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If you’re considering a home remodeling project, you’re probably thinking about borrowing money, as this work can be quite costly.

Here we will cover all the ways to pay for home renovations to help you find the smartest, cost-effective options for your particular situation.

When should you consider a home renovation loan?

Simply put, this type of loan is for people who don’t have the cash to finance the project they have in mind. This could be everything from a new roof or furnace to a kitchen or even an addition to the home.

When considering renovations, bear in mind that the total cost will probably involve much more than just labor and materials. Often, this figure includes fees for architectural and engineering services, inspections and permits, and potentially having to put up a contingency reserve of 10 percent.

Various types of loans are available, most of them contingent on how much equity you have built up in your home. Whatever your project, there’s probably a mortgage or personal loan right for you. Options include:




Fannie Mae HomeStyle loan


5% down payment

FHA 203(k) loan


3.5% down payment

Home equity loan / HELOC


20% equity

Cash-out refinancing


20% equity

How do you choose the best renovation loan?

“It really comes down to credit and eligibility,” says Gregg Harris, president of LenderCity Home Loans, a division of BBMC/Bridgeview Bank Group.

For example, an FHA 203(k) might be best for a borrower with so-so credit and little money to put down since borrowers can get a mortgage with only 3.5 percent down.

Consider how much you want to borrow and what it is you want to change. It can be hard to identify the best home renovation mortgage for your needs, so work with a lender who has extensive knowledge of the different loans, advises Laurie Souza, national business development manager at Mortgage Network Inc. in the Boston area.

“Make sure you’re working with a lender that is well-versed with the details of the program,” she says.

Remodel loan pitfalls to watch out for

In deciding whether to seek a loan, one financial issue is whether–and if so, how much–the renovations would increase the home’s value. Some projects may increase the value beyond their cost. But with others, you may not get back the cost of remodeling when you sell; some projects simply aren’t worth doing from a cost standpoint, although you may want to do them anyway because it improves your lifestyle. Think: Adding that in-law suite or extra bedroom.

When weighing renovations from a return standpoint, it’s a good idea to pay attention to the total amount you’d have in the home after finishing the work, relative to an appraiser’s estimate of the total after-project value.

You also want to consider the values of comparable homes in the neighborhood that have sold recently. A major pitfall lies in investing more in a home, through the purchase price and remodeling, than the values of these comparable homes, as they’ll affect your eventual sale price.

What are the costs and fees involved with a renovation loan?

That all depends on which type of financing you choose. With a cash-out refinance of your mortgage, you can expect to pay about 3 percent to 6 percent of the new loan amount for closing costs. A personal loan may have no fees but much higher interest. Closing costs for HELs and HELOCs are typically low and might include an application fee and or appraisal fee that together would be less than $500.

Of course, the major cost is interest paid on the loan, which might stretch over 20 or more years with some of these options. A $50,000 loan at 6 percent interest will cost nearly $86,000 to repay by the time the last check is written.

Here’s detailed information on financing available for renovations:

Government-backed home renovation loans

Fannie Mae’s HomeStyle Loan

  • Loan amounts can be as high as 75 percent of the home price plus renovation costs or the as-completed appraised value
  • HomeStyle funds can be used for any renovation project
  • Funds can be used to complete a real estate deal that has repair contingencies, such as replacing a roof
  • Requires you to use a certified contractor
  • Funds go into an escrow account, not directly to the borrower

One of the best-known loans for home improvements, Fannie Mae’s HomeStyle Renovation Loan, allows borrowers to either buy a place that needs repairs or refinance their existing home loan to pay for improvements.

HomeStyle loans are available from any Fannie Mae-approved lender, but there are qualification requirements:

  • For a primary residence, you must have a credit score of at least 620.
  • You have to make a down payment of at least 5 percent of the purchase price of the home.
  • A certified contractor must prepare and submit a cost estimate and details of the work to be done.

One advantage of a HomeStyle loan is that it’s just one loan, you don’t have to take out a loan for the mortgage and then another loan for home repairs. Getting just one loan reduces paperwork and closing costs.

Keep in mind that the money goes into a separate escrow account that’s used to pay contractors directly. You don’t have access to those funds as  you do with a home equity loan or a cash-out refinance.

“The nuance with the HomeStyle loan is that there’s a little less freedom for the customer because the funds are held in an escrow account,” says Eric Wilson, director of operations at Better Mortgage.

FHA 203(k) loans

  • Funds can be used for a wide range of projects, whether minor improvements (costing at least $5,000) to total reconstruction (as long as the original foundation remains)
  • Can be used to convert a building to a one- to four-unit property
  • Affordable interest rates for those with imperfect credit
  • Property must meet government energy efficiency and structural standards
  • Requires you to use a qualified 203(k) consultant
  • You can’t use an FHA loan on a property that you intend to flip within 90 days. Rules limit how soon you can resell it, and under what circumstances
  • Funds go into an escrow account, not directly to the borrower

The Federal Housing Administration offers a home renovation loan called a 203(k). There’s typically a lower credit-score requirement for this loan than there is for a HomeStyle loan, and a lower minimum down payment–3.5 percent.

There are two types of FHA 203(k) loans:

  • Limited (formerly called streamline)
  • Standard

A limited FHA 203(k) loan is designed for cosmetic improvements and is capped at $35,000. This rehab loan can be used to finance repairs and improvements like a kitchen remodeling or a new paint job.

A standard FHA 203(k) loan can be used for extensive remodeling, but it requires you to hire a qualified 203(k) consultant to oversee every step of the work, from the plans to the finished product.

