Though the perks are many, watch out for these extra expenses.
mortgage rates and soft prices in some residential real estate markets are
creating renewed interest in homeownership, especially among young people who
are tired of seeing their rent costs rise every year and like the idea of
having equity—an ownership stake—in the place where they live.
A residence can indeed be a valuable asset and a path to a greater financial
future. However, novice buyers may be shocked by the bite homeownership can
take out of their wallet: In addition to their mortgage payments, the true cost
of owning property involves a multitude of hidden expenses. Let's look at the
most common, and how to deal with them.
The first three hidden costs are strictly financial; the rest add to money woes
the extra stress of home maintenance and repair.
As a homeowner,
you'll need to pay property
taxes, a monthly or quarterly fee to the town and/or the
municipality in which you reside. It's not the bank that determines the
property tax, it's the township, city, or county in which the home is located.
valorem levy, assessed according to the value of your
residence, a property tax payment can easily total $500 to $1,000 or more a
month, particularly in the northeast United States, where real estate values
have soared in recent years.
Property tax is
basically a guaranteed annuity in perpetuity at the homeowner's
expense. Although you don't have much say in how much it is, as with any tax, strategies
exist for lowering it.
HOA and Condo Fees
If you buy a residence within a homeowners' association or a condominium association,
you'll be required to pay a monthly or quarterly fee. This charge often
includes costs for things that benefit the entire neighborhood, like garbage
collection or snow plowing, if your association has contracted with a private
company to perform these services. These fees can rise, or your association may
need to charge a special assessment for projects such as repaving the parking
lot, installing a new security system, or revamping common areas or buildings.
insurance may not be that unexpected an expense: Banks and
mortgage companies often require it before issuing you a loan, and the premiums
may even be included in your mortgage payments (if your lender helped you
obtain the policy). Bear in mind that premiums can and often do, rise
annually—or if you increase coverage to reflect the rising value of your
property or possessions (which you should periodically do).
What can also afford a nasty surprise: What your policy doesn't
include. Typically, homeowners insurance does not cover "acts of
God," meaning that you will need to purchase extra coverage against
disasters like floods, hurricanes, and earthquakes. Even water damage from
storms is very rarely covered in a basic homeowner's policy.
Unfortunately, this extra insurance can be expensive or
have an unusually high deductible. For example, separate flood insurance
typically costs between $1,000 and $4,000 per year over and above the $500 to
$1,000 a year that most homeowners typically spend on their basic
Water is your home's biggest enemy, and one of the roof's
primary jobs is to keep water out. A leaky roof can cause cosmetic damage to
the inside of a home and,
depending on how severe the leak is, destroy the belongings inside,
cause health problems and structural issues.
Roof damage usually results when the asphalt shingles (the
most common roofing material in the U.S.) become loose,
cracked, blown off by the wind or damaged by hail. The nails that fasten them
to the roof could also raise, allowing water to get underneath and into your
home if any part of the shingles or roof had been poorly installed in the first
place. Asphalt shingles also have varying expected maximum life spans,
depending on the quality of the shingle. Under normal circumstances, the roof
will need replacement once at least every 20 years. However, roofs have varying
life spans, depending on the type of shingle used, installation quality,
climate, and weather.
Because of its complexity, your home's HVAC system—which
controls heat, cooling, and the circulation of air throughout the residence—is
not something you'll be able to inspect, repair or replace yourself. Unless
you're an HVAC professional, you should be prepared to hire one from time to
You'll probably need to buy new units at some point, as the
existing ones wear out over time. Replacing the furnace and air conditioner
filters frequently helps keeps the machines running efficiently. Homeowners
with gas furnaces should have them inspected once a year. In many areas, this
service is provided at no charge.
Arc faults, faulty wiring, and electrical shorts cause a fair
number of electrical fires that burn down homes. All homeowners should have a
basic understanding of how electrical systems work to keep homes and families
safe, but should also understand the limitations of their skills. Why risk
electrocution or damage save a few bucks? Whenever there's a systemic problem,
or you're doing significant rehab work, call in the pros—trusted, trained and
licensed electricians to make sure things are installed properly and according
to current codes and safety standards.
Small plumbing problems (like clogged drains) happen from time
to time no matter where you live, and they aren't a big deal to fix with basic
Some older homes present larger problems when it comes to
plumbing, though. These homes often contain galvanized iron water pipes, which
become clogged with mineral deposits over time and gradually reducing the water
pressure in your home. These pipes cannot be repaired; they have to be
replaced. Trust us: You do not want to deal with the issues of frozen or burst
pipes after the fact.
Also be sure to research whether your water could be contaminated with lead related
to your plumbing. Sometimes the problem is pipes in the home and sometimes it
is the pipes from the municipal system to your home.
Termites are attracted to wood and moisture, and they can get
into your house through even the tiniest of cracks. You don't want your home
turning to dust right under you.
To prevent expensive structural damage to your home, make sure
there is no wood touching the ground near your house (like lumber, firewood, or
tree stumps). Prevent any moisture from accumulating around your foundation by
making sure the ground slopes away from your house, and hire an exterminator to
regularly perform a pest inspection.
Mold can grow in humid or damp areas and can cause health
problems. If your HVAC system is contaminated, you can spread mold throughout
your home every time the furnace is running.
Preventing mold problems is a matter of keeping water out and
fixing any leaks to eliminate any environments conducive to mold growth. If
your home is very humid, an air conditioner or dehumidifier will help prevent
mold growth. Mold is not always visible; it can be hidden behind wallpaper,
under carpeting and in a variety of other places. Mold can cause allergic or
irritating reactions and asthma attacks.
Whether you handle your yard work yourself or hire a
professional, you will have to pay something to keep your landscaping in check.
Lawn equipment can be costly and, if you have a lot of acreage, you may need
items such as a snowblower or a leaf blower, too.
