utilizing Roostify, a
mortgage technology company that provides an automated platform for lenders.
“It creates an online experience for the
consumer, from potentially the moment they express interest in learning more
about the lender’s offerings to the moment that they sign their final closing
documents,” says Rajesh Bhat, CEO and co-founder of Roostify.
From there, the online platforms are also
designed to provide detailed updates about your application and the approval
process and often allow you to e-sign documents so you avoid adding new
meetings to your existing list of sit-downs
throughout the homebuying process.
Face-to-face options remain. Of course, there’s
no way every consumer looking to purchase a home is going to feel comfortable
getting a mortgage online, whether it’s a tech-literacy issue or simply because
you may enjoy an in-person conversation.
“Every bank needs to provide that option to
support consumers who don’t wish to engage online at all – you have to be able
to support that,” Bhat says.
Even the lenders focused on automated
processes, such as Rocket Mortgage by Quicken Loans or loanDepot, offer human
interaction to help you each step of the way.
“We get to interact with you on your
terms,” Marchetti says of loanDepot’s platform.
Security and protection is a
major focus. We hear almost every day about a new data hack in a
retailer, firm or even hospital that has compromised consumers' private
information. Knowing how much valuable information is compiled
during the mortgage approval process, companies are taking measure to reduce the
chances of that happening.
Especially for companies specializing in
the tech aspect, securing your information is a major part of the job – and
it’s an ongoing process. “When information comes into our solution, we are
effectively encrypting everything at rest and in transit,” Bhat says.
Marchetti explains that loanDepot has
placed particular focus on keeping hackers from reaching client information,
having blocked repeated attempts to access company data. Key to protection is
segmentation to avoid a mass download of information, he says, so “if you get
access to a piece, you don’t get a whole.”
But the greater level of protection isn’t
just for the consumer’s benefit – the automated process itself allows for heightened
transparency between the borrower and lender, cutting down on
potential for fraudulent information being given to the lender, Marchetti says.
The industry is poised for tech growth. Even
with the progress of the last year and a half, the mortgage industry is likely
in just the beginning stages of its evolution to catch up with the travel,
banking and other tech-transformed industries, Rhodes says.
He points out, in particular, that while
employment verification for homebuyers has been automated with Sente Mortgage
and other companies, it doesn’t work with all types of employment yet. “The box
is still pretty small,” Rhodes says.
But with the ball rolling, it’s only a
matter of time before more people qualify for a fully automated process, and
the mortgage industry loses its antiquated reputation. But the general practice
of shopping around for a mortgage should remain the same – work with the lender
the right mortgage program for you.
“We’re still in the early days of this. … I
think it’s going to be a radical improvement in the process,” Rhodes says.
Homebuyers and other borrowers can
reasonably expect for automation in verification of employment and financial
history to expand to cover more people as technologies develop and a larger
portion of the industry gets on board.
Further behind-the-scenes automation means
the loan approval process can be streamlined and made more accurate. Already,
Fannie Mae's Automated Property Service uses its extensive information to
provide a predicted property value and a confidence score to be used as a
factor when considering eligibility for the Home Affordable Modification
Program. As more major industry players support a more transparent process,
small and large lenders nationwide will be able to automate more as well.
By Devon Thorsby - To view the original article click here
Take advantage of workshops aimed at helping you get past the
initial steps of purchasing a house.
For most, homebuying seems to be an overly complicated process.
Viewed from a wider lens, you have multiple steps – mortgage
application and approval, making an offer, competing with other
buyers, contract negotiation, the due diligence period and (hopefully) a
successful closing – rolled into one larger process that leads to your
For something the majority of Americans
will undertake at least once in their lifetime, shouldn’t it be easier?
All told, simplifying the homebuying
process is hard without taking out key elements that ensure honest lending,
sales negotiations and understanding of the details of the deal for both the
buyer and seller. But resources for homebuyers to better get a handle on the
process are growing.
First-time homebuyer workshops are popping
up throughout the U.S. as real estate agents, lenders and agencies approved by
the U.S. Department of Housing and Urban Development have taken up the task of
providing more transparency for homebuyers about getting approved for a
mortgage, making an offer and preparing to close on a home.
This is particularly important as new
buyers flood the market. First-time buyers make up about 35 percent of
homebuyers in the U.S., according to the National Association of Realtors’ 2016
Profile of Home Buyers and Sellers.
For many, an education in jumping into
homeownership is necessary. “They’re coming in fresh and brand new and just
wanting to understand the whole process,” says Darlene Bharath, a housing
counselor for Belair-Edison Neighborhoods Inc., a nonprofit housing organization
in Baltimore and
a HUD-approved counseling agency.
Of the 50 people that typically attend the
organization’s semimonthly homebuyer classes, between eight and 10 have spoken
to a lender or real estate agent so far, but the rest aren’t quite ready, says
John Watkins, also a housing counselor at Belair-Edison Neighborhoods Inc.
workshops aren’t exclusive to first-time buyers. Jessica Diaz, a
Realtor for Coldwell Banker Residential Services in the Atlanta area
who puts on first-time homebuyer workshops with colleagues, notes clients
listing their home with her decided to attend her recent workshop because they
previously purchased their home from the builder and wanted a refresher
course on the buying process for an existing home.
“It took the edge off, because [buying and
selling] can be scary to do at the same time,” Diaz says.