This type of home renovation loan is available for homes that are at least a year old. The rehab project must have a cost of at least $5,000. The agency sets mortgage amount limits by state, county or area, and you can look your area up through a searchable tool on its website.

There’s security in having the consultant. Most people doing a major home improvement project hire a contractor on their own, notes Stuart Blend, regional sales manager for Planet Home Lending. But with a standard 203(k) loan, the consultant is your project manager, who assesses costs and plans, and oversees the work.

“When you take out that loan, that money rests with the lender. We’re holding those funds in escrow, and we’re making sure everything is done the way it’s supposed to be done,” Blend says.

Private home renovation loans

Home equity loan or line of credit (HELOC)

  • Interest rates are lower on home equity loans and HELOCs than unsecured personal loans
  • With HELOCs, you pay interest only on the amount you draw down
  • With a home equity loan, you have a predictable repayment schedule with equal monthly payments
  • May have upfront fees, including application or loan processing fees, appraisal fees, document fees and broker fees

Another way to finance your home renovation is by taking out a home equity loan, also known as a second mortgage. This is a one-time, lump-sum loan, so it’s not subject to fluctuating interest rates, and monthly payments remain the same for the loan term.

A similar loan is the home equity line of credit, or HELOC. It has a revolving balance and might be best for someone who has several large payments due over time, as with a big home-improvement project.

With either option, you’re pledging your home as collateral, meaning that if you don’t make your payments, the lender will end up owning your house. Alternatively, you can take out an unsecured personal loan to avoid putting up your home as collateral.

Keep in mind that HomeStyle and FHA 203(k) loans have some advantages over home equity loans, especially if you don’t have a ton of equity in the property.

“The loan amount with either of these is based on the completed value and not the present value. A home equity loan is based on the current value,” says Harris of BBMC/Bridgeview Bank Group.

Cash-out mortgage refinance

  • No restrictions on use of the money
  • Lower interest rates than an unsecured personal loan
  • Extends the time to payoff of your house
  • Requires significant home equity

A cash-out refi allows homeowners to refinance their mortgage. This mortgage will be for a higher amount than the first one, and the homeowner gets the difference in cash.

Like home equity loans and HELOCs, cash-out mortgages require homeowners to use their home as collateral. A refinance works especially well if you can get a lower rate than with your current mortgage. Combine the lower interest rate with the added home value derived from renovations, and you could benefit more in the long run.

You’ll need at least 20 percent equity in your home to qualify for cash-out refinancing. The total loan amount is generally limited to the available equity in your home. Credit score requirements vary per loan amount and value of your home, but generally start at 640.

Personal loans

  • No collateral, home equity or down payment required
  • Flexible for any purpose
  • No home appraisal required
  • Interest rates based on consumer’s credit score and history
  • Funding available quickly

An option for those who can’t — or don’t want to — tap home equity is applying for a personal loan from a bank, credit union or online lender. Unlike a refi or home equity loan, a personal loan is unsecured — meaning you don’t have to put up your home or any other collateral. Instead, eligibility for the loan is based strictly on your credit score, income and financial history. There’s no need for a home appraisal and funds for your renovation project can be available quickly.

Naturally, consumers with excellent credit scores–720 or higher–get the best interest rates, averaging well below 10 percent APR. Those with good or average credit scores, between 630 and 719, can generally expect to pay higher interest rates. Certain lenders extend personal loans to consumers with credit scores as low as 580, though rates tend to be much higher still.

For nationwide rates, check out Bankrate’s Personal Loan Center.

If a personal loan is appropriate, you can quickly get an idea of available lenders and estimated interest rates by entering a few pieces of information into Bankrate’s loan pre-qualification tool.  If you’re eligible for quick approval, you may soon be ready to move forward with your dream of a new kitchen, bathroom or other home project

This is generally a good time to seek a loan, as interest rates are still hovering at or near historic lows and lenders are looking to hand out cash to borrowers. The key is to have a realistic idea of project costs and secure the type of loan, with a competitive interest rate, that’s right for your situation.

Source: To view the original article click here

Posted by Jackie A. Graves, President on December 9th, 2019 9:03 AM

Before you make one of the largest purchases of your life, be sure to think things through.

Once you decide that you’re financially ready to buy a home, the tricky part is finding the ideal property to call your own. In the course of your home search, you may come across a number of options that seem viable initially, but less so when you put more thought into it.

Of course, the last thing you want to do is buy the wrong house and regret it. If a property catches your eye, be sure to run through these questions before putting in an offer

1. Can I afford this house?

Try as you might to find a house that’s listed below a certain dollar amount, you may fall in love with a home that’s just outside the top end of your price range. Or you might find a home with a lower purchase price, but the property taxes make it a more expensive prospect. Before you commit to buying a house, understand the exact cost of owning it and figure out whether you can swing it financially. 


Remember, your mortgage payment and property taxes are only part of the equation. You’ll also need to account for expenses like homeowners insurance and maintenance. If, for example, you’re drawn to a home with a huge yard and a built-in swimming pool, you could end up paying a lot more for upkeep. 


Look at the big picture. That also means you don’t have to write off a house that costs $5,000 more than you wanted to pay if its taxes are lower than you expected. 

2. Is this house in a desirable (or potentially desirable) neighborhood?

Even if you’re planning to live in your new house for the foreseeable future, there may come a point when you decide to move (or you have to move). The last thing you want is to struggle finding a buyer. That’s why it’s important to buy in the right neighborhood or one that's on its way there.


In fact, in some cases, it pays to purchase a house in an up-and-coming neighborhood rather than an established one since you might snag a more affordable property in the process. But you don’t want to buy a house where home prices have steadily declined over the years. 