This isn't just cosmetic. Hanging tree limbs can fall and damage
roofs and windows; a plethora of leaves or overgrown plants can clog gutters,
impacting drainage and plumbing systems—both yours and your neighbors. Many
HOAs require members to maintain the grounds of their homes for these reasons.
When most people think about the costs of homeownership, they
think only about the monthly mortgage payments on their residences. But there
are also property taxes and insurance to consider and budget for. But
maintenance and repair costs will eat up their fair share of your (not-so) disposable
In fact, unexpected repairs—think replacing or repairing the
roof, fixing loose tiles in the shower, removing an overgrown or dead tree, or
paying for mold mitigation in a damp basement—typically leads to the highest
bills. The list of possibilities is endless, so the best thing homeowners can
do is to set aside savings for an emergency. Some financial experts suggest
budgeting for 1% or 2% of your mortgage balance as a yearly maintenance and
repair fund, but the amount you should save depends on the age, condition, and
size of your home.
Mortgage lenders won't factor this into their equations when
determining a loan amount, but you should. It's a good thing to own your own
home—but before you buy, make sure you're prepared for the true cost of your
Source: To view the original article click here
IF YOU'RE SEEKING THE best mortgage rates, shop carefully or your credit score
might suffer. Each time you apply for a home loan, a mortgage lender will make a credit inquiry to review your credit
history. These inquiries are reported to the three major credit-reporting agencies: Equifax, Experian and TransUnion.
Because inquiries signal that you are thinking of taking on new
debt, your credit score can dip. But the good news is that the damage from
multiple credit checks by mortgage lenders is typically small.
Even better, a
little planning makes keeping your score in top shape relatively easy as you
shop for a mortgage.
Within a 45-Day Window
When lenders use the
most recent FICO scoring model, consumers have 45 days to comparison shop for
mortgages without damaging their credit.
checks from lenders within that window will be recorded as a single inquiry on
your credit report. The effect on your credit is the same, no matter how many
mortgage lenders you consult, according to the Consumer
Financial Protection Bureau.
But the rules can differ slightly when lenders use older FICO
scoring models, says Joanne Gaskin, vice president of scores and analytics at
FICO. In that case, the window for multiple inquiries to count as just one
inquiry can be as little as 14 days.
Lenders choose which
FICO scoring model to use. That means borrowers under the new model get 45 days
to rate shop, and others under the old model get only 14 days. For that reason,
Gaskin advises taking a cautious approach and trying to complete your mortgage
shopping in 14 days.
Two weeks might not
seem long enough to complete your mortgage comparison shopping. But most
borrowers should be able to compare plenty of lenders' offers within that
window, says John Ulzheimer, a credit expert who has worked for FICO and credit
shouldn't be that hard for you to do almost all of your rate shopping within a
few days if you're really aggressive about it – certainly a week, certainly two
weeks and absolutely within a month," he says.
Shopping Beyond 45 Days
Even if your
shopping extends past 45 days, don't sweat it. The negative effect on your
score will be minor, the CFPB notes. And your savings from securing a lower
mortgage rate often far outweigh any short-term damage to your credit score.
FICO score does count inquiries, but it's one of the smaller pieces of
the pie," Gaskin says. "The inquiry is less than 10% of the weighting
for your FICO score."
One new credit
inquiry likely won't cause much damage if you have a long history of borrowing,
a solid payment record and a recent past without dozens of inquiries, she says.
"A consumer who
has sufficient experience and hasn't taken on any debt recently, they may not
see any impact at all, or they may see something like (a drop of) five
points," Gaskin says.
In contrast, newer
borrowers might face a slightly higher risk of damage from credit inquiries.
"It's not typically going to be a really substantial impact to a
consumer's score unless they are just brand-new to credit and have been making
a lot of inquiries recently," she says.
Pinning down exactly
how much damage a new borrower's credit score might suffer from multiple
inquiries can be difficult. And the damage will vary from borrower to borrower.
Even so, the impact
should be minor. "Instead of looking like one inquiry, it may look like
two inquiries," Gaskin says.
Your history as a
borrower largely determines how long your credit score will need to heal from
any damage inflicted by multiple inquiries, according to Gaskin.
Checking Your Own Credit Report
Before you begin
shopping for a mortgage, look at your credit report, experts urge. That way,
you can find and correct any errors on the report that might drag down your
score and prevent lenders from offering you the best interest rates.
your own credit report does not damage your credit score in any way.
By federal law, each
person is allowed one free
annual credit report from the three major credit-reporting agencies.
You can get yours by visiting the official website, AnnualCreditReport.com
your credit score could cost you, though a growing number of banks,
credit unions and credit card companies offer free access to scores as a perk
for customers. Even if you have to pay for it, your credit score can help you
choose the best possible mortgage loan.
Advantage of Prequalifying
If you're concerned
about lender inquiries damaging your credit score, consider prequalifying for
mortgages. Prequalification is sometimes referred to as a rate check.
When you prequalify
for a mortgage, the lender estimates how much you could get if you applied for
a loan. Before providing prequalification letters, lenders often check your
Lenders use two
types of credit inquiries:
is a soft credit pull, which does not affect your score, Gaskin says. That's
why prequalification can be a smart option for many borrowers.
"It's a good
first step in the process," she says. "You can visit the lender's
website, put in some information and see what type of offers that they may be
able to make for you."
Usually, lenders want to know basic identifying information,
such as your name and address, along with your annual household income. And a
soft credit inquiry typically goes along with this.
Ulzheimer adds that
prequalifying can be helpful because it sets a price point for home shopping.
"If you can prequalify for $300,000, you shouldn't be looking at $700,000
houses," he says.
prequalification letter does not guarantee that a lender will give you a loan.
is exactly what it says it is: It's a prequalification," Ulzheimer says.
"Whether or not you get a loan is going to be subject to the whole and
entire – and quite invasive – mortgage underwriting process."
A more rigorous
process involving a hard pull of your credit is needed to land a loan, he adds.