A first-time homebuyer class can be key to
pointing out steps you may have previously been unaware of, walk you through
some of the challenging aspects and help you identify the right timing and location
for your home purchase. Here are eight things you’ll learn in a
first-time homebuyer boot camp.
Your credit history is
important. You’ve probably heard this once or twice already, but a
first-time homebuyer class starts with the basics – and the most basic thing
you can know about buying a home is that your credit matters when you apply for
Alexandra Conigliaro Biega, a Realtor with
Coldwell Banker Residential Services in Bostonwho
also hosts first-time buyer workshops with colleagues, says the stress put on
knowing your credit score and available credit leads a lot of workshop
attendees to determine whether they can buy now or if it’s better to wait and
improve their credit.
Preapproval is a must. Beyond your credit,
mortgage preapproval is key to both setting a budget and looking good to
sellers. Being preapproved means a loan underwriter has examined your financial
credentials and, barring any issues with the home's condition or appraised
value, confirms you qualify for a certain mortgage amount.
“The first step is to get preapproved – we
don’t know what to look at without knowing the budget,” Diaz says.
You may qualify for assistance
programs. Lenders often offer or are able to be a part of larger
mortgage programs that make it easier for you to purchase a home – whether it’s
payment assistance program, a grant for the purchase price of your
home or another form of monetary assistance.
A lender representative is often present in
a first-time homebuyer workshop and will help guide you as you search for the
mortgage program or low down-payment program that can best help you, but the
organization that hosts the seminar may assist as well.
Belair-Edison Neighborhoods Inc., for
example, works with homebuyers to apply for the right grants or programs, many
of which actually require attendance of a homebuyer boot camp, among other
requirements, before you’re considered eligible.
House hunting comes after
mortgage prep. Securing your financing is certainly a big step, but it’s
just the beginning – once you’re preapproved for a loan, it’s time to start
At your first-time homebuyer workshop,
you’ll likely get an overview of how you can begin searching online for
available properties, as well as your real estate agent’s role in finding
houses, touring them and narrowing your options.
Conigliaro Biega says she often includes a
housing market report in her course materials, which can help homebuyers narrow
the area they’re looking to buy in based on affordability and other personal
factors the buyer has to weigh, such as commute
time, schools and safety.
Next are offers, going under
contract and due diligence. Once you’ve found the right house,
naturally it comes time to make an offer and begin negotiations. Those leading
the boot camp can provide details about this part of the process that are
specific to your state or city, as local laws can have a significant impact on
each part of the process.
One part in particular is due diligence –
when the buyer has a certain period of time under contract to inspect the home
and conduct research to reveal any potential problems. Laws vary by state as to
what the seller is required to tell you, so it’s imperative that you move
quickly to discover any code violations, cracks or leaks that need fixing or
unseemly past that could make you rethink buying the house.
Closing and beyond. In
an overview of homebuying, the natural end seems to be when you close
on your home and take possession of the property. But there’s
so much more to homeownership that can serve as an unpleasant surprise if
you’re not ready.
In addition to lenders, agents, appraisers,
inspectors and more discussing their role in the purchase process, Bharath says
a representative from a title and escrow company is typically in attendance, as
well as a homeowners insurance representative to discuss coverage once the home
There may be one-on-one
options. Most professionals putting on the class welcome more personal
questions about the homebuying process, and at HUD-approved counseling
agencies, there are typically one-on-one meeting options to go
in depth about your own qualifications for homeownership. For some programs,
completing the workshop and a one-on-one session is required to be approved for
a mortgage- or down payment-assistance program.
“Once the client comes in to schedule a
one-on-one interview, we’ll address their individual situations, so we’ll look
at their pay stubs, income tax returns, bank statements and things of that sort
to determine how much of a house they can afford to purchase, as well as what
grant they would be eligible for,” Watkins says.
There will likely be more than one pro. Many
first-time homebuyer workshops bring in additional real estate professionals to
help explain certain parts of the process – a lender, home
inspector, title representative and more. For Diaz, one of the
biggest takeaways from the class is that a homebuyer won’t be working alone or
just with one agent, but an entire team of people to successfully make a
“There’s so much that people don’t know,
they don’t even know where to begin,” she says. “And I think it’s helpful for
these people to learn that it’s not just the agent that you’re dealing with,
but it’s a whole team of people.”
By Devon Thorsby - To view the original article click here
How do you go from dreaming of owning a home to holding your
first set of keys? If you’re like most first-time buyers, the down payment is
your biggest hurdle. But, it could pay off big time to know your down payment
are more than 2,400 homebuyer programs available across the country–they can be
as unique as the homebuyers and communities they serve. Let’s break down the
basics of today’s homebuyer programs.
What are homeownership programs?
can include loans, grants, tax credits and other programs for eligible
homebuyers that can help them achieve the down payment faster, cover closing
costs and get into a home sooner than they would have otherwise.
Who offers these programs?
Housing Finance Agencies (HFA) often offer the broadest array of opportunities.
and Counties offer programs with criteria adjusted for local median income and
How do you qualify?
you and the home you are purchasing must be eligible. Homeownership programs
are for owner-occupant buyers only, no investment properties. You must make a
minimum investment, qualify for a first mortgage and complete homebuyer
education. Common eligibility factors include the
home’s sales price, homebuyer income and homeownership history.
your occupation can help give you a boost. There are often additional benefits,
or even entirely separate programs, for educators, protectors, health care
workers, veterans and households with disabled members.