3. Does the neighborhood work for me?

You might find a house you love in a trendy neighborhood with plenty of restaurants, galleries, and shops. But if you have young kids, you probably need a solid school system more than anything else.

Remember, just because a neighborhood is desirable from a home resale perspective doesn’t mean it’s the right place for you to live. Dig deeply before making an offer on a house in an area you’re not intimately familiar with. 

4. Can I address this house's flaws affordably?

In the course of your home search, you may be inclined to buy a fixer-upper because of the savings involved. But make sure you don’t get in over your head. If the house you’re looking at needs a lot of work, you may find that you’re better off buying a more expensive home that’s in better shape to begin with. 


The best way to predict expenses is to get quotes from contractors. Even without seeing the place, an experienced kitchen remodeling company should be able to give you a ballpark estimate for gutting a 300-square-foot space and installing brand new flooring, countertops, cabinetry, and appliances. 

5. Am I settling for things that can never be fixed?

In the course of buying a home, you may find that you can't check every single item off your wish list. For example, you might spot a home with updated bathrooms and a finished basement, but without the open floor plan you want. It’s okay to settle for a home that has some flaws, but make sure you can address those shortcomings in the future.


For example, an outdated kitchen can be remodeled and laminate flooring can be replaced with hardwood. You can even tear down walls, to some degree, if you want a more open space. But you can’t turn a house with a small backyard into a house with a large yard, nor can you score your desired basement game room if the home in question doesn't, in fact, have a basement. Before you settle for a house that’s not perfect, make sure the problems in question are fixable at some point in time. Otherwise, you may come to regret the decision to buy.


Buying a house isn’t something you do every year (in most cases), so it’s crucial to get it right. Answer these key questions, and with any luck, you’ll make a good decision. 


Source: To view the original article click here

Posted by Jackie A. Graves, President on December 8th, 2019 10:29 AM

The majority of homeowners in the U.S. will use a mortgage loan to finance the purchase of their homes. The home is typically the largest asset a family owns, and the corresponding mortgage loan is usually the largest debt.

Financially, understanding how the mortgage loan process works is absolutely critical. This overview is your starting point to learning the essential information on mortgage loans.

What are mortgage loans?

Mortgage loans are the primary tool homebuyers use to pay for their home. Mortgage loans can also be used to buy some investment properties and vacation homes, although they're most commonly known for their use in financing a primary residence.

Homebuyers will pay a down payment on the home, and the remainder of the financing will come from the mortgage. As a rule of thumb, a mortgage will pay for 80% of the price of the home, although there are specialized programs that can allow a mortgage to pay for a higher percentage of the purchase. Some programs will even provide for 100% financing. Mortgages for investment properties and second homes will generally require a larger down payment.

After the home is purchased, the homeowner makes monthly payments of both principal and interest to pay off the loan over time. Most mortgage loans in the U.S. are repaid over a 30-year period.

How do you get a mortgage loan?

To get a mortgage loan, a prospective borrower must apply for a mortgage through a bank, a credit union, or another lender. Mortgage brokers can also be used. These individuals or companies will present your loan request to a variety of lenders and present you with the best deal available. Sometimes working with a broker can be very helpful, and other times the broker may charge extra fees, making the loan unnecessarily expensive.

When applying for the loan, the lender will want to fully examine the applicant's financial situation. That can be an unpleasant process for many individuals. The lender will take into consideration the applicant's credit score, income, debts, net worth, and down payment.

The exact requirements for each of those considerations will vary from lender to lender.

Once a borrower is approved for the loan, the lender will order an appraisal of the property to ensure that the value of the house is accurate. Typically, the borrower will be required to pay for the appraisal, even though the bank orders it.

Borrowers should expect to pay an origination fee, miscellaneous taxes and filing fees, any mortgage points, and a handful of other fees that will vary from lender to lender. These payments are required to be paid upfront, while the interest on the loan will be paid over time with each payment. The exact details of all costs will be presented to the borrower during the application process, as required by law.

Important mortgage loan concepts

To help prepare you for the bank jargon used in the mortgage loan process, here are some helpful definitions you'll need to know.

  • APR or APY: Annual percentage rate or annual percentage yield. This number represents the actual annual interest cost to you on your mortgage, including the fees the lender is charging you.
  • Loan term: The term of the loan is the length of time before the entire loan amount is to be paid in full. In most cases in the U.S., the term will be 30 years.
  • Credit score: A credit score is a number calculated by one of the three credit reporting agencies that represents a borrower's credit history and that person's likelihood of repaying future debts. The credit score takes into account past payment history, current debt levels, the type of debt (credit card vs mortgage, for example), and more. Credit scores range from 300 to 850, with a higher score representing a better score. Under most circumstances, a credit score of 650 or higher is sufficient to qualify for a mortgage.
  • Loan-to-value ratio: This is the ratio the bank calculates to show how much of a down payment is being paid. The ratio is calculated by dividing the loan amount into the appraised value of the property. A loan-to-value ratio of 80% is most common for mortgage loans, but there are special programs that can allow the ratio to rise to 90% to 100%.
  • Debt-to-income ratio: This is the ratio banks use to calculate a borrower's monthly cash flow. Mortgage lenders will typically use two versions of this ratio. First, they will divide the borrower's total monthly debt obligations into his or her total monthly income before taxes. Lenders want to see this ratio at about 40% or less. Second, the lender will do the same calculation, but instead of using all the debt payments, the lender will just use the total monthly mortgage payment. This ratio should generally be 30% or less.