"You're going to have to put together a collection of 2 or 3 inches of
paperwork before you actually get a mortgage loan," Ulzheimer says.
Limit Other Borrowing Activity
may not hurt your credit score much, but other types of financial activity can
impair your efforts to take out a home loan. In fact, applying for new credit,
such as a credit card or an auto loan, while you are shopping for a mortgage is
far riskier than ignoring the 45-day window for rate shopping, according to
Don't take on any
new debt before applying for a mortgage loan, he says.
"Wait till you have the keys – wait till the closing is done,"
Ulzheimer says. "If you want to go out and apply for credit, then
To view the original article click here
Shopping for title insurance may not be the most thrilling step
in buying a house, but it is one of the most important.
you can own a home, or "take title" to a property, most lenders will
require a title search of public property records to make sure there aren't any
issues in transferring the property into your name.
example, title issues can crop up due to liens on the property (say, from a
contractor who did work on the house but wasn't paid), unfulfilled financial
obligations such as unpaid taxes, or claims of ownership from a long-lost heir.
In such cases, a home seller may not have the legal right to transfer ownership
of the property.
protect against any financial loss, two types of
title insurance exist:
lender's title insurance and owner's title insurance. The lender's title
insurance policy pays for the expense of researching a claim and any court
costs incurred as a result of any disputes they uncover.
Owner’s title insurance, meanwhile, protects you as the
homeowner during any future disputes over ownership of the property.
require borrowers to purchase lender's title insurance. Owner's title
insurance, however, is optional—but, given the protections it provides, buying
it is a smart move. (Generally, home buyers use the same title insurance
company to purchase both policies.)
homeowner insurance, title insurance is taken care of as a one-time payment
that's made when (or shortly before) you close on your house.
we’ve got the basics of title insurance squared away, let’s look at some of the
more surprising questions you probably never thought to ask a title insurance
provider but totally should. After all, as the home buyer, it's your choice
which title company you decide to use.
this might seem like an obvious question, some home buyers forget to ask it.
And that can be a big mistake. Why? Because even though the average cost of
title insurance is around $1,000 per policy—which covers all upfront work and
ongoing legal and loss coverage—the price can vary widely, depending on where
you live and the price of your home.
states, including Texas and Florida, title insurance premiums are set by the
state, meaning that you’ll pay exactly the same amount no matter what title
insurance company you choose.
some states, like California and New Mexico, do not regulate title insurance
fees at all, and rates can vary widely from one title agency to another, says Rafael
Castellanos, a managing partner at Expert Title Insurance Agency in New York
City. If rates aren’t preset by the state, they’re negotiable.
advisable that all home buyers find out what a title insurance company's rates
are before they choose an insurance provider.
title searches are easier to clear than others. While there’s no telling how
difficult yours will be, you want a title company that can handle complicated
are issues that we run into on residential properties that can be complex, and
we have to go to great lengths to resolve them,” says Tim
Evans, owner of Evans Title Agency in
Ask how a
title company solved their most challenging title search, and you'll gain some
valuable insight—and some assurance that the company will be able to troubleshoot
issues during your title search if any should arise.
company's attorney is the person who is going to determine whether you can
legally take title of the property and receive title insurance. Using a title
company with a seasoned attorney, therefore, is crucial.
“in the early 2000s, it was very common to see people forming their own title
insurance agencies after just a few months,” Evans says. “Though that’s less
common today, you can still run into title attorneys who have very little
title searches can be complicated, claims are an inherent part of the business.
However, some title companies are more "liberal” than others, Castellanos
says, with respect to whom they will—and whom they won’t—issue title insurance.
title companies pay lots of claims, which can put a lot of stress on their
clients,” says Castellanos. “You want a title company that is incredibly
careful and conservative.”
many title claims are too many? Title
insurance claim rates are approximately 5%, according to industry estimates.
result, here's a good guideline: If a title company has had a lot of title claims
relative to the volume of their business—say, 1 out of every 10
customers—you'll want to continue your search.
on the terms of your home sales contract, you may be under a tight deadline to
reach settlement, warns Kimberly Sands, a
real estate broker in Carolina Beach, NC.
course, you won't know that until you actually make an offer on a house. But,
since it's a possibility, you'll want to find a title company that can conduct
a title search in a timely manner, Sands says.
the whole process takes about two weeks. If a title company says that it will
take significantly longer to complete a title search, using that company could
force you to delay closing, which could potentially cause your whole home
purchase to collapse.
being a member of a professional association certainly doesn’t guarantee that a
title company is good, title agencies that belong to industry groups are often
held to a higher standard, says Evans.
like the American Land Title Association (ALTA) also offer their members unique
education programs, business tools, and industry certifications that will serve
clients well. Moreover, membership in an industry group adds a layer of
credibility for an insurance provider.
insurance can be confusing for home buyers, but it’s an essential protection of
homeownership. So, in addition to asking the questions above, take time to read
online reviews and talk to your real estate agent
before picking your title insurance provider.
Ready to house hunt? It's a jungle out there: Prepare for a
flurry of paperwork, stampedes of buyers competing for the same digs, and other
challenges, before you get your hands on those house keys.
lie: The process can be complex and stressful—especially if you are a
first-time buyer. Having a real estate pro by your side can make all the
might have heard of buyer's agents, selling agents, listing agents, and so
on. You're a buyer, so what is a buyer's agent?