Do you have to be a first-time homebuyer?
it’s important to know that a first-time homebuyer is defined as someone who
hasn’t owned a home in 3 years. So, if you’ve owned in the past, but are
renting now, you may be a first-timer again! Plus, across our databank of
programs, 37 percent don’t have a first-time homebuyer requirement.
programs are normally soft second or third mortgages or grants, providing
benefits such as 0% interest rates, deferred payments and forgivable loans. The
assistance amounts will range from a few to tens of thousands of dollars and
can be used towards the down payment, closing costs, prepaids, principal
reductions and/or repairs.
count out high cost markets. Program benefits and
eligibility requirements are adjusted based on a percentage range of the area’s
median income and home prices.
you’re purchasing a home in a target area designated by the housing finance
agency, you may receive special benefits such as higher assistance amounts,
more lenient income requirements and if there’s a first-time homebuyer
requirement, it may be waived.
larger housing finance agencies, particularly at the state level, offer first
mortgages to accompany their down payment assistance programs. These first mortgages
typically offer a below market interest rate, and may even have reduced closing
costs, fees and no mortgage insurance requirements.
are often funded by state housing finance agencies and may subsidize portions
of the interest to offer effective rates below what the normal market can
provide, helping lower your buying costs and monthly payments.
USDA also has two first mortgage programs: the Rural Direct Loan and the Rural
Guaranteed Loan. Both loans are primarily used to help low- and moderate-income
individuals or households purchase homes in rural areas. Funds can be used to
acquire, build (including purchase and prepare sites and provide water and
sewage facilities), repair, renovate or relocate a home.
Credit Certificates (MCC)
This annual federal income tax credit is designed
to help first-time homebuyers offset a portion of their mortgage interest on a
new mortgage as a way to help qualify for a loan. As a tax credit, not
a tax deduction,
the MCC helps you reduce your annual taxes dollar for dollar. The mortgage
credit allowed varies depending on the state or local government that issues
the certificates, but is capped at a maximum of $2,000 per year by the IRS.
MCCs can often be used alongside another down payment program.
As an example, if you were
to receive an MCC that offers a 25% credit on a $200,000 loan for 30 years with
a rate of 4%, the allowable tax credit would be figured as follows.
Plus, you can continue to receive a tax credit for as long as
you live in the home and retain the original mortgage.
Courtesy of Down Payment
Resource: To view the original article click here
you bought a house with a down payment of less than 20 percent, your lender
required you to buy mortgage insurance. The same goes if you refinanced with
less than 20 percent equity.
Private mortgage insurance is
expensive, and you can remove it after you have met some conditions.
To remove PMI, or private mortgage insurance, you must have at
least 20 percent equity in the home. You may ask the lender to cancel PMI when
you have paid down the mortgage balance to 80 percent of the home's original
appraised value. When the balance drops to 78 percent, the mortgage servicer is
required to eliminate PMI.
Although you can cancel private
mortgage insurance, you cannot cancel Federal Housing Administration insurance.
You can get rid of FHA insurance by refinancing into a non-FHA-insured loan.
Here are steps you can take to
cancel mortgage insurance sooner or strengthen your negotiating position: Refinance: If
your home value has increased enough, the new lender won't require mortgage
mortgage rates are low, as they are now, refinancing can allow you not only to
get rid of PMI, but to reduce your monthly interest payments. It's a
double-whammy of savings.
refinancing tactic works if your home has gained substantial value since the
last time you got a mortgage. For example, if you bought your house four years
ago with a 10 percent down payment, and the home's value has gone up 15 percent
over that time, you now owe less than 80 percent of what the home is worth.
Under these circumstances, you can refinance into a new loan without having to
pay for PMI.
loans have a "seasoning requirement" that requires you to wait at
least two years before you can refinance to get rid of PMI. So if your loan is
less than 2 years old, you can ask for a PMI-canceling refi, but you're not
guaranteed to get approval.
insurance reimburses the lender if you default on your home loan. You, the
borrower, pay the premiums. When sold by a company, it's known as private
mortgage insurance, or PMI. The Federal Housing Administration, a government
agency, sells mortgage insurance, too.
law, your lender must tell you at closing how many years and months it will
take you to pay down your loan sufficiently to cancel mortgage insurance.
servicers must give borrowers an annual statement that shows whom to call for
information about canceling mortgage insurance.
down to 80% or 78%
To calculate whether your loan balance has fallen to 80 percent or
78 percent of original value, divide the current loan balance (the amount you
still owe) by the original appraised value (most likely, that's the same as the
Formula: Current loan balance / Original
Example: Dale owes $171,600 on a house that cost $220,000 several
$171,600 / $220,000 = 0.78.
That equals 78 percent, so it's time for Dale's mortgage insurance
to be canceled.
a fuller explanation of the above formula, read this article about figuring the loan-to-value ratio to remove PMI.
to the Consumer Financial Protection Bureau, you have to meet certain
requirements to remove PMI:
can impose stricter rules for high-risk borrowers. You may fall into this
high-risk category if you have missed mortgage payments, so make sure your
payments are up to date before asking your lender to drop mortgage insurance.
Lenders may require a higher equity percentage if the property has been
converted to rental use.