Source: To view the original article click here

Posted by Jackie A. Graves, President on December 7th, 2019 10:26 AM

11 counties will actually see loan limits decrease

Thanks to increases in home prices in 2019, the Federal Housing Administration loan limit will increase for nearly all of the country in 2020.

According to an announcement from the FHA, the 2020 FHA loan limit for most of the country will be $331,760, an increase of nearly $17,000 over 2019’s loan limit of $314,827.

That loan limit applies to much of the country, with the figure determined as a percentage of the national conforming loan limit for Fannie Mae and Freddie Mac, which is increasing in 2020 to $510,400.

FHA is required by the National Housing Act, as amended by the Housing and Economic Recovery Act of 2008, to set single-family forward loan limits at 115% of median house prices, subject to a floor and a ceiling on the limits. FHA calculates forward mortgage limits by Metropolitan Statistical Area and county.

FHA’s 2020 minimum national loan limit, or “floor,” of $331,760 is 65% of the national conforming loan limit of $510,400. This floor applies to “low-cost areas,” which are counties where 115% of the median home price is less than the floor limit.

Meanwhile, there are a number of counties (approximately 70) where the median home price far exceeds the FHA loan limit floor. Those areas where the loan limit exceeds this floor are considered “high-cost areas”, and HERA requires the FHA to set its maximum loan limit “ceiling” for those high-cost areas at 150% of the national conforming limit.

Therefore, for those approximately 70 “high-cost” counties, the FHA’s 2020 loan limit will be $765,600, an increase of nearly $40,000 over 2019’s total of $726,525.

Click here to see the counties that qualify as high-cost and therefore have loan limits of $765,600.

There are also a number of counties where the 2020 loan limit is between the floor and the ceiling. Loan limits in those counties, which are based on the median home prices in those counties, vary from just above the floor of $331,760 to just below the ceiling of $765,600.

Click here to see a list of the counties where the 2020 loan limit falls between the floor and the ceiling.

There are also a few areas where loan limits are calculated differently than the rest of the country due to the specific nature of those housing markets.

As in previous years, Alaska, Hawaii, Guam, and the U.S. Virgin Islands have a higher limit “ceiling” than the rest of the country to account for the “higher costs of construction.”

In those areas, the 2020 FHA loan limit is $1,148,400.

According to the FHA, the loan limit is going up in almost all of the 3,233 counties where it backs loans, but there are a handful of counties where the loan limit is actually going down.

Per data from the FHA, there are 11 counties where the loan limit is decreasing. In three of those counties (Dutchess County, New York; Orange County, New York; and Lincoln County, Idaho), the loan limit is decreasing by approximately 50%, due to the home price changes in those areas.

Click here to see the areas where loan limits are decreasing in 2020.

Each year, the FHA continues to increase how many counties see an increase in the FHA loan limits.

Back in 2016, the FHA increased loan limits for just 188 counties; in 2017, this number jumped to 2,948 counties; then to 3,011 counties for 2018. In 2019, the FHA loan limits increased in 3,053 counties.

Click here to see all the rest of the counties where loan limits are increasing in 2020.

It should also be noted that both the FHA loan limit floor and ceiling are increasing on two-unit, three-unit, and four-unit properties, as shown in the image below.

To read FHA’s full breakdown of all the 2020 loan limits, click here.

According to the FHA, the loan limits are effective for case numbers assigned on or after Jan. 1, 2020, through Dec. 31, 2020.

Source: To view the original article click here

Posted by Jackie A. Graves, President on December 6th, 2019 8:36 AM

These first-time home buyer loans and programs can get you in a home with a lower — or even no — down payment.

Buying a home is so hard, they should make it an Olympic event. It’s not just the paperwork; it’s the terminology, the fees and the number of people involved. It’s natural to want to agree to whatever, sign everything and just get through the process as fast as you can.

While that may make you a medalist in downhill skiing, it won’t earn you many style points in life’s uphill battle to financial well-being.

Summary: First-time home buyer loans and programs

Here are some of the most useful first-time home buyer loans and programs that you might overlook if you rush the process. They may score you some big savings.

1.      FHA loan: The go-to loan program for buyers with weaker credit.

2.      VA loan: No down payment loans for borrowers with a military connection.

3.      USDA loan: 100% financing on rural properties.

4.      Fannie and Freddie: Conventional loans with just 3% down.

5.      State first-time home buyer program: Assistance specifically for residents.

6.      Home renovation loan: Buy a home and remodel it with one loan.

7.      Good Neighbor Next Door: Home price discounts for first responders and educators.

8.      Dollar Homes: Foreclosed homes for sale by the government.

FHA loan

This is the go-to program for many Americans, especially first-time home buyers and those who have a credit history that’s ... let’s say shaky. The Federal Housing Administration guarantees a portion of FHA home loans, which frees lenders to broaden their acceptance standards. With FHA backing, borrowers can qualify for loans with as little as 3.5% down.

FHA loans do have an upfront and ongoing additional cost built in: mortgage insurance premiums. This protects the lender’s stake in the loan if you default.

VA loan

The U.S. Department of Veterans Affairs helps service members, veterans and surviving spouses buy homes. VA loans are especially generous, often requiring no down payment or mortgage insurance. But like a lot of military operations, the approval track is built for accuracy, not speed.

While the VA has only a few requirements for things like debt and sufficient income, VA lenders may add their own "overlays," or additional requirements.

USDA loan

This one may surprise you. The U.S. Department of Agriculture has a home buyers assistance program. And no, you don’t have to live on a farm. The program targets rural areas and allows 100% financing by offering lenders mortgage guarantees. There are income limitations, which vary by region.