True to their name, buyer's agents help real estate
buyers navigate the real estate market; they can also save you tons
of time and money on the road to your new home.
to learn how a real estate buyer's agent can help, and how to find
the right one for you.Benefits of using a buyer's agent when buying real estate"A
buyer’s agent will guide you through the home-buying transaction and be at
your disposal for any questions or concerns," says Shane
Wilcox, a Realtor® with Partners Trust. Here are some of the
things a buyer's agent can do:
Benefits of using a buyer's agent when buying real estate
buyer’s agent will guide you through the home-buying transaction and be at
your disposal for any questions or concerns," says Shane
Wilcox, a Realtor® with Partners Trust. Here are some of the
things a buyer's agent can do:
Find the right property.After determining
what the clients are looking for and what they can afford, the agent will
schedule appointments to tour homes that fit the bill. The agent can also
explain the ins and outs of various properties and neighborhoods, to help
buyers decide which home is right for them, by explaining the pros and cons of
Negotiate the offer. The buyer's
agent will advise clients on an appropriate price to offer and present it to
the seller's agent. "Then they will negotiate on your behalf and
write up the contracts for you," says Matt Laricy, a
Realtor with Americorp Real Estate in Chicago. This is where the agent's
experience in negotiating deals can save you money and help you avoid
pitfalls like a fixer-upper that's more trouble than it's worth.
Recommend other professionals. A buyer's agent should also be able to refer you to
reliable mortgage brokers, real estate attorneys, home inspectors, movers, and
other real estate professionals. This can also help expedite each step of the
process and move you to a successful real estate sale all the faster.
Help overcome setbacks. If the home inspector's report or
appraisal brings new issues to light, a buyer's agent can advise you on
how to proceed with the transaction, and then act as a buffer between
you and the sellers or their broker. If negotiations become heated or
hostile, it's extremely helpful to have an experienced
professional keeping calm and offering productive solutions.
agents are legally bound to help buyers, whereas listing agents—the real
estate agent representing the home listing—have a fiduciary duty to the
why it's in your best interest as a buyer to get an agent who is there to
represent you," explains Alex Cortez, a Realtor
with Wailea Village Properties in Kihei, HI.
about it this way: If you were getting sued, would you hire the same attorney
as the person suing you? Of course not. You need someone who will
diligently fight for your interests and rights."
say, for instance, you walked up to the listing agent at an open house. You
might gush about how you love the home and want to buy it, but add that you
will need to move soon—because you're expecting your second child and need to
decorate the nursery, pronto, or because the lease on your rental is up in a
couple of months.
seller's agent could then use this information against you by informing the
sellers that your clock is ticking, so they shouldn't budge too much on their
asking price—if at all.
this same confession to the buyer's agent you're working with, and it's all
fine—this professional would know to keep this info private from sellers (and
their agents), so it can't be used against you.
states, recognizing this problem, required a disclosure of dual agency when a
broker represents both sides of a real estate transaction.
you may still not be comfortable after signing an agreement saying you know
someone is a double agent. You might want to hire an agent who is not
representing the owner, and who is looking out for your best interests.
buyer's agent can ease your way to homeownership—and a bad one can result in a
should not just take the first buyer's agent you meet (as two-thirds of home
buyers do), or blindly accept the recommendation of a friend (more than half do
this). Instead, it's best to interview at least three agents and ask them a few
questions, including the following:
What neighborhoods do you
specialize in? Real estate requires local expertise, so you
should find an agent who's extremely familiar with the areas you're
What's your schedule and
availability? Part-time real estate agents who are committed can do a fine
job, but if the house of your dreams pops up or you encounter last-minute
closing snafus, you want an agent who will be readily reachable.
How long have you been a
real estate agent? You ideally want someone with a couple of years of
experience, and a proven track record of selling homes.
real estate agents in your area, head to realtor.com/realestateagents, where you can
also read online reviews provided by past clients and learn more.
agree to work with someone, you will have to sign a contract called an
"exclusive buyer agency agreement," outlining the agent's services
and compensation (more on that next).
also means that this person will be your sole representative and that you won't
work with other buyer's agents.
buyers don't need to worry about the expense of hiring a buyer's agent. Why?
Because the seller pays the commission for both the seller's and buyer's
the commission is the equivalent of about 6% of the home's sales price,
which is split evenly between both agents (on a $200,000 home, that would be
If you've been thinking of buying a
home, by now, you've probably heard that you should be shopping around for a
mortgage. While this advice is true, getting rates from a variety of different
mortgage professionals does require a certain amount of legwork. Luckily, there
is a way to make the process easier. You can use a mortgage broker. Keep
reading to learn what a mortgage broker is, how using one works, and why you
may want to include one in your home search.
is a mortgage broker?
Put simply, a mortgage broker is someone who will act as a
liaison between you and the lender. Instead of you having to worry about
researching different lenders and finding the best rates, the mortgage broker
will do all of that on your behalf. They'll essentially manage your
pre-approval process for you so you only have to worry about choosing the best
result for you.
Most mortgage brokers will help you through the underwriting and
approval processes as well, meaning that you may not even have to speak to your
lender until the day of settlement.
mortgage brokers work
The first step to working with a mortgage broker is bringing him
or her all of your financial documentation. Just like you would when working
with a lender directly, you'll need to bring them documentation that shows your
employment history, income, debts, and assets. However, the advantage here is
that you'll only have to go through the trouble of submitting all of your
After that, the broker will take the reins. He or she will look
through their pool of participating lenders to find options that may be a good
fit for you. It's important to note that each broker will have a different pool
of lenders available to them so you'll want to do your research and make sure
you're working with a broker who has lots of connections.
After the broker looks into your options, he or she will submit
your information and come back to you with a variety of quotes. From there,
they will walk you through the process of choosing the best lender for you.
When you eventually find a home, they will also submit your loan application on
As you go through the process of being approved for a loan, your
lender may require additional information. At that point, they would reach out
to your broker, who would work with you to gather the information and submit it
you may want to use a mortgage broker
There's no getting around the fact that shopping around for a
loan, applying with a variety of lenders, and going through the mortgage
approval process is hard work. If you don't want to be responsible for putting
in all that time and effort or if you'd just rather have someone there to guide
you through it all, working with a mortgage broker may be your best bet.