By Holden Lewis - To view
the original article click here
If you want to show sellers you're seriously interested in
buying their home, getting mortgage
pre-approval is a critical first step. It proves that, after
digging through your financials, a lender is willing to give you money to buy a
pre-approved is a great way to differentiate yourself when making an
offer," says Linda Walters, a
Realtor® in Wayne, PA.
a pre-approval isn't a one-and-done process. In fact, if your home search drags
on for several months, there's a chance your pre-approval won't be
valid after a certain point. Let's explore how long a pre-approval letter
remains valid and what to do if yours expires before you find a house.
important to understand that pre-approval is different from pre-qualification.
get pre-approval, the lender will review your financial information such
as bank statements, pay stubs, W-2s or 1099s, a year or two of your tax
returns, and your credit report. Once the numbers are crunched, the lender will
provide you with a pre-approval letter certifying you are qualified to borrow a
certain amount of money at a certain interest rate. Pre-approval does not lock
you into a deal with a lender; in fact, it's wise to speak to a couple of
lenders before signing a mortgage.
flip side, getting pre-qualified for a loan is much less of a financial
deep-dive. The lender simply estimates what you'd probably qualify for based on
information you provide about your income, debts, and assets.
It's good information to have if you're not sure you can get a mortgage, but it
doesn't mean as much to sellers as pre-approval does.
Why mortgage pre-approval matters
you want to purchase a home, you will have to demonstrate that you are
financially able to buy it," says Cathy Baumbusch, a Realtor
in Alexandria, VA. "It doesn't make sense to look for properties to
purchase without first knowing what price range you qualify for and are able to
purchase," she says.
are in a competitive market, a pre-approval letter is often needed for your
offer to be taken seriously.
How long does your mortgage pre-approval last?
varies from lender to lender, but mortgage pre-approval is typically valid for
about 90 days, according to Baumbusch. Your letter will have a date on it,
after which it is no longer valid.
reason pre-approval letters "expire" is because banks need the most
up-to-date information about your salary, assets, and debts. Three months is
long enough that you could have left a job, taken on new debts, or spent what
was previously in your bank account.
fact, even if you're pre-approved, most lenders will want an updated set of pay
stubs and bank statements around the time of closing. Hey, nobody ever
said getting a mortgage was easy!
What do you do if your mortgage pre-approval has expired?
you're still house hunting past the expiration date on your pre-approval
letter, you just need to get another one. If you go to the same lender, it
"can be updated by reverification of your financial documents,"
says Sheree Landerman, a Realtor in Farmington, CT.
will need to provide updated pay stubs and bank statements, but if nothing
major has changed in your financial world, it should be no problem to get a
fresh pre-approval letter from your lender.
By Audrey Ference - To
view the original article click here
Buying a home can cause sticker shock when you consider that
hundreds of thousands of dollars are on the line. Before you close the deal,
you’ll need to prepare yourself for another financial shocker: closing costs.
You’ll have to pay closing
costs whether you’re buying a house or getting a mortgage refinance. It may be a bit
overwhelming when you get your first look at the various costs you’ll have to
pay to close your loan.
don’t stress. We’ve broken down what you’ll have to pay — property taxes,
mortgage insurance, title search fees and more. Closing costs will make more
sense once you understand what they cover, and how they protect the
biggest investment you’ll likely make in your lifetime.
total you’ll pay can vary greatly according to your home’s purchase price. The
average homebuyer will pay between about 2% and 5% of the loan amount in
Your lender is required to
outline your closing costs in the Loan Estimate and this Closing Disclosure you receive
before the big settlement day. Take the time to review them closely and
ask questions about things you don’t understand.
a closer look at the closing costs you’ll face.
fee: It’s important to a lender to know if the property is
worth as much as the amount being borrowed. This is for two reasons: The bank
needs to verify that the amount you need for a loan is justified, and the bank
also wants to make sure it can recoup the value of the home if you default
on your loan. The average cost of a home appraisal by a certified professional
appraiser ranges between $300 and $400.
inspection: Most lenders require a home inspection, especially if
you’re getting a government-insured mortgage. Before lending you hundreds of
thousands of dollars, a bank needs to make sure the home is
structurally sound and in good enough shape to live in. If the
inspection turns up troubling results, you may be able to negotiate a lower
sale price. But depending on how severe the problems are, you have the
option to back out of your contract if you and the seller can’t come to an
agreement on how to fix the issues. Home inspection fees, on average, range
from $300 to $500.
fee: This covers the cost of processing your request for a new
loan and includes costs such as credit checks and administrative expenses. The
application fee varies depending on the lender and the amount of work it takes
to process your loan application.
fee: If you take over (“assume”) the remaining balance of the
seller’s mortgage, you may be charged a variable fee based on the balance.
fees: A number of states require an attorney
to be present at the closing of a real estate purchase. Depending on
how many hours the attorney works your case, the fee can vary dramatically.
interest: Most lenders require buyers to pay the interest that
accrues on the mortgage between the date of settlement and the first monthly
payment due date, so be prepared to pay that amount at closing; it will depend
on your loan size.
origination fee: This is a big one. It’s also known as an underwriting fee,
administrative fee or processing fee. The loan origination fee is a charge by
the lender for evaluating and preparing your mortgage loan. This can cover
document preparation, notary fees and the lender’s attorney fees. Expect to pay
about 1% of the amount you’re borrowing (a $300,000 loan, for example, would
result in a loan origination fee of $3,000).
paying points, you reduce the interest rate you pay over the life of your loan,
which results in more competitive mortgage rates. One point equals 1% of the
loan amount. So if the loan were $500,000, a 1-point payment would be $5,000.