Fannie and Freddie

They sound like classic ’70s rock bands, but Fannie Mae and Freddie Mac are the engines behind the home loan machine. These government-sanctioned companies work with local mortgage lenders to offer some appealing options on conventional loans, such as 3% down payments.

State first-time home buyer programs

In addition to these national programs, many state and local governments offer assistance to home buyers. Browse NerdWallet's list of state first-time home buyer programs to learn more.

Home renovation loan programs

Here are a few programs that allow you to buy more home for your money.

The Energy Efficient Mortgage program extends your borrowing power when you buy a home with energy-saving improvements or upgrade a home’s green features. If you qualify for a home loan, you can add the EEM benefit to your regular mortgage. It doesn’t require a new appraisal or affect the amount of your down payment. The program simply allows your lender the flexibility to extend loan limits for energy efficiency improvements.

There are also FHA 203(k) loans, designed for buyers who want to tackle a fixer-upper. This special FHA-backed loan considers what the value of the property will be after improvements and allows you to borrow the funds to complete the project as part of your main mortgage.

These loan programs are designed for buyers who want to tackle a fixer-upper.”

The CHOICERenovation loan is a conventional loan program through Freddie Mac that allows you to finance the purchase of a home and the cost of improvements, too, with low down payments.


HomeStyle from Fannie Mae is another conventional loan option for purchase-and-remodel projects. A 3% down payment is available to first-time home buyers.


Good Neighbor Next Door

This initiative was originally called the Teacher Next Door Program but was expanded to include law enforcement, firefighters and emergency medical technicians, hence the snappy “Good Neighbor” name. A HUD-sponsored program, it allows 50% discounts on the list price of homes located in revitalization areas. Yes, half off. Who knew? You just have to commit to living in the property for at least 36 months. These homes are listed — for just seven days — on the Good Neighbor Next Door sales website.


Dollar Homes

This sounds like one of those late-night television offers, but HUD claims to offer $1 homes that have been acquired by the FHA through foreclosures. Needless to say, this is a tiny pool of houses. At last check, only a handful of listings appeared on the website. Curiously, one home we checked out in the Dollar Home category seemed to be listed for $17,900. We’re not sure what that’s about, but shop carefully.


Tapping one of these resources may help you buy a home with less of a down payment, lower your interest rate, or even find a bargain in your neighborhood. Then you can have your own opening ceremony in your new home.


Source: To view the original article click here

Posted by Jackie A. Graves, President on December 5th, 2019 11:56 AM

A new home appraisal rule just went into effect—the first time in 25 years that “federal regulators have increased the property value limit of the homes that require an appraisal as part of the selling process,” said REALTOR® Magazine. The rule exempts some home sales priced at $400,000 and below from requiring an appraisal. That figure was previously capped at $250,000. “The new rules likely apply to about 40% of home sales, regulators estimate.”

So how will this affect home buyers and sellers? First, it should be noted that those homes that do receive the exemption still have to be evaluated “to provide an estimate of the market value of real estate collateral,” said Housingwire. “The agencies state that the evaluation must be ‘consistent with safe and sound banking practices.’ To that point, the rule establishes that an evaluation “should contain sufficient information and analysis to support the regulated institution’s decision to engage in the transaction.”

Also, the new exemption is not applicable for homes using FHA, HUD, VA, Fannie Mae, or Freddie Mac financing, which eliminates a huge percentage of homes right off the top. 

If you are in a position to buy or sell a home that no longer needs an appraisal, should you still proceed with one? Here’s why you may want to consider it.

What is an appraisal?

“A home appraisal is an unbiased determination of the fair market value of the home by a professionally-trained third party,” said Forbes. “While that may sound complicated, all it means is that it's a chance for someone who's not personally involved in the sale of the home to give a true representation of the home's worth. It's worth noting that an appraisal is entirely separate from a home inspection. The former deals with the financial value of your new home. The latter is an inspection of the functional quality of your home's systems, like HVAC and plumbing.”

There are a number of factors that contribute to that fair market value. “In a purchase-and-sale transaction, an appraisal is used to determine whether the home’s contract price is appropriate given the home’s condition, location, and features,” said Investopedia. While the evaluation process is intended to provide guidance when it comes to pricing, it is unknown at this point how those evaluations will compare to appraisals, if they will carry the same weight in terms of establishing home value, if they will disproportionately favor the lender, etc. 

Value protection

Buyers and sellers each have a vested interest (literally) in knowing how much the home they are buying or selling is worth. For sellers, an appraisal can help inform the listing price, and may also be able to help a seller justify a higher listing price because of improvements they have made to the home. 

On the other hand, if a home appraises for less than the sales price, buyers have a negotiating tool. “An appraisal is important because it protects your investment,” said Forbes. “It's there to ensure that, as the buyer, you don't pay more than the home is actually worth. It's also important for securing financing. In today's mortgage industry a bank will only give you a loan up to the fair market value of the home. Therefore, if an appraisal comes back lower than the purchase price, the lender may only issue you a loan for the appraised amount.”

Source: To view the original article click here

Posted by Jackie A. Graves, President on December 4th, 2019 8:42 AM

Consumers are encouraged to check their credit reports once per year. The primary reason for doing so is to make sure there aren't any mistakes. Unfortunately, credit reports are prone to contain mistakes. It's not really the fault of the three main credit repositories, Equifax, Experian and TransUnion because all three are just a database. Whatever is reported to them is what you see. Further, someone with a similar name can show up on someone else's report. If you're not the only Bob Smith in town, this is certainly possible.

