If you’re looking to make home improvements, pay for your kid’s
college education or pay down credit card debt, a home equity loan or line of
credit can be a cheap way to borrow money. The average cost of a fixed-rate
home equity loan is 5.87%, according to our most recent survey of major
A home equity loan requires you to borrow a lump sum all at once
and requires you to make the same monthly payment each month until the debt is
retired, much like your primary fixed-rate mortgage. It’s always been a better
choice if you want to borrow a specific amount for a big one-time project and
you want the security of knowing that your interest rate will never change.
HELOCs allow homeowners to borrow against the equity in their
homes on an as-needed basis. You pay interest only on what you borrow, and the
average HELOC currently costs 6.75%.
But these are adjustable-rate loans based on the prime rate —
the floating interest rate banks charge their best commercial customers — plus
an additional fixed rate. They were incredibly cheap for about eight
years while the prime remained at a six-decade low of 3.25%.
But when the Federal Reserve started pushing interest rates
higher in December 2015, virtually every bank immediately added a quarter of a
point to their prime rate, raising it to 3.50% APY. Now it stands at 5.50%. So
if a bank currently offers you a HELOC at 6.75%, it’s charging you prime plus a
fixed 1.25 percentage points.
Whether you choose a home
equity loan or a HELOC, you’ll qualify for the best rates and
biggest loans with a credit score of at least 740.
With property values rising across much of the country, only
about 4.1% of homeowners with a mortgage remains underwater, according to
Corelogic, owing more on their loans than their property is worth.
That means many borrowers who didn’t have enough equity in their
homes to qualify for a second mortgage have a better chance of being approved.
Lenders require that borrowers maintain 10% to 20% of their
equity after taking the loan or line into account.
To figure out how much you can borrow, subtract the balance you
owe on your mortgage from what your home is currently worth.
If, for example, your home is worth $200,000 and you owe
$140,000 on your first mortgage, you’d have 30% equity, or $60,000.
If the lender required you to retain 20% of your home’s value,
or $40,000, your home equity loan or HELOC would allow you to borrow a maximum
You can borrow as little as $5,000 through some credit unions
and regional banks, but many lenders won’t extend a loan with a limit of less
than $10,000 or even $25,000.
Another recent change is that some of the nation’s biggest
lenders have stopped offering home equity loans. Instead, they’re offering home
equity lines of credit with the option to take a fixed-rate advance on part or
all of your credit line. That means you can combine the advantages of both
types of loans.
Many lenders are offering home equity loans and HELOCs with no
closing costs. The only catch is that if you close your account early — usually
within the first 24 or 36 months — you’ll have to reimburse the lender for
Besides the interest and early-closure costs, you might have to
pay an appraisal fee and an annual fee. Some lenders waive these fees or offer
interest rate discounts if you have other products, like a checking account, at
the same institution.
Make sure you know exactly which fees your bank or mortgage
company is charging, and how much they are, before committing to any loan or
line of credit.
Dodging these pitfalls will make you a happier home buyer now
and more satisfied homeowner down the road. You’ll know that you got the best
possible mortgage and won’t be overwhelmed by unexpected costs.
It’s also important to understand exactly how these loans work
and how the minimum monthly payments will be calculated. Your home acts as
collateral for this type of borrowing, and if you default on your payments, you
could lose your residence.
A HELOC only allows you to tap the line of credit and borrow
funds during what’s called the “draw period” over the first five or 10 years of
While the credit line is open, the minimum monthly payment only
covers the interest charge on the outstanding balance. Some lenders let you pay
1% or 2% of what you’ve borrowed as an alternative to interest-only payments.
In the sixth or 11th year of the loan, the line of credit is
closed and a new fixed monthly payment forces you to begin repaying however
much you’ve borrowed — or in lender-speak, the principal — plus interest over
the next 15 to 20 years.
Experian, one of the three major credit-reporting agencies,
estimates the typical monthly payment increases almost 70% when HELOCs reach
that point. Our line
of credit calculator can help you do the math and determine how
long it might take to pay off your credit line.
It’s also important to know that lenders can freeze or reduce
your line of credit if your home drops in value or your financial situation
changes. That credit may not be available when you need it.