Streamline is a refinance mortgage loan available to homeowners with existing
FHA mortgages. The program simplifies home refinancing by waiving the
documentation typically required by a bank, including income and employment
verification, bank account and credit score verification, and an appraisal of
the home. Homeowners can use the program to reduce their FHA mortgage insurance
NOTE: FHA mortgage guidelines change often. This FHA Streamline
Refinance information is accurate as of today, November 12, 2019.
here to check your FHA Streamline Refinance Eligibility. (Nov 12th, 2019)
What is an FHA
FHA MIP refund chart
FHA MIP cancellation
Streamline Refinance is a special mortgage product, reserved for homeowners
with existing FHA mortgages.
Streamline Refinances are the fastest, simplest way for FHA-insured homeowners
to refinance their respective mortgages into today’s mortgage rates.
Streamline Refinance program’s defining characteristic is that it does not
require a home appraisal.
the FHA will allow you to use your original purchase price as your home’s current
value, regardless of what your home is actually worth today.
way, with its FHA Streamline Refinance program, the FHA does not care if you
are underwater on your mortgage. Rather, the program encourages underwater
Click here to refinance with FHA even if you are
you owe twice what
your home is now worth, the FHA will refinance your home without added cost or
“appraisal waiver” has been a huge hit with U.S. homeowners,
allowing unlimited loan-to-value (LTV) home loans via the FHA Streamline
in places like Florida, California, Arizona and Georgia have benefitted
greatly, as have homeowners in other states and cities affected by last
decade’s housing market downturn.
this “no appraisal” feature, however, the FHA Streamline Refinance behaves very
much like any other loan product.
available as a fixed rate or adjustable mortgage; it comes as a 15- or 30-year
term; and there’s no FHA prepayment penalty to worry about.
big plus is that FHA mortgage rates are the same in the FHA Streamline
Refinance as with a “regular” FHA loan.
There’s no penalty for being underwater, or for having very little equity.
low FHA Streamline Refinance rates here. (Nov 12th, 2019)
big plus is that the FHA Streamline Refinance is fairly easy for which to
this decade, in an effort to help U.S. homeowners, the FHA abolished most of
the typical verifications required to get a mortgage. So, today, as it’s
written in the FHA’s official mortgage guidelines :
1. Employment verification is not required with an FHA
2. Income verification is not required with an FHA Streamline
3. Credit score verification is not required with an FHA
no need for a home appraisal, either, so when you put it all together, you
can be (1) out-of-work, (2) without income, (3) carry a terrible credit rating
and (4) have no home equity. Yet, you can still be approved
for an FHA Streamline Refinance.
not as crazy as it sounds, by the way.
understand why the FHA Streamline Refinance is a smart program for the FHA, we
have to remember that the FHA’s chief role is
to insure mortgages — not “make” them.
the FHA’s best interest to help as many people as possible qualify for today’s
low mortgage rates. Lower mortgage rates means lower monthly payments
which, in theory, leads to fewer loan defaults.
good for homeowners that want lower mortgage rates and for the FHA — but mostly
for the FHA.
today's FHA Streamline Refinance rates here. (Nov 12th, 2019)
the FHA Streamline Refinance eschews the “traditional” mortgage verifications
of income and credit score, as examples, the program does enforce minimum
standards for applicants.
official FHA Streamline Refinance guidelines are below. Note that not all
mortgage lenders will underwrite to the official guidelines of the Federal
main goal is to reduce its overall loan pool risk. Therefore, it’s number one
qualification standard is that homeowners using the Streamline Refinance
program must have a perfect payment history stretching back 3 months. 30-day,
60-day, and 90-day lates are not allowed.
late payment is allowed in the last 12 months. Loans must be current at the
time of closing.
requires that borrowers make 6 mortgage payments on their current FHA-insured
loan, and that 210 days pass from the most recent closing date, in order to be
eligible for a Streamline Refinance.
here to check your FHA Streamline Refinance eligibility now. (Nov 12th, 2019)
does not require verification of a borrower’s employment or annual income as
part of the FHA Streamline process.
no Verification of Employment, nor are there paystubs, W-2s or tax returns
required for approval.
be unemployed and get approved for a FHA Streamline Refinance so long as you
still meet the other program requirements.
does not verify credit scores as part of the FHA Streamline Refinance program.
Instead, it uses payment history as a gauge for future loan performance.
means that FICO scores below 640, below 620, below 580, and
below 500 are eligible for Streamline Refis.
lenders, however, create their own minimums. Check your lender’s guidelines
Refinance applicants must demonstrate that there’s a Net Tangible Benefit in
the refinance; a legitimate reason for refinancing.
Net Tangible Benefit is defined as reducing the “combined rate” by at
least one-half of one percent.
instance, the homeowner has an FHA loan opened
in May 2013 with a rate of 5.00%, and a monthly mortgage insurance premium
equal to 1.35%. The combined rate is 6.35%.
homeowner receives a rate quote at 4.75% with MIP of 0.85%. She saves on her
rate and mortgage insurance, since FHA MIP was reduced in
combined rate would be 5.60%, or three-quarters of one percent lower than the
existing combined rate. The FHA refinance is eligible.
allowable Net Tangible Benefit is to refinance from an adjusting ARM into a
fixed rate loan. Taking “cash out” to pay bills is not an allowable Net
here to verify your FHA rate reduction. (Nov 12th, 2019)
prohibits increasing a Streamline Refinance’s loan balance to cover associated
loan charges. The new loan balance is limited by the math formula of (Current
Principal Balance + Upfront Mortgage Insurance Premium). All other costs —
origination charges, title charges, escrow population — must be either (1) Paid
by the borrower as cash at closing, or (2) Credited by the loan officer in
latter is called a “zero-cost FHA Streamline”.
isn’t concerned about home value — it’s insuring your loan regardless.
the FHA does not require appraisals for its Streamline Refinance program.