Generally, paying points is worthwhile only if you plan to stay in the home for
a long time. Otherwise, the upfront cost isn’t worth it (check for yourself with our calculator
broker fee: If you work with a mortgage broker to find a loan, the
broker will usually charge a commission as a percentage of the loan amount. The
commission averages from 1% to 2% of the home’s purchase price.
insurance application fee: If you put less than
20% down, you may have to get private mortgage insurance. (PMI insures the lender
in case you default; it doesn’t insure the home.) The application fee varies by
mortgage insurance: Some lenders require borrowers to pay
the first year’s mortgage insurance premium upfront, while others ask for a
lump-sum payment that covers the life of the loan. Expect to pay from 0.55% to 2.25% of the purchase
price for mortgage insurance, according
to Genworth and the Urban Institute.
and USDA fees: If your loan is insured by the Federal Housing
Administration, you’ll have to pay FHA mortgage insurance premiums; if it’s
insured by the Department of Veterans Affairs or the U.S. Department of
Agriculture, you’ll pay guarantee fees. FHA insurance premiums are about 1.75%
of the loan amount, while USDA loan guarantee fees are 2%. VA loan guarantee
fees range from 1.25% to 3.3% of the loan amount, depending on the size of your
assessments: If your condo or homeowner’s association requires an
annual fee, you might have to pay it upfront in one lump sum.
insurance premium: Usually, your lender requires that
you purchase homeowner’s insurance before settlement, which covers the property
in case of vandalism, damage and so on. Some condo associations include
insurance in the monthly condo fee. The amount varies depending on where you
live, your home’s value, and whether it’s in a potential disaster area (such as
a flood plain or earthquake zone).
taxes: Buyers typically pay two months’ worth of city and county
property taxes at closing.
search fee: A title search is conducted to ensure that the person
selling the house actually owns it and that there are no outstanding claims or
liens against the property. This can be fairly labor-intensive, especially if
the real estate records aren’t computerized. Title search fees are about $200,
but can vary among title companies by region.
title insurance: Most lenders require what’s called a loan policy;
it protects them in case there’s an error in the title search and someone
makes a claim of ownership on the property after it’s sold.
title insurance: You should also consider purchasing title insurance to
protect yourself in case title problems or claims are made on your home
By Deborah Kearns - To
view the original article click here
Whether you’re purchasing a prefab dwelling,
building a new construction home,
or planning to fix up an older house,
you’re probably excited about the prospect of closing the deal and
so fast. Buying a home is an expensive proposition – the biggest investment
that most families ever make. While you aren’t required to cover the entire
purchase price up front, you do need to come up with a substantial cash sum
before you can close on your house.
need to worry about common closing costs such
as your home inspection,
lender appraisal, and title insurance.
Taken together, these expenses are nothing to sneeze at – depending on your
situation, they can amount to anywhere from 3% to 6% of the total purchase
price. In buyers’ markets,
you might have luck convincing your seller to pay some closing
costs, but that’s far from guaranteed.
line items are small change compared with the biggest closing expense of all:
your down payment.
it’s due at closing, the down payment usually isn’t considered a closing
cost. That doesn’t make it any less impactful, though. Your down payment
plays an important and sometimes decisive role in whether you can close on your
dream house – or, let’s be real, the best house you can afford on your budget.
is because your down payment is a key part of the offer you present to the seller. The
general rule of thumb is simple: the larger the down payment, the stronger the
offer. More precisely: the greater the down payment’s share of the total
purchase price, the more likely the seller is to accept.
the ideal down payment has been at least 20% of the purchase price. On a
$200,000 house, that’s $40,000. In recent years, smaller down payments have
come into vogue, thanks to looser underwriting requirements and growing
acceptance among sellers.
scraping together a down payment is a tall order, especially for first-time
homebuyers in expensive coastal markets. According to CoreLogic,
the average home price in California’s Bay Area topped $700,000 in 2016 – and
that figure includes relatively inexpensive bungalows in East Bay suburbs, as
well as ultra-pricey row houses in San Francisco proper.
doesn’t mean it’s impossible to save for a down payment. It just requires time
and fiscal discipline. If you can follow some or all of the following tips
and strategies, I’m confident you’ll realize your dream of homeownership faster
than you thought possible – even if it means scrimping in the short term.
figure out about how big your down payment will be.
payment size is a function of three overlapping factors: your desired initial
loan-to-value (LTV) ratio, your time horizon (when you want to buy), and local
housing market conditions. When people talk about budgeting for a future
home purchase, they generally refer to list prices: “We’re willing to pay
$300,000,” or “We can afford $250,000, but no more.”
on the matter of affordability, the most important number is the down payment
amount. If you can’t cobble together a $50,000 down payment on a $250,000 house
(or a $400,000 house, if you’re putting down less than 20%), then you can’t afford that house.
top end of your affordability range, then, is the highest down payment you can
save for within your allotted time horizon, without undershooting your target
LTV. So, if you want to buy a $300,000 house with a 20% down payment in three
years, you’ll need to have $60,000 set aside for that purpose 36 months from
course, you need to bring more than just your down payment to closing. To be
safe, assume your other closing costs will add up to 6% – near the top end of
the realistic closing cost range. On a $300,000 house, that’s another $18,000,
for a total of $78,000.
don’t completely deplete your bank account to buy your dream home. It’s wise to
have at least three months’ income in liquid savings as an emergency fund,
regardless of your near- or long-term goals. Six months is even better.
you’re looking to buy on an accelerated timetable, live in an expensive housing
market, or doubt your ability to save for a 20% down payment on an acceptable
house in your target neighborhood,
look into special loan programs with lower down payment requirements.
of the more common special loan programs are listed below. Other options exist,
so check with local, state, or federal housing authorities to learn what’s
available for families in your area and circumstances.