With a home equity loan, you only get one shot at borrowing:
when your loan closes. You’ll have to apply for a new loan or line if you want
to borrow again. But you are guaranteed that initial sum.
The interest for both HELOCs and home equity loans is generally
tax-deductible if you itemize your deductions on Schedule A and if your home
equity loan balance is $100,000 or less all year.
For most homeowners seeking to borrow from their equity, a home
equity loan is a lower-risk option than a HELOC, which in today’s market looks
likely to become more expensive.
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If you take advantage of historically
low mortgage rates by refinancing your mortgage, how do you
know your title company will really pay off your old mortgage at the closing
Customers at the PLM Title Company outside Chicago trusted their
title company to pay off their current mortgage as they closed on a new
mortgage with a lower interest rate.
But instead of paying off the existing mortgage, two title
officials used the money to vacation, pay for a wedding and remodel the
kitchen, the Chicago Tribune reports.
The title company owners ended up going to prison for 10 years,
but some of the homeowners they scammed between 2005 and 2008 say they’re still
paying the old mortgage and the new mortgage.
What happened in Chicago is rare, says David Townsend, president
and CEO of Missouri-based Agents National Title Insurance Company, which sells
title insurance to local title companies.
Since the national title insurance company is the one paying out
the claims when local title companies run off with other people’s money, it
constantly audits the local company’s bank accounts to make sure what’s in the
files and records matches what’s in the bank, he says.
And yet, title company crooks sometimes get away with embezzling
funds by making monthly payments on the old mortgages instead of paying them
If you’re the one whose old loan doesn’t get paid off, it’s
going to be a huge headache.
There are two ways to make sure your old note gets paid off:
Going with the phone call?
Wait 10 to 20 days after the closing for the paperwork to clear.
Use a speaker phone because you could be on hold awhile. Have your loan number
at hand (it’s on your monthly statement). Write down the name of the person you
spoke to and note the time and day you called.
Even if you verify by phone, you should still get a statement of
mortgage satisfaction in the mail. That’s a letter from the old lender saying
you paid off the mortgage.
File that somewhere you’ll be able to find it later, just in
case you need to prove you paid off the old mortgage when you go to sell or refinance your house in the
For $25 to $30, you can buy a closing protection policy that
covers you. Lenders already have this coverage, so you’re really buying
The lender’s coverage says that if the payoff funds are misused,
the title company will cover the loss.
“The standard closing protection letter also contains language
that covers the borrower. There might be a little deviation by some states, but
you get a two-for, you both get coverage,” Townsend explains.
If you had a
loan with Bank of America and you refinanced with Wells Fargo but Bank of
America isn’t paid off and goes to foreclose, Wells Fargo would collect on the
title insurance policy.
It’s not only easier to buy a home with a VA loan, it’s easier
a home with one, too.
Because so few veterans default on their mortgages and the
Department of Veterans Affairs guarantees 25% of the home’s purchase price to
the lender if it has to foreclose, these loans are less risky for lenders.
That means you can have more debt, a lower credit score and less
equity in your home than you’d need to qualify for a traditional loan. Indeed,
you don’t need any equity in
your home to refinance with a VA mortgage.
Yet VA loans don’t require borrowers to buy mortgage
insurance and have lower interest rates than conventional
The average cost for a 30-year fixed-rate VA loan (for
purchasing and refinancing) is 4.41%, according to Ellie Mae Inc., a
California-based mortgage technology firm whose software is used by many
That’s around a quarter of a point less than the average cost of
a conventional mortgage and represents a particularly good deal for borrowers
with dinged credit who normally would have to pay more than average rates
without government help.
Ellie Mae Inc., April 2019 Origination Insight Report.
VA loan refi
Average FICO credit score
Average debt-to-income ratio
Average home equity
Your path to a new VA loan depends on whether you just want to
lower your monthly payment, want cash back from your refinancing or have been
delinquent on your VA loan.
Here are your three options:
If all you want to do is take advantage of lower interest rates,
the streamline loan (or interest rate reduction refinance loan) is for you.