Someone else's poor credit might very well be showing up on your report which can directly damage your credit scores. When you find an error work with your loan officer to get it fixed. Your loan officer has working relationships with credit agencies and can help get mistakes fixed and provide a method to get your scores back to where they should be.

But have you ever wondered how these scores are calculated in the first place? They follow an algorithm first developed by The FICO Company years ago. For a while, credit scores weren't the primary force behind a credit decision but over time the impact of a credit score became more and more important. Most every loan program available today has a minimum credit score and if a score falls below the minimum, there's some additional work that needs to be done to get those scores back on track.

There are five characteristics of your credit history that make up your three-digit score:  your payment history, account balances, how long you've had credit, the types of credit used and how often you've applied for new credit over the past couple of years.

Credit scores range from 300 to 850. Let's say a borrower has a credit score of 600 but needs a 620 to qualify for a particular loan program. Credit scores will improve much more quickly by paying attention to the two categories that have the greatest immediate impact on a score- payment history and account balances.

Payment history accounts for 35 percent of the total score and account balances 30 percent. When someone makes a payment more than 30 days past the due date, scores will fall. An occasional "late pay" won't really do much damage to a score but continued payments made more than 30, 60 or 90 days past the due date definitely will. By stopping the late payments scores will begin to recover.

Account balances compares outstanding loan balances with credit lines. If a credit card has a $10,000 credit line and there is a $3,300 balance, scores will actually improve. The ideal balance-to-limit is about one-third of the credit line. As the balance grows and approaches the limit, scores will begin to fall and fall even more should the account balance exceed the limit. This category contributes 30 percent to the total score.

The remaining three have relatively little impact. How long someone has used credit accounts for 15 percent of the score but there's really nothing anyone can do to improve this area other than to wait. Types of credit and credit inquiries both make up 10 percent of the score. By concentrating on payment history and account balances, scores will improve significantly over the next few months.

Source: To view the original article click here

Posted by Jackie A. Graves, President on December 3rd, 2019 9:59 AM

Mortgage points are fees that you pay your mortgage lender up-front in order to reduce the interest rate on your loan and your monthly payments. A single mortgage point equals 1% of your mortgage amount. So if you take out a $200,000 mortgage, a point equals $2,000. So if you can afford to make these payments now, you can reduce what you’ll pay in the long-run. But it’s not the right move for everyone. As you decide if paying mortgage points makes sense for you, you may also want to find a financial advisor who can guide you in making the home-buying process easy and rewarding.


What Are Mortgage Points?

Before you know if and when to buy mortgage points, you need to understand what they are and how they work.

Mortgage points essentially are special payments that you make at the closing of your mortgage in exchange for a lower interest rate and monthly payments on your loan. That’s why buying points is often referred to as “buying down the rate.” The move can lower what you pay your mortgage lender in the long-run, and it can also get you closer to owning your own home outright sooner.

In the housing world, there are two types of mortgage points.

Discount points: These are basically mortgage points as described above. The more points you buy, the more your rate falls. Lenders set their own mortgage point framework. So the depth of how far you can dip your rate ultimately depends on your lender’s terms, the type of loan and the overall housing market. But you can expect to lower yours by one-eighth to one-quarter of a percent.

Origination Points: These cover the expenses your lender made for getting your loan processed. The amount of interest you can shave off with discount points can vary, but you can typically negotiate the terms with your lender. These are part of overall closing costs.

Should I Buy Mortgage Points?

If you can’t afford to make large up-front payments at the closing of your mortgage application, you may want to keep the current interest rate and refinance your mortgage at a later date. Refinancing a mortgage is basically taking out a new loan to pay off your first mortgage, but you shop for a better interest rate and terms on the new one. This makes sense if you’ve made timely payments on your old mortgage, have paid off a decent amount of your principal, and improved your credit score since you first obtained the initial mortgage.

But if you have some money in reserves and you can afford to make up-front payments, buying mortgage points may suit you. In general, buying mortgage points is most beneficial when you intend to stay in your home for a long time and if you can afford large mortgage point payments.

If this is the case for you, it helps to first crunch the numbers to see if mortgage points are truly worth it.

Calculating Mortgage Points

Picture this scenario. You take out a 30-year-fixed-rate mortgage for $200,000 with an interest rate at 5.5%. Your monthly payment with no points translates to $1,136.

Now, say you buy two mortgage points (1% of the loan amount each) for $4,000. As a result, your interest rate dips to 5%. You end up saving $62 a month because your new monthly payment drops to $1,074.

To figure out when you’d get that money back and start saving, divide the amount you paid your points for by the amount of monthly savings ($4,000/$62). The result is 64.5 months. So if you stay in your home longer than this, you save money in the long run.

But keep in mind our example covers only the principal and interest of your loan. It doesn’t account for factors like property taxes. To get a real picture of how your monthly payments break down, use our mortgage calculator.

As you can see, there are some short-term benefits to paying more now. But there are other reasons why some people find mortgage points attractive. We’ll explore these.

Cash Flow

If you are buying a home and have some extra cash to add to your down payment, you can consider buying down the rate. This would lower your payments going forward. This is also a good strategy if the seller is willing to pay some closing costs. Often, the process counts points under the seller-paid costs. And if you pay them yourself, mortgage points usually end up tax deductible.

In many refinance cases, closing costs are rolled into the new loan. If you have enough home equity to absorb higher costs, you can pay mortgage points. Then you can finance them into the loan and lower your monthly payment without paying out of pocket.

To cut down on your closings costs, you can use negative mortgage points instead of positive ones. As a result, however, you’ll be paying more interest.