Instead, it uses the original purchase price of your home, or the most recent
appraised value, as its valuation point.
that are underwater are still FHA Streamline-eligible.
take extra cash when refinancing with an FHA streamline loan. This refinance is
mainly for the purpose of dropping your rate and payment.
the FHA cash out refinance is another product offered by the FHA. It allows you
to open a loan of up to 80% of your
home’s value. If that amount is larger than your current loan
balance, you take the difference in cash.
funds for any purpose: pay off debt, improve your home, or create an emergency
Streamline Refinance is an FHA-insured mortgage, and FHA borrowers are required
to make two types of mortgage insurance payments — an upfront mortgage
insurance payment paid at closing, plus an annual payment split into 12
installments, paid with your mortgage payment each month.
respect to mortgage insurance premiums, homeowners using the FHA
Streamline Refinance program are split into two classes:
1. Homeowners whose new loan replaces an FHA-backed mortgage
endorsed prior to June 1, 2009
2. Homeowners whose new loan replaces an FHA-backed mortgage
endorsed on/after June 1, 2009.
in the first class — those with “old” FHA mortgages —
are assigned different mortgage insurance than newer FHA homeowners.
older FHA mortgage qualify for a reduced upfront premium of just 0.10% of the
loan amount, or $10 for every $100,000 borrowed. Additionally, monthly mortgage
insurance is just 0.55% of the loan amount annually, compared to “regular” MIP
of 0.85% per year.
are refinancing an FHA mortgage via the FHA Streamline Refinance program and
your existing FHA mortgage was endorsed on, or after, June 1, 2009, your
mortgage insurance premium schedule on your new FHA loan is as follows.
FHA Streamline Refinance replacing a loan endorsed on, or after, June 1, 2009,
the FHA upfront mortgage insurance premium is equal to 1.75 percent of your
loan size, or 175 basis points.
This is $1,750
for every $100,000 borrowed. The FHA automatically adds the $1,750 premium to
your loan balance for you — it’s not paid as cash. However, not all refinancing
households will pay the full amount.
FHA-backed homeowners refinancing within the 3 years of their existing loan’s
start date, the FHA provides a refund on your previously-paid upfront MIP.
of the refund diminishes as the 3-year window elapses.
example, a homeowner who refinances an FHA mortgage after 11 months is
granted a 60% refund on his initial FHA UFMIP. 30 days later, the refund drops
to 58%. After another 30 days, it drops to 56%, and so on.
why is rarely a good idea to “wait to refinance” with the FHA. With the
FHA Streamline Refinance program, the sooner you refinance, the bigger your
refund, and the lower your total loan size. This lowers the monthly payment and
preserves the home equity — two huge positives.
mortgage insurance refund check accompanies every rate quote. Request that
here. (Nov 12th, 2019)
annual MIP schedule for an FHA Streamline Refinance which replaces a loan from
on, or after, June 1, 2009 is as follows :
15- & 30-year loan
terms with an LTV over 90%: 0.55 percent annual MIP, payable for the life of
15- & 30-year loan
terms with an LTV under 90%: 0.55 percent annual MIP, payable for 11 years
these MIP costs may be lower than what you’re paying currently.
January 2015, the FHA lowered its mortgage insurance premiums on 30-year loans,
making it less expensive to carry an FHA home.
current FHA MIP is higher than what’s shown above, consider starting a
refinance immediately to benefit from a new, lower FHA MIP.
existing FHA mortgage was endorsed prior to June 1, 2009, your mortgage
insurance premiums have been “grandfathered”.
refinance via the FHA Streamline Refinance program and pay reduced rates for
both for upfront MIP and your annual mortgage insurance premium.
here to see how much you can save by reducing your FHA MIP. (Nov 12th, 2019)
FHA Streamline Refinance that replaces a loan endorsed prior to June 1, 2009,
the new FHA mortgage’s upfront mortgage insurance is equal to 0.01 percent of
the loan size, or 1 basis point.
example, if your new FHA Streamline Refinance is for $100,000 mortgage, the FHA
will assess a $10 upfront mortgage insurance premium (MIP) to be paid at
closing. The FHA automatically adds the $10 payment to your new loan balance.
MIP is similarly cheap for older FHA loans. For an FHA Streamline Refinance
replacing an FHA loan endorsed prior to June 1, 2009, the annual MIP is
0.55% annually, or 55 basis points.
complete annual MIP schedule is as follows :
requires some homeowners to pay mortgage insurance for as long as their loan is
your FHA Streamline Refinance replaces a loan from on, or after, June 1,
2009, the rules on your FHA MIP cancellation are as follows:
LTV of 90% or less at the
time of closing: MIP is required for 11 years
LTV greater than 90%
at the time of closing: MIP required for life of loan
MIP cancelation policy applies to 15-year loan terms and 30-year loan terms
refinancing homeowners are welcome to bring cash to closing in order to reduce
their loan balance and change their MIP disposition. However, not everyone will
have the cash to make such a move.
why, when exploring an FHA Streamline Refinance, you should also look
other refinance programs including the conventional mortgage loan via Fannie
Mae or Freddie Mac, which is available with nearly every mortgage lender.
allows its homeowners to refinance to
cancel FHA MIP.
mortgage rates are low and homeowners typically close in less than 30 days.
Remember: the faster you close, the bigger your FHA MIP refund.
today’s live mortgage rates now. Your social security number is not required to
get started, and all quotes come with access to your live mortgage credit
me today's rates (Nov 12th, 2019)
Saving up for a sizable
downpayment is a big part of knowing if you should be in the market for a home,
but it is far from the only consideration.
Interest rates, credit
scores and life situation are all big factors.
your own home has long been part of the American dream. It’s a goal most of us
rightfully aspire to, and one that can often help build wealth. Indeed, 64% of Americans own a home today.