It’s available to veterans who want to refinance an existing VA
home loan with a history of on-time payments. One mortgage payment that was
less than 30 days late in the last 12 months is OK, as long as you’re current
A streamline loan can be easy because the VA does not require
you to obtain a new certificate of eligibility, document your income, have your
house inspected or appraised, or even undergo a credit check.
Although lenders are not prohibited from requiring a full
appraisal, they’re much more likely to depend on a computer-generated value
that doesn’t require an appraiser to examine the inside of your house.
While the VA does not have a minimum credit score requirement,
lenders typically want to see a score of at least 620.
Changes in the way lenders evaluate applications also mean
borrowers who have been turned away before may now qualify for a VA refinancing
or be approved to borrow more than before.
If, for example, you pay off your credit card balances in full
and on time each month, or if you’ve been carrying a credit card balance that
you will pay in full at or before closing, it won’t count against your
debt-to-income ratio like it did in the past.
In parts of the country that still have depressed real estate
values, a streamline loan may be your only option for refinancing because
lenders don’t have to require an appraisal.
You will pay closing costs, points and funding fees as with any
refinance, but these costs can be rolled into the new loan. Or you can take a
slightly higher interest rate in exchange for the lender paying the loan costs.
Other than the amount of your closing costs, you aren’t allowed
to borrow more than you need to refinance the balance on your current loan.
The purpose of the program is to reduce your monthly payments,
so you’re not allowed to get cash back or consolidate
other loans, no matter how much equity you have.
There’s an exception to this rule: You may receive up to $6,000
in cash to pay for renovations that make your home more energy efficient and
were made within 90 days of the closing on your new loan.
A higher monthly payment is also allowed if you refinance:
If your new monthly payment will be at least 20% higher than
your old one, the VA requires lenders to underwrite your loan, meaning you’ll
have to provide pay stubs, pass a credit check and do all the other things a
streamline loan doesn’t normally require.
If you have equity in your home and you need cash to pay off
other debts, improve your home, buy a car, pay tuition or use for any other
lender-approved purpose, choosing a cash-out refinance is your best bet.
To qualify, you must live in the home and not be underwater. You
can refinance up to 100% of your home’s appraised value, plus a little extra if
you need it to make energy-efficiency improvements or pay the VA funding fee.
You can even use this loan to refinance from a non-VA home loan
into a VA home loan.
You’ll also need to obtain
a certificate of eligibility, just as you did when taking out your
first VA mortgage. It’s easiest to have a lender obtain it for you.
The cash-out refinance process will take a little more work than
the streamline option. You must requalify and have your home appraised. Home
values continue to increase, so you might qualify now even if you couldn’t before.
Like any refinance, you’ll pay closing costs. You can use some of your cash
proceeds to pay these charges.
Borrowers can pay the VA funding fee out of pocket, but most add
it to the loan. The fee is waived for veterans who have a service-connected disability.
It’s a catch-22 for many people. You’re having trouble keeping
up with mortgage payments and other bills. A lower interest rate would help,
but you can’t refinance a delinquent mortgage.
If you have a VA mortgage, however, you’re in luck.
Being delinquent does not make you ineligible to refinance. You
will have to submit your application for what the VA calls “prior approval” and
go through credit approval and underwriting to refinance a loan 30 days or more
past due. But it can be done with either of the above options.
The VA’s guidelines even let borrowers refinance late payments
and late charges from the old loan, as long as doing so won’t result in an
unaffordable monthly payment.
After you apply, your loan officer will analyze your case and
determine whether your reasons for falling behind on your payments have been
resolved. For example, you might have been unemployed or ill but are back at
They also must determine that you’re willing and able to make
the proposed new loan payments after you refinance.
You can’t simply have been careless with bill-paying and still
expect to get a loan.
Finally, whether you’ve been delinquent or not, the VA wants to
make sure borrowers benefit from any refinancing.
The government requires lenders to show you the interest rate
and monthly payments for the new loan versus the old loan, as well as how long
it will take for you to recoup your closing costs from refinancing with the
lower monthly payment on your new loan.
If you have too much debt to qualify for a conventional
mortgage, low credit scores, or little money saved for a down payment,
consider buying a home with an FHA loan.