FHA Loans. FHA mortgage loans are insured,
but not originated, by the federal government – specifically, the Federal
Housing Administration. Known as 203b mortgage loans, they require just 3.5%
down. They can be used on one- to four-family homes and typically carry lower
interest rates than conventional mortgage loans, though your exact rate will
depend on your creditworthiness and other factors. Underwriting standards are
also much looser than on conventional mortgages – you can qualify with a credit
score below 600.
VA Loans. If
you or your spouse is a current or former member of the military, your family
may qualify for a VA home loan backed
by the federal government (Department of Veterans Affairs). On the down payment
front, VA loans are even better than FHA loans – they require no money down,
though you’re free to put money down and reduce the total amount you must
borrow. If interest rates drop after you’ve been in your house for a
while, look into VA streamline refinance
loans (IRRRL), which can reduce your rates significantly at a lower
cost than a conventional refinance loan.
Loans. If you’re buying a home in a rural or outer suburban area,
you may qualify for a USDA loan,
another type of federally insured loan designed to bring housing within reach
for lower-income country-dwellers. Unlike FHA and VA loans, USDA loans are
direct loans – they’re made by USDA itself. Use USDA’s
property eligibility map to see if you qualify.
97 Loans. Conventional 97 loans are just as they sound: conventional
mortgage loans that let you put as little as 3% down, for a maximum LTV of 97%.
They’re backed by Fannie Mae and come in different configurations, so be sure
to read Fannie’s
fact sheet before applying.
program-specific requirements, these special loans have some important
drawbacks. Perhaps most importantly, they carry private mortgage insurance
(PMI) premiums until LTV reaches 78% (though you can formally
request PMI removal at 80% LTV). In some cases, these annual premiums can
exceed 1% of the total loan value – an extra $3,000 per year on a $300,000
loan, for instance.
loans can also weaken your offer. Some sellers are reticent to sell to
first-time homebuyers with FHA or Conventional 97 loans, reasoning that their
finances may be shaky and the deal may fall apart before closing. All other
things being equal, rational sellers are likely to favor
conventional 20%-down offers over lower down payments.
few prospective homeowners realize that they could qualify for national down
payment assistance programs that can reduce their out-of-pocket down payment
costs by thousands of dollars.
abound, but the National Homebuyers Fund is
representative. Since 2002, it has provided more than $200 million in direct
grants to more than 30,000 buyers. It has a slew of grant option backed by
various institutions – you can see the requirements for the Citibank-backed
Sapphire option here,
grants may only be available in certain states and on loans of certain sizes.
Other conditions may apply as well, so it’s a good idea to contact the
organization directly and speak with your lender before assuming that you’ll
state and perhaps local governments may offer down payment assistance programs
as well. For instance, in my native Minneapolis, the
Minnesota Homeownership Center has a handy Down
Payment Assistance finder that tells prospective homeowners
about down payment financing and non-financial assistance resources available
in their areas. In California, Golden State Finance
Authority provides direct, need-based grants (with some strings
attached) worth up to 5% of the loan amount – not an insignificant sum in
pricey California metro areas like San Francisco and Los Angeles.
homeowners often face a fraught choice: pay off their outstanding
credit card balances or save for their down payments.
many folks, paying off credit card debt is a high-priority goal. Even low APR credit cards typically
charge interest rates north of 10% APR. On an average balance of $1,000, that’s
$100 in interest charges each year. If your debt load is higher, adjust accordingly.
they’re secured by physical property, mortgages almost always have lower
interest rates than credit cards, even when the borrower’s credit is less than
perfect. Faced with the choice to purchase a home at 5% APR or carry credit
card debt at 15% APR, most people would select the former.
off credit card debt isn’t always straightforward, though. Focus on your
highest-interest debt first (debt avalanche method),
even if that means putting as little as $25 or $50 extra toward your payment
each month. As your high-interest debt load shrinks, you can move onto
lower-interest credit card debt, and you’ll likely accelerate your progress
toward a $0 balance. With lower (or no) interest charges eating into your
spending and saving power, you can then direct your dollars toward your down
advent of online banking makes it easier than ever to save small amounts of
money without even realizing it. Some major banks, including Bank of America (Keep the
Change) and U.S. Bank (S.T.A.R.T.),
empower deposit account holders to save their spare change from every
transaction using apps that automatically round debit card payments up to the
nearest whole dollar and sock away the remainder in a savings account.
instance, when you spend $3.69 on your morning latte, your debit card is
charged $4, and the remaining $0.31 drops into your savings account. Multiply
that by 50 or 100 transactions per month and you’ve got yourself a nice side
a tax refund this year? Reserve a slice of it to reward yourself for all your
hard work last year – a nice restaurant meal,
a frugal weekend getaway,
a new piece of furniture for
your home. Enjoy it.
sock the rest of your refund away in your down payment fund. If you reliably
receive a $3,000 refund, spend $1,000, and save the rest, you’ll have $6,000
after three years, and $10,000 after five. That probably won’t account for your
entire down payment, but it can’t hurt.
part of your compensation package involves monthly, quarterly, or annual
performance bonuses or profit-sharing payments, apply the same logic to these:
Save a portion, then put the rest into your down payment fund.
performance bonuses and profit-sharing payments aren’t guaranteed, it’s risky
to account for them in your day-to-day or month-to-month budgets anyway. That’s
like counting your chickens before they hatch. If you don’t make plans for your
bonuses or profit shares before you know you’ll get them, you won’t miss them.