If you’re considering buying a house, you’ll want to look at a few things
first, such as your overall financial picture and the total cost of home
ownership. You’ll also want to understand current interest rates and home
We’ve all heard the rule of thumb that
you should ideally have 20% of the purchase price saved for a down payment on a
home. Although you can qualify for FHA mortgage loans with
as little as 3.5% down, a 20% down payment is still a much better idea, because
you won’t need to pay private mortgage insurance, will have lower monthly
mortgage payments, and will pay less interest over the life of the loan. You’ll
also be less likely to end up underwater on your mortgage should housing values
So, one way of gauging when it’s the
ideal time to buy a home is when you can afford a 20% down payment on the home
of your choice. But wait — you’ll also need to factor in other costs, such as
insurance, closing costs, moving costs, repair and maintenance, property taxes,
and so forth. Use a mortgage and housing cost
calculator to determine whether you can still afford your home
when all these costs are combined.
Another rule of thumb: Are you depleting all your savings with the
down payment? If you’ll have no emergency savings left, or if you need to
liquidate retirement accounts, then you should likely continue saving until
your overall financial situation can accommodate the major expense of home
You’ll also want to assess interest rate
offers: Mortgage rates have been historically low for years now, but even so, you’ll
qualify for the lowest rates only if your credit is good, above a 720, or so.
The best time to buy a home, according to this rule of thumb, is when your
credit score is strong, and you have access to the lowest rates. Work on paying
down debt and improving your credit score in order to receive the best interest
rate offers from lenders.
And finally, deciding when it’s the best
time to buy a house also rests on how long you envision yourself in the home.
If you can foresee needing to move within a few years, consider the costs
involved in selling the home and moving, which may erode any gains. If you are
planning on growing your family, downsizing, or otherwise significantly altering
your life circumstances (including slowing down in your career, or retiring),
you might also find yourself seeking a new housing situation sooner, so plan
your purchase accordingly.
In short, the best time to buy a house is
when you have enough saved for a down payment such that your overall financial
condition won’t suffer after the purchase; when your credit score is strong and
you’ll qualify for the lowest rate; and when property market conditions in your
area reflect realistic pricing. And don’t forget to consider how long you
intend on living in the home, as this may affect your finances, too.
Happy house hunting!
A home mortgage
refinance may sound like a good idea in theory, but it’s not
always possible or desirable.
starters, lenders have tightened up the approval process, making it more
difficult to get a loan.
today need to be triathletes to qualify for a loan, with great income, great
credit and great value in their home,” says Anthony Hsieh, founder and CEO of
loanDepot.com, headquartered in Irvine, Calif.
In addition, a refinance may not make sense financially,
particularly for borrowers who plan to sell their homes in the next few years.
Before taking the leap and opting to refinance, homeowners should
ask themselves the following six questions.
Do I have equity in my
Homeowners need to have at least 20 percent equity in their home
to qualify for a new loan without paying private mortgage
insurance. Adding PMI to the cost of a new loan could negate the
benefit of a refinance.
many homeowners are underwater — meaning they owe more on their mortgages than
the house is worth. However, being underwater or having little equity does not
necessarily rule out a refi.
should still apply for a refinance even if they have low equity, because there
are some Fannie Mae and Freddie Mac programs and FHA loans that
may accept them,” Hsieh says. “The best way to find out if you fit into a
program is to go to a lender.”
Meshel, district vice president for W.J. Bradley Mortgage in Phoenix,
recommends homeowners refinance quickly in case the housing slump deepens,
causing values to depreciate even more.
Patrick Cunningham, vice president of Home Savings & Trust
Mortgage based in Fairfax, Va., recommends an increasingly popular approach —
the so-called “cash-in”
“Some people are
opting to bring cash to the settlement in order to pay down their loan balance
to qualify for a refinance,” he says.
Do I have good enough credit?
Borrower credit scores play a big role in securing a good mortgage rate. In fact, you’ll need a good
credit score to qualify for any type of mortgage at all.
operate on a sliding scale, with the lowest rates going to applicants with the
highest credit scores of 720 or higher.
scores below 620 will have trouble qualifying for a mortgage at any rate.
What are my financial goals?
Many homeowners refinance to lower their monthly payments. A mortgage
calculator can give borrowers a sense of what their new payment
would be after a refi.
Others choose a
shorter-term loan with higher monthly payments so they can reduce overall
interest payments and own their homes faster.
“Some people are
restructuring their loans to a 20-, 15- or 10-year mortgage, which works well
for people with plenty of disposable income,” Cunningham says. “But I worry
that people are too focused on paying off their mortgage and not integrating
this decision with their overall financial plan.”
borrowers to make sure they contribute to retirement savings and college
savings, pay off high-interest debt, and save six to 12 months’ of expenses
“before opting for a shorter, more expensive mortgage.”
Meshel says people
should consider whether they want to retire without a mortgage before opting
for a new 30-year loan. Those who have employment concerns may want to
refinance into the lowest possible payment in case they experience a job loss.
How long do I plan to stay in this home?
Mortgage professionals generally tell borrowers to expect a home
refinance to cost 3 percent to 6 percent of the loan amount. A simple
calculation shows how long it will take to reach the break-even point when the savings outweigh
“If the break-even
is at 15 months and you plan to stay in the home for five years or longer, it
is probably worth it to refinance,” Cunningham says. “But if you plan to move
in two years, it may not make sense.”
long-term homeowners who are close to paying off their mortgages might not want
to refinance because of the costs incurred.
What are the terms of my current loan?
Borrowers with adjustable-rate
mortgages or interest-only loans should consider the potential
benefit of switching to a fixed-rate loan. Hsieh says all borrowers with ARMs
should switch to a fixed-rate loan unless they intend to move within one year.
says some borrowers can benefit by sticking with their current ARM.
“Consumers with a
subprime ARM should definitely switch to a new loan,” Cunningham says. “But
some with conventional ARMs may find that they are in a good loan and that
their rates are actually dropping.”
While new loans
today rarely have a prepayment penalty, many homeowners still have loans with
that restriction, which could reduce the financial gain of a refinance, Meshel
Do I have a second mortgage or line of credit?