The Federal Housing Administration, a division of the Department
of Housing and Urban Development, was created 80 years ago to help low and
moderate income families borrow the money they need to buy a home. The FHA
doesn’t actually make home loans. It guarantees that lenders will be repaid if
you default on the loan.
That guarantee allows banks and mortgage companies to work with
borrowers who might not be able to qualify for conventional home loans and at
surprisingly competitive interest rates.
The majority of lenders make these mortgages, and about 1 in 6
new home loans is backed by the FHA, according to Ellie Mae, a California-based
mortgage technology firm.
There are limits on how much you can borrow with an FHA loan for
a single-family home. The FHA raised limits for 2019 up to $314,827 for
single-family homes in most parts of the country or as much as $726,525 in
high-cost cities such as New York and San Francisco.
(Here’s where to find the FHA loan limits in your area.)
If the amount you need falls within the guidelines above, here
are the advantages to getting an FHA loan.
Most FHA mortgages require a 3.5% down payment — that’s $3,500
for every $100,000 you borrow — and the average down payment on an FHA home
loan is about 5%, according to Ellie Mae.
That’s far less than the 19% average for conventional home
Your down payment can be a gift from a relative, a friend or an
organization that provides financial assistance.
mortgages require the down payment to come from a borrower’s
savings or other assets, such as proceeds from the sale of another home.
The average FICO score for buyers who finance FHA loans is 674,
according to Ellie Mae.
That’s considerably lower than the average score of 754 for
conventional, non-FHA financing. So what’s the secret to qualifying if you have
a credit score in the low 700s or high 600s?
Successful applicants usually have a two-year history of steady
employment and paying their bills on time.
You can get an FHA loan if you’re self-employed. Just be ready
to document your income with tax returns and financial statements from your
The same big financial problems that derailed FHA applications
in the past continue to do so. If you:
According to Ellie Mae, the average borrower with a new FHA loan
spends 29% of their gross, pretax income on housing costs — everything from
mortgage payments and taxes to insurance and homeowner association fees.
That homeowner also spends 44% of their income on all debt
payments, which would be their housing costs plus car loans, student loans and
credit card bills.
The average buyer who finances with a conventional loan only
spends 24% of their income on housing costs and 36% of their income on all
recurring debt payments.
With the government standing behind your debt, lenders charge a
much lower interest rate than your credit scores and debt might warrant.
Ellie Mae says the average cost of a 30-year fixed-rate FHA
loan, including both purchase and refinancing, is around 4.63%. That’s just
slightly higher than the average cost of a conventional loan, which is around
All borrowers, regardless of loan term or down payment, must pay
the 1.75% up-front mortgage insurance premium at closing.
That means you pay a $1,750 insurance premium on every $100,000
While that sum can be added to your loan amount so you don’t
have to bring more cash to the table, it’s still an extra charge. And if you
finance it, you’ll pay interest on it, too.
Most borrowers will also have to pay monthly insurance premiums,
which were actually reduced in January 2015 for 30-year fixed-rate mortgages.
For a 30-year loan with a down payment of less than 5%, your
premiums will be 0.85% (down from 1.35%) of the outstanding balance each year.
That cost is typically divided into 12 monthly payments and
added to your mortgage payment. That’s $850 per year, or about $70 per month,
per $100,000 of loan balance.
If you put more than 5% down on a 30-year loan, your annual
premiums will be 0.80% (down from 1.30%).
It used to be that you only had to carry this insurance for at
least five years on all loans longer than 15 years, or until the balance on
your mortgage was down to 78% of the original purchase price, whichever took
Since mid-2013, new FHA borrowers who put down less than 10%
have been required to pay these premiums for the life of the loan. This rule
If you keep your FHA financing for 30 years, you’ll pay
significantly more in mortgage insurance premiums than you would with a
conventional loan and private
That’s because on non-FHA loans, borrowers can usually drop
private mortgage insurance once the loan balance is down to 80% of the purchase
price and after as little as one year.
Conventional loans also allow you to count home price
appreciation toward obtaining the needed equity. FHA mortgages do not.
Should You Pay Your Mortgage Off Early?
Paying extra on your mortgage can be a good idea. It can
cut years off your home loan and save tens of thousands of dollars in interest
charges. The one thing you should not do, however, is
sign up for an accelerated payment plan from a mortgage service company that
costs hundreds of dollars.