Actually, you’ll be grateful for them as they slowly but steadily grow your
down payment fund.
you need to set money aside each month is one thing. Actually doing it is
another. Set yourself a calendar reminder on the same day each month or pay
period to transfer a set amount of money – at least 5% of your take-home pay,
and ideally 10% – into your primary savings account. You can then separate the share
allotted to your down payment from your general savings or other savings goals.
Or, better yet, create a separate savings account whose sole purpose is to hold
your down payment funds.
even better than recurring savings account deposits? Automated savings
account deposits that you don’t have to remember to execute each month. Most
banks allow recurring savings transfers from internal or external checking
accounts. Examine your budget and determine how much you can afford to save
each pay period or month, and then make it happen, preferably on the same date
(or the day after) you receive your paycheck or direct deposit. Again, consider
a separate savings account just for your down
payment fund. If you’re looking to open a new account, go with one of these bank account promotions so
you can make the most of the opportunity.
can choose to pay off your credit card debt and focus your financial firepower
on saving for your down payment without actually canceling your credit
cards. The secret: cash back credit cards.
are literally hundreds of cash back credit cards on the market. Some, like Chase Freedom and Capital One Quicksilver
Cash Rewards, are practically household names. Others are more
obscure – they might be new, or issued by regional banks with zero name
definition, all offer some return on spending. More generous cards with favored
spending categories can offer as much as 5% back on a consistent basis, and
more on spending with select merchants or on certain items. Many have
attractive sign-up bonuses worth $100, $200, or even more. And most don’t charge
cash back credit card (or two, or more) won’t singlehandedly finance your down
payment. But, as long as you actually save the cash you earn and remember to
pay off your balance in full each month to avoid interest charges, it can
provide a helpful boost to your savings efforts.
certain conditions, your retirement account can serve as a
supplemental funding source for your down payment. Specifically, if you’re a
first-time homebuyer, you’re permitted to borrow up to $10,000 from
a traditional or Roth IRAwithout
penalty to fund your down payment.
isn’t free money, of course. If you have a traditional IRA, you need to pay
taxes on the withdrawn amount at your overall rate – 28% in the 28% bracket,
and so on. On a Roth IRA held for longer than five years, your withdrawal is
tax-free, because you’ve already paid taxes on the contribution.
you and your spouse both have IRAs, you can both withdraw up to $10,000, for a
total of $20,000. Depending on the projected size of your down payment, that
could be a sizable boost. And, on Roth IRAs held longer than five years, you
can withdraw tax- and penalty-free contributions in excess of $10,000,
though any withdrawn earnings are taxable at your normal rate.
you also have to consider the opportunity cost of taking that money out of your
account, potentially for years (by the time you make additional contributions
to cover your withdrawal).
can also borrow from employer-sponsored 401ks to
fund your down payment. On 401k loans, borrowing limits are much more generous:
You can borrow up to the lesser of $50,000 or half the value of the account.
That’s enough to fund a 20% down payment on a $250,000 house, or a 10% down
payment on a $500,000 house.
the devil is in the details. You have to pay back your 401k loans, with
interest – typically at 2% above the prime rate. On larger
loans, that means several years’ worth of three-figure monthly payments and
several thousand in interest charges. Plus, if you take out a 401k loan before
applying for a mortgage loan, your credit utilization ratio will spike, which
could raise your mortgage loan’s interest rate or cause the bank to think twice
about lending to you in the first place.
a general rule of thumb, 401k loans are useful in two situations: for funding
small down payments ($5,000 or less) in their entirety or as the last piece of
a multi-year, multi-source down payment funding strategy.
your take-home pay won’t get you to your down payment goal on your desired
timeframe, or you’re worried about negatively impacting your lifestyle as you
scrimp and save for your dream home, consider increasing your income by picking
up a side gig – either by taking on a second part-time job, picking up work as
an independent contractor, or exploring the many ways to make money from home.
and on-the-side money-making opportunities are virtually limitless. Your chosen
pursuits will likely depend on your unique skills and the assets or amenities
you have at your disposal. Some common ideas for monetizing your time, talents,
and physical assets include:
Freelance writing and editing
Freelance web development and design
Selling disused possessions (and downsizing in
the process) on Craigslist, eBay, Amazon, or a garage sale
Driving for a ridesharing
app such as Uber
Teaching classes through online portals such as Udemy
Growing and selling your own produce
Selling crafts on Etsy or at a flea market
Becoming a medical transcriber
Working as a virtual assistant, remote customer service representative,
or tech support professional
touched on the wonders of recurring and automated savings above, but it’s worth
reiterating that not all savings options are created equally.
you’re operating on a very long time horizon, it’s not wise to put your down
payment funds in the stock market. Stocks, ETFs, mutual funds,
and other equity instruments are vital components of retirement portfolios, but
they’re not appropriate for certain shorter-term savings goals.