Long-Term Savings

If you plan to keep your home for a while, it would be smart to pay points to lower your rate. Paying $2,000 may seem like a steep charge to lower your rate and payment by a small amount. But, if you save $20 on your monthly payment, you will recoup the cost in a little more than eight years.

If you expect to make payments on a 30-year loan all the way to maturity, paying points can be a wise financial move.

Securing a Low Rate

The lower the rate you can secure upfront, the less likely you are to want to refinance in the future. Even if you pay no points, every time you refinance, you will incur charges. In a low-rate environment, paying points to get the absolute best rate makes sense. You will never want to refinance that loan again.

But when rates are higher, it would actually be better not to buy down the rate. If rates drop in the future, you may have a chance to refinance before you would have fully taken advantage of the points you paid originally.

What’s the Deal With Origination Fees?

Why do so many lenders quote an origination fee? To get a true “no point” loan, they must disclose a 1% fee and then give a corresponding 1% rebate. Wouldn’t it make more sense to quote a loan “at par” and let the borrower buy down the rate if they so choose?

The reason lenders do it this way is the new disclosure laws that came about with the Dodd-Frank financial reform bill in 2010. If the lender does not disclose a certain fee in the beginning, it cannot add that fee on later. If a lender discloses a loan estimate before locking in the loan terms, failure to disclose an origination fee (or points) will bind the lender to those terms.

This may sound like a good thing. If rates rise during the loan process, it can force you to take a higher rate. Suppose you applied for a loan when the rate was 4.5%. When you are ready to lock in, the rate is worse. Your loan officer says you can get 4.625% or 4.5% with a cost of a quarter of a point (0.25%).

But if no points or origination charges show up on your loan estimate, the lender wouldn’t be able to offer you this second option. You would be forced to take the higher rate.

Tips for Calculating Your Mortgage Payment

  • Be proactive and get a handle on your credit report and credit score. Both are significant factors in determining if you can get approved for a loan and for how much, which plays into your interest rate and how much you’ll pay each month. There are plenty of free services online that will give you an idea of where you stand. You’re also entitled to a free credit report from the major bureaus each year.


  • To make sure you’re set up for success, we highly recommend speaking with a financial advisor. Our SmartAsset financial advisor matching tool can link you with up to three financial advisors in your area in just a few minutes. All you have to do is answer some questions about your financial situation. Then you can check out their profiles, interview them on the phone or in person and choose who to work with in the future.


Source: To view the original article click here

Posted by Jackie A. Graves, President on December 2nd, 2019 10:02 AM

Closing costs are inevitable, but understanding them can help you lessen the financial hit.

WHETHER YOU'RE A first-time homebuyer or have bought and sold multiple homes, closing costs can complicate your home purchase because you need to budget for the costs at the same time you're trying to put down the largest possible down payment.

The term "closing costs" includes a variety of expenses above the purchase price of your property, such as fees for an attorney, a title search, title insurance, taxes, lender costs and some upfront housing expenses such as homeowners insurance. Some of those costs are nonnegotiable, such as recording or transfer taxes charged by your state or local government. Others, such as your lender's fee, can be negotiated.

The amount a buyer will pay in closing costs varies based on the size of the loan and local taxes and fees, but a general rule is that they average 2% to 5% of the purchase price. For example, if you're buying a $300,000 house, the total closing costs could range from $6,000 to $15,000. The national average for closing costs on a single-family home in 2018 was almost $5,800 including taxes, according to a report from data company ClosingCorp.

What's Included in Closing Costs?

By law, if you're buying a home, you receive a loan estimate within three days of your lender receiving your loan application. That document includes an estimate of closing costs. Three days before your scheduled closing, you should receive your closing disclosure, a document that provides final details about your loan and your closing costs.

"There are essentially three sections of closing costs that buyers need to pay, including lender fees, title company fees and prepaid costs," says Henry Brandt, branch manager of Planet Home Lending in Irving, Texas.

Lender fees. Some lenders wrap all of their costs into an origination fee, and others break them out into a list of things like courier fees, appraisal costs, administrative fees, processing fees, a credit check, transfer taxes, a flood certification if one is required and underwriting fees, says Brandt.

An optional closing cost is a discount point, equal to 1% of the loan amount. Discount points can be used to lower your interest rate. You can consult with your lender to discuss the pros and cons of paying discount points. In general, if you're cash-poor, you're less likely to want to pay extra upfront to bring down your interest rate.

Title fees. About 70% of closing costs are title-related, says Todd Ewing, founder of Federal Title & Escrow in Washington, D.C., which is why he recommends that buyers shop for title services if they can. Those costs include a title search, title insurance and settlement services.

"Title insurance premiums don't vary much, but the settlement fees can vary by several hundred dollars from one company to another," says Ewing. "To compare fees, make sure you understand what's covered, including a title search and courier fees."

Lenders require buyers to purchase title insurance that covers the lender up to the amount loaned. Most real estate experts recommend that buyers also purchase optional owner's title insurance to protect their own investment in the home. Both types of title insurance provide protection if someone claims he or she has an ownership right to your home or has not been paid for work on the property and has a lien against it. Title insurance can protect you if the previous owners failed to pay taxes on the property.

"Some people foolishly decide to opt out of owner's title insurance to save money, but it can be costly," says Ewing. "One buyer of a $1 million property in Washington, D.C., decided to save $2,000 and skip it, but three months later it turned out a lien on the property hadn't been properly recorded, and he had to pay about $50,000 in attorneys fees to straighten it out."

Prepaid costs. Most lenders require borrowers to set up an escrow or impound account to collect homeowners insurance and property taxes, although if you make a down payment of 20% or more, you can sometimes be exempt, says Brandt.