There are better ways, like refinancing,
to cut that home loan down to size. Here are three free and easy options, and
one that isn’t free but can still save you tons of money.
The additional money you’re sending reduces the balance of your
principal, which is the actual amount you owe on the house without interest.
The biggest share of your early mortgage payments goes to paying interest, so
paying a little extra on principal now makes a huge difference in the years
This works especially well if you get an annual bonus or always
receive a sizable income tax refund. Just add the money to your next monthly
payment. Once again, you’re chopping away at that principal ahead of schedule.
Although a few lenders allow customers to switch to biweekly
payments at no charge, most won’t do that, nor will they accept partial
payments. You can have the money automatically transferred from your checking
account to a savings account every two weeks and then transferred to
your lender at the end of every month. Ask your bank or credit union for help
setting up online transactions, if necessary.
By the end of the year, you’ll have made 26 half payments, which
adds up to 13 full payments — or, again, one full extra payment.
Caution: Paying down the principal on your home loan more quickly
will never reduce the minimum monthly payment or allow you to skip a payment.
It simply shortens the length of the loan and reduces the total
amount of interest you have to pay.
Additional monthly payment
A $200,000 30-year home loan with an interest rate of 5% would
cost $186,512 in interest with the traditional 12 payments a year. Make the
equivalent of 13 monthly payments every year, and the loan will be retired in
26 years and you will pay only $153,813 in interest — a savings of
$32,699. Generally, the
faster you pay your mortgage, the more money you will save.
Of course, you don’t have to keep your home loan for decades to
benefit from extra payments.
You’ll immediately begin adding to your equity (the difference
between what your home is worth and how much you owe on your loan). That lets
you ditch private
mortgage insurance sooner, saving you as much as a couple
hundred dollars a month.
If you ever have an emergency, you’ll have more equity to take
out a home equity loan. And, of course, the less you owe on your mortgage, the
more money you pocket if you sell your home.
mortgage payoff calculator can figure out how quickly you can
pay off your home loan and how much you’ll save.
The biggest challenge to following through with a faster payoff
plan is maintaining self-discipline. It’s easy to start paying extra — until
you have extra expenses or you forget an extra payment.
Mortgage service companies say they can help you pay off your
mortgage faster. When you buy an accelerated biweekly payment plan from one,
you’re essentially asking the company to make you
pay off your loan early. They collect your biweekly checks and fine you if you
miss one of your voluntary payments.
According to them, the threat of those penalties and the
hundreds of dollars they charge in setup and maintenance fees are worth it to
save tens of thousands of dollars in the long run. But they’re not.
Start-up fees begin at $300, and many service companies also
charge processing fees of anywhere from $2.50 to $10, plus monthly or annual
maintenance fees. Some service companies pay interest on the money they’re
holding, but that won’t come close to covering the fees.
The U.S. Consumer Financial Protection Bureau sued one company,
Ohio-based Nationwide Biweekly Administration, in 2015, accusing it of
misleading consumers about the potential savings from its plans.
Nationwide was charging a start-up fee of $995, plus yearly
administrative costs of up to $101.
The protection bureau noted that someone who signed up for the
plan with a 30-year mortgage of $160,000 at 4.5% would have to stay in the
program for nine years to
recoup their fees. (Nationwide suspended operations after the suit was
filed.)Even if you only pay a $300 initial fee and then $10 a month, you’ll
spend $420 in the first year and $2,700 over 20 years. If you don’t make all 26
payments a year on time, you’ll have late fees added to that and wind up paying
That’s the kind of help you don’t need.
This brings us to the option that isn’t free but can potentially
save the most money. If you really want to discipline yourself to pay off your
home loan sooner, consider refinancing for a shorter time period.
Most fixed-rate mortgages are 30 years, but you can get loans
that last 20, 15 or even just 10 years. Loans that run for shorter periods
generally come with lower
interest rates. The combination of a lower rate and less time can
really add up.
Let’s look at that $200,000 mortgage again, this time for only
15 years. A 15-year loan runs about one percentage point cheaper than a 30-year
loan. With a 15-year mortgage at 4%, you’d pay about $66,288 in interest over
the life of the loan.