Because, over shorter timeframes, market downturns can devastate savings goals.
Imagine that you put $20,000 in the market between 2005 and 2007, on your way
to an expected $40,000 down payment by 2009. Between mid-2007 and early 2009,
U.S. markets lost roughly half their value. In other words, that $20,000 sum
would have shrunk to just $10,000, assuming you added no new funds – no doubt
crushing your dream of buying a home in 2009.
the short and medium run, it’s much safer to invest in FDIC-insured instruments
such as traditional savings accounts, certificates of deposits (CDs), and money
market accounts. Though these instruments have relatively low yields –
currently below 2% APY in most cases – the risk of principal loss is
extremely low. If you want your down payment to actually be there, in full,
when you need it, save investments in
FDIC-insured accounts are your ticket.
most prospective homeowners, saving for a down payment is a medium- to
long-term prospect. Much will happen between the day you decide you want to
become a homeowner and the day your future home’s seller accepts your purchase
budgeting app can reduce the risk that you’ll get knocked off track by
unforeseen events. The world is filled with such apps, some of which are quite
lightweight – basically, glorified spreadsheets – and others of which have lots
of bells and whistles. Among the most common are:
one of the oldest and best-known of the many personal budgeting apps
available to U.S. consumers. It has a slew of capabilities designed to increase
your understanding of your personal finances, categorize your spending and
saving, and become more financially fit overall. It’s free to use, though
subsidized by sponsor ads and partner offers.
Level Money weighs
your expected monthly income against your projected monthly expenses to produce
your Spendable, the balance you can safely spend over the course of the month
without spending more than you earn. It can easily account for savings goals
such as a new home. It’s totally free.
a global personal finance app that provides a complete, intuitive picture of
your earning, spending, and saving, all in a lightweight, user-friendly
interface. Wally is free, though its developer has plans to add premium
features in the future.
your entire financial life – all your disparate accounts – to provide a total
picture of your fiscal health. It’s super easy to create goals, and a machine
learning component helps create dynamic budgets that let you know when you need
to dial back your spending in order to reach them.
house might be the single biggest purchase you ever make, but it won’t be the
only big-ticket item you ever buy. Unless you can comfortably live without a car, you’re likely to buy a new or used vehicle every
few years. If you have kids, you’ll need to budget for their education. Once
you’re ensconced in your home, you’ll probably want to make sensible improvements that enhance
its value or accommodate your growing family. And, all the
while, you need to have enough set aside for the unexpected.
one of these items, and many others not mentioned here, demand a measured,
thought-out savings strategy. As you notch small victories in your quest to
cobble together a down payment for your dream home, don’t neglect your other
goals – whether you’re aiming to reach them next month, next year, or next
By Brian Martucci - To view the original article
with little money for a down payment are
finding more home loans available for a low down payment or even no down
are a few options for borrowers seeking low-down-payment and zero-down-payment
Department of Veterans Affairs, or VA, guarantees purchase mortgages with no
required down payment for qualified veterans, active-duty service members and
certain members of the National Guard and Reserves. Private lenders originate
VA loans, which the VA guarantees. There is no mortgage insurance. The borrower
pays a funding fee, which can be rolled into the loan amount.
purchase and construction loans, the VA funding fee varies, depending on the
size of the down payment, whether the borrower served or serves in the regular
military or in the Reserves or National Guard, and whether it's the veteran's
first VA loan or a subsequent loan. The funding fee can be as low as 1.25
percent or as high as 3.3 percent.
first-time purchasers making no down payment, the funding fee is 2.15 percent
for members or veterans of the regulator military, and 2.4 percent for those
who qualify through service in the Reserves or National Guard.
Federal Credit Union, the nation's largest in assets and membership, offers 100
percent financing to qualified members who buy primary homes. Navy Federal
eligibility is restricted to members of the military, some civilian employees
of the military and U.S. Department of Defense, and family members.
credit union's zero-down program is similar to the VA's. One difference is
cost: Navy Federal's funding fee of 1.75 percent is less than the VA's funding
(Department of Agriculture, or) USDA's Rural Development mortgage guarantee
program is so popular that it has been known to run out of money before the end
of the fiscal year.
borrowers are surprised to find that Rural Development loans aren't confined to
The USDA has maps on its
website that highlight eligible areas. In addition to geographical
limits, the USDA program has restrictions on household income, and it is
intended for first-time buyers, although there are exceptions.
USDA mortgage comes from a bank, and there is no mortgage insurance. Instead,
the USDA levies a 1 percent upfront guarantee fee, which can be rolled into the
loan amount, and an annual guarantee fee of 0.35 percent of the loan balance.
borrowers can make down payments as low as 3 percent with private mortgage
insurance, or PMI. For most borrowers, PMI costs less than Federal Housing
Administration mortgage insurance. But PMI has stricter credit requirements.
has another edge over FHA: Once your mortgage balance is under 80 percent of
the home's value, you can cancel PMI. You can't get rid of FHA insurance unless
you refinance into a non-FHA loan.
a minimum down payment of 3.5 percent, the FHA is the low-down-payment option
that's available to people with imperfect credit histories.
FHA charges an upfront premium of 1.75 percent of the mortgage amount. On a
30-year loan with the minimum down payment, there's an annual premium of 0.8
percent of the mortgage amount, or $800 a year for each $100,000 borrowed --
$66.67 a month for a $100,000 loan.
Holden Lewis - To view the original article click here