Cunningham says borrowers with a second mortgage will face additional
complexity when refinancing.
can either pay off the second loan or combine the two loans into a larger first
mortgage,” Cunningham says. “Otherwise, the lender holding that second loan
must agree to stay in second position behind the lender of the first mortgage,
which the lender may or may not be willing to do.”
Source: To view the original article click here
When you’re shopping around for a loan,
the interest rate you’re given is one your most important considerations. After
all, it has a big impact on how much you’ll be expected to pay each month. You
probably know that it’s in your best interest to get a loan while mortgage
interest rates are low, but have you ever wondered how these rates work?
If so, keep reading. In the post below, I’ll cover how mortgage
interest rates are determined, as well as why each person can receive a
How mortgage interest rates are
Believe it or not, once your lender gives you your mortgage,
they don’t keep your debt in-house. If they did, they’d have to wait a long
time for their investment to pay off. Instead, they sell your debt to
third-parties known as mortgage
The aggregators - like Fannie Mae and Freddie Mac - then take
your mortgage debt, bundle it with other debts, and repackage it into what’s
known as mortgage-backed
Those mortgage-backed securities are then broken down into
shares, which are sold to individual investors, who hope for a return on their
In this case, mortgage interest rates are determined by two
things: the price at which your debt is sold to the aggregators and the price
at which the investors are willing to buy their shares. It’s a
supply-and-demand scenario that’s affected by a mix of economic factors.
The economic factors
Multiple economic factors go into the prices at which
mortgage-backed securities are bought and sold. One important one is the Federal
funds rate, or the rate at which banks are allowed to borrow money. In weak
economies the Fed lowers this rate to encourage people to keep borrowing. In
strong economies, the Fed raises the rate to stave off inflation. For their
part, the lender must charge enough to cover the cost of borrowing the money.
The rate of inflation also plays a role.
Inflation is the phenomenon which occurs when the price of goods and services
rise across the board. Inflation poses a problem for investors because it means
that the money people borrow now will be worth less when they pay it back and
when the investors see their returns. When a rise in inflation is predicted,
investors are less eager to buy into mortgage-backed securities because their
returns will be lower.
How you’re given your interest rate
All of those factors listed above play into what interest rates
are available on the market. But the truth is the rate you’re given could be
Again, the rate you’re given is going to be based on multiple
factors. They may include:
In general, the bigger the risk the lender sees in approving you
for a mortgage, the higher your interest rate will be. However, keep in mind,
different lenders may offer you different rates, which is why it’s important to
shop around for a loan.
Homeowners who want to shave off dollars from their monthly
mortgage payment as well as save money on interest, might consider a mortgage
What is mortgage recasting?
A mortgage recasting, or loan recast, is when a borrower makes a
large, lump-sum payment toward the principal balance of their mortgage and the
lender, in turn, reamortizes the loan. This means that your loan is reduced to
reflect the new balance.
Recasting cuts your monthly payments and the amount of interest
you’ll pay over the life of the loan. It does not, however, affect your
interest rate or the terms of your loan.
In this way, mortgage recasting offers two — and possibly three
— attractive benefits for homeowners with some extra cash in their pocket to
pay down the balance:
How mortgage recasting
to do a loan recast, borrowers must make a large lump-sum payment toward the
loan principal. Lenders usually require $5,000 or more to recast a mortgage.
The remaining balance is then amortized to reduce the monthly payments. There
are usually fees associated with recasting. The fees vary by lender; but they
typically don’t exceed a few hundred dollars.
not only results in lower monthly payments but borrowers will also pay less
interest over the life of the loan. For example, if your 30-year mortgage carries a principal
balance of $200,000 with a 5 percent interest rate, you might pay $1,200 per
month. If you spend $50,000 to recast your mortgage, plus a $250 recasting fee,
you’ll end up saving almost $35,000 in interest payments and about $300 per
month in monthly mortgage payments. Of course, the money you sink into the
house in the recast won’t be available for investing or other purposes.
mind, recasting doesn’t reduce the term of your mortgage, just how much you pay
qualifications and availability
you get excited about lower monthly payments, first make sure your lender
offers recasting – many don’t. It’s also not something that’s normally
advertised, but most of the big banks offer it, including Chase, Bank of
America and Wells Fargo. Plus, not all mortgages qualify
for recasting; some types of loans, like FHA loans and VA loans, can’t be recast.
Mortgage recasting vs.
big difference between recasting a mortgage and refinancing one, even though
both can help borrowers save money. Recasting is easier than refinancing
because it requires only a lump sum of money in exchange for lower monthly
recasting, you’re keeping your existing loan, only adjusting the amortization. You wouldn’t be able to get a
lower interest rate with recasting, like you might with refinancing. On the
other hand, if your interest rate is already low then refinancing could have a
negative effect — especially if the current rates are higher.
Refinancing, conversely, requires that you apply for a brand-new
loan and pay all the fees that go with it, such as closing costs and
appraisal. The new loan would pay off your existing loan, so you could end up
with a new mortgage as well as new interest rates.
typically do this to get a lower interest rate or to go from an adjustable-rate
mortgage to a fixed-rate mortgage. If you already have a fixed-rate mortgage
with a low interest rate, then a refi wouldn’t help you. On the other hand, if
you have a low-interest, 30-year fixed-rate mortgage and want lower monthly
payments, then you might consider a recast.
The benefits of mortgage
has some appeal because it’s fairly easy to do and it’s a relatively
inexpensive way to lower monthly payments if you have the cash. Here are a few
reasons you might want to consider recasting your existing mortgage:
The drawbacks of mortgage
biggest financial drawback of recasting is that you’re putting a large sum of
money into equity. These are a few reasons you might want to rethink recasting:
It doesn’t shorten the length of your mortgage.
Your interest rate stays the same, a disadvantage if you have a higher interest rate.
More of your cash is tied up in equity.
Lender charges a fee, typically no more than a few hundred dollars, to recast a loan.
current climate, with relatively low mortgage rates and a strong
market, a loan recast might not make sense for some.