That’s a savings of more than $120,000 in interest over a
30-year loan at 5%.
Of course, your monthly principal and interest payments would go
up significantly, from around $1,074 to $1,479, so you would need to make
absolutely sure you could handle that increase. You’d also have to pay some
loan closing costs, although most usually can be wrapped into your loan. If
you’re positive you can swing it, shortening the time of your mortgage can be
the shortcut to huge savings — even the day you own your home free and clear.
Paying mortgage points to get a lower rate on a mortgage is almost always a losing
proposition. Most homeowners don’t keep their mortgages long enough to do more
than recoup the up-front cost of paying points. A point is 1% of your loan
amount. If you take out a $250,000 mortgage, 1 point equals $2,500.
In the mortgage world, there are two types of mortgage points:
Borrowers get a lower rate for paying discount mortgage points
because they’re prepaying a portion of the interest on their loan.
Indeed, discount points are tax-deductible, just like the interest you pay with
each monthly mortgage payment.
Anywhere from one-eighth to one-quarter of a percentage point
per discount point. A range like that makes it absolutely critical to compare
offers that include points to those that don’t and determine how much you’re
really saving by paying thousands of extra dollars up front.
Some banks and mortgage companies actually promote interest
rates in their advertising that are only available by
paying mortgage points. They hope you’ll be so wowed by a rate that looks like
it’s lower than competitors are charging that you won’t notice the additional
The key question you need to ask is: How long will it take me to
recoup what I spend on points through lower monthly mortgage payments?
Considering two typical 30-year fixed-rate mortgages quickly
shows how much paying a point will save (or cost) you on a $100,000 mortgage.
Total Payments Over 30 Years
4%, No points
3.875%, 1 point
Savings from paying points
If you pay 1 point, or $1,000, to get the 3.875% rate, you lower
your monthly payments by about $10 a month. (Our mortgage
calculator will determine the monthly payment for any amount or
interest rate.) That means it would take 100 monthly payments, or more than
eight years, to recoup the up-front cost of that point. You won’t really start
saving any money until then, and therein lies the problem.
Chances are, you won’t keep your loan much longer than that since
the typical homeowner pays off a loan in just over eight years, according to
data compiled by Bloomberg News. Selling or refinancing before the
break-even point means you’ll actually wind up paying extra interest on
If you’ve just bought your dream home and know you’ll keep your
low-interest mortgage until your kindergartner graduates from high school,
paying points may seem like a smart move. With interest rates remaining
historically low, chances are you won’t need to refinance to reduce your rate.
Others might be forced to refinance or sell before breaking even on point if
they face an unexpected life challenge like divorce, death of a spouse,
disability or a job loss or transfer.
That’s why Richard Bettencourt, a mortgage broker in Danvers,
Massachusetts, and former president of the Association of Mortgage
Professionals, says paying mortgage points typically isn’t a good financial
“The only way I see a point making sense is for that rarity of
the person who says, ‘I’m going to make all 360 payments (on a 30-year home
loan) and never move,'” he said.
What about having a home seller pay points to buy down your
rate? Isn’t that a good deal for a buyer?
“Do you want the seller to reduce your monthly payment by $20
for the next 30 years or give you $7,500 to refinish the kitchen now?”
Another way to look at mortgage points is to consider how much
cash you can afford to pay at the loan-closing table, says Mark Palim, vice
president of applied economic and housing research for Fannie Mae, a
government-owned company that buys mortgage debt.
“If you use up some of your savings toward prepaying your
interest, which makes your payment lower on a monthly basis, you have less
savings if the water heater breaks,” he pointed out. “Does it make sense to put
more of your savings into the transaction to lower the monthly mortgage payments?”
To view the original article click here
Buying a home for the first time can be exciting, a little
scary, and very expensive. First-time homebuyers won’t always qualify for the best mortgage
rates, but given that
homeownership in the United States has dropped over the last few years, many
lenders are eager to provide mortgages to new borrowers, even when their credit
scores are less than stellar. To make that possible, many lenders now offer
“first-time home buyer programs” that allow individuals to purchase homes they
otherwise wouldn’t be able to afford.