"At the closing, you'll pay one year of your homeowners insurance plus two months of homeowners insurance premiums to be kept in reserve," says Brandt. "Usually you're also required to pay two to six months of property taxes depending on when the tax bill is due. In states with high property taxes, that can add up to thousands of dollars at the closing."

Who Pays Closing Costs?

Both buyers and sellers have expenses to pay at the settlement table, but what they pay depends on negotiations between buyers and sellers. Sellers typically pay the real estate agents' commissions at the closing, but in some areas, they pay other fees, too.

Buyers usually pay for the majority of closing costs, but there can be exceptions.

"First-time buyers often don't know about closing costs, and they'll say, 'My friend bought a house, and the sellers paid all of the closing costs,'" says Sam Grogan, a real estate agent with Coldwell Banker Residential Brokerage in Charlotte, North Carolina. "We explain the process so they understand that usually means the buyers have negotiated with the sellers to finance the cost."

How Can I Avoid Paying Closing Costs?

You're not likely to avoid paying closing costs entirely. While some costs such as transfer taxes and property taxes can't be changed, there are several ways to lower your out-of-pocket expenses at the closing. The two most common are lender-paid or seller-paid closing costs.

"Buyers get confused when we talk about seller-paid closing costs, so I think this should be called 'buyer-financed' closing costs," says Grogan.

Essentially, buyers can ask sellers to allow them to raise the purchase price in exchange for a credit at the settlement table to cover closing costs.

"For example, if the seller wants $200,000 for the house and closing costs are estimated at $5,000, you can offer $205,000 and get a credit for the closing costs," says Grogan. "The seller gets the same net profit, and the buyer finances the closing costs into the transaction, lowering the buyer's total out-of-pocket expenses."

Grogan says this is common for properties in a lower price range, although in a competitive market some buyers try to avoid asking for closing cost help because it can make them look weak.

"In 2008 to 2010, when it was a buyer's market, it was common across all price ranges to ask sellers to pay closing costs outright and not even raise the price to cover them," says Grogan.

A potential problem for buyer-financed closing costs is that the home must appraise at the full purchase price, including the extra for a closing cost credit. Your real estate agent can help you assess whether you could face appraisal problems.

Buyers can also request lender-paid closing costs, which means the lender will pay the closing costs and charge a slightly higher interest rate to recoup the money, Brandt says.

"Whether it's seller-paid or lender-paid closing costs, basically the buyer is financing those closing costs either with a higher balance or a higher mortgage rate," says Brandt.

You can also negotiate some closing costs, but most are hard fees that can't be changed.

"The closing costs that a buyer may be able to shop for would include things like property survey, home inspection, pest inspection and homeowners insurance," says Tom Parrish, head of retail lending product management at BMO Harris Bank.

How Can You Manage Cash Flow and Closing Costs?

People with low to moderate incomes could get homebuyer assistance in the form of a grant or loan.

"The loans associated with those programs sometimes have slightly higher interest rates, but it's a great option to get some or all of your down payment and closing costs covered so you can keep more of your cash in reserve for emergencies," says Brandt.

Programs are available through nonprofits, state and local government agencies and from some employers.

Brandt estimates that about 25% of the loans his company handles have some form of closing cost assistance, either from the sellers, the lender or a homebuyer assistance program.

If cash flow is an issue, try to negotiate the settlement date, which can affect the amount you pay in closing costs.

"If you close at the end of the month, the lender will only charge one or two days of prepaid interest, but if you close on the first of the month, you'll pay the full 30 days of interest," says Ewing. "But it's really only a cash-flow difference since your closing date also impacts the date your first mortgage payment is due."

Source: To view the original article click here

Posted by Jackie A. Graves, President on December 1st, 2019 8:17 AM

The standard homebuying advice is “only buy as much home as you need.” Makes sense, right? If a newly married couple is shopping for their first home, for example, a two-bedroom bungalow might be a smarter choice than a four-bedroom ranch house.

But you also have to consider another piece of standard homebuying advice: don’t buy unless you plan to live there for at least five years. If that newly married couple is planning on expanding their family, their two-bedroom bungalow might feel too small all too soon.

CNBC has a list of items potential homeowners should consider before making the big purchase, one of which is to think about the type of home you’ll need in the future:

Given that experts suggest you should only buy if you plan to stay in that home for several years, think about your must-haves now and in the near future: Do you need a garage? Do you want to be in a specific school district? You may also want to consider how close you are to amenities like public transportation, grocery stores and a hospital.


In other words: Don’t buy the home you can live with today. Buy the home you want to live in tomorrow.

This won’t necessarily mean a larger home, though you’ll want to consider the long-term impacts of the space you’re choosing to purchase. (If you take one of the bedrooms in that two-bedroom bungalow and your child gets the other, where do Grandma and Grandpa sleep when they visit?)

Yes, this home might be a little more expensive. No, it shouldn’t be so expensive that it breaks your budget. If you’re concerned about cost, remember that selling a home and moving into a new one is also expensive—and although you might make a profit on the sale of your home, you probably won’t make much of a profit if you haven’t lived there for at least five years.

As the Seattle Times puts it:

The reason for this [five-year] rule is that closing costs and real-estate commissions required to buy and sell will consume 7 to 15 percent of the cost of the house. Your home will have to appreciate up to the costs of buying and selling just to break even. If you want to make money, then the value must exceed those fees.

So don’t buy a home unless you plan to stay—and don’t buy a home unless it looks like it’s going to fit the life you plan to have five years from now.


Source: To view the original article click here

Posted by Jackie A. Graves, President on November 30th, 2019 8:41 AM


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