Using favorable interest rates, tax breaks, low-to-no down
payments, and grants, first-time home buyer programs can increase a buyer’s
chance at owning a home. Depending on the lender, these loans might be offered
in particular geographic areas, or to individuals who work in certain
industries. There are also specific programs for active-duty military,
veterans, and other high-risk or low-paying careers. Since the programs vary by
state, you’ll need to research what’s available in your area and calculate how
much you can afford — from monthly payments to a down payment — to help narrow
down your search.
A conventional loan follows guidelines set by Fannie Mac and
Freddie Mae and are not backed by government agencies. These loans are a great
option for first-time borrowers with good credit who can afford some sort of
down payment. They’re also a good option if you aren’t planning to stay in your
home very long and want a shorter-term, adjustable-rate mortgage. While many
other loans require an upfront “funding fee,” with a conventional loan, there
are no upfront mortgage insurance fees.
A Conventional 97 program is meant for borrowers who qualify for
a conventional loan but can’t afford a large down payment. Similar to a
conventional loan in many ways, the minimum down payment on a Conventional 97
is 3%, the property must cost less than $484,350, and buyers must pay for
loan is designed to help military service members, veterans,
and surviving spouses buy a home. Funds are provided by private lenders like
banks and mortgage companies. The VA guarantees a portion of the loan, which
allows the lender to offer better terms. A VA loan does not require a down
payment or private mortgage insurance. Qualified recipients can also use
cash-out refinance loans to take cash out of their home’s equity to fund
school, pay off debt or make home improvements.
loan is designed for moderate-to-low income home-buyers in
eligible rural and suburban areas. These loans are 100% financed which means
there is no money down, and no up-front closing costs. There are strict
geographic restrictions and income limits for borrowers, so check your
eligibility at USDA.gov.
Fannie Mae and Freddie Mac now offer loans for certain
individuals that require just a 3% down payment for either a home purchase or a
refinance. These loans are meant for people with low-to-moderate income levels
and credit scores as low as 620. Despite the credit score leniency, certain
loans are subject to income limits unless one buyer is a first-time home-buyer.
An FHA Energy
Efficient Mortgage isn’t necessarily geared toward first-time
buyers but toward people who want to make extensive energy-saving adjustments
to a home. Still, first-time home buyers could use an FHA EEM loan to lower
their costs, though any home-buying savings might be outweighed by up-front
energy-saving costs in the short term. This program helps lower utility bills
by offering financing for energy-efficient improvements. To qualify, the buyer
must get a home energy assessment to identify opportunities for improving
If you’re interested in learning more about the home-buying
process, the Fannie
Mae HomePath ReadyBuyer Program offers incentives for
education. First-time buyers can receive up to 3% of the purchase price in
closing cost assistance on particular HomePath properties by taking and
completing an online homebuyer education course. Buyers must prove they’ve
completed the course and must reside in certain, qualified properties.
Neighbor Next Door program is designed for law enforcement
officers, teachers and first responders. The program is offered through HUD and
offers 50% off the list price of eligible homes. Buyers must commit to living
in the property for 36 months, and only certain homes are available through the
Before jumping into buying a home through certain programs, it’s
important to consider interest rates and how much of a down payment you can
afford. Even small changes in interest rates can have a significant impact on
your mortgage rate and you need to be sure you can afford that payment. For
instance, on a $100,000 mortgage on a 30-year term, a 5% interest rate means a
$476/month payment. Add just 1% to that and the payment $533.
Down payments can also make an impact on your total cost, though
usually not as dramatically as your interest rate. On a $100,000 mortgage with
4% interest, providing a $1,000 down payment makes your monthly payment $464.
Adding $1,000 to that payment only brings your monthly payment down to $455.
You won’t begin to see a significant decrease in monthly payments unless you
can provide a substantial down payment.
The impact also depends on your
lender’s mortgage insurance requirements. Homebuyers who can’t afford a 20%
down payment are a higher risk for financial institutions, so lenders will
require borrowers to pay private
mortgage insurance (PMI) premiums when they can’t make a 20%
down payment. A PMI premium is usually between 0.5% and 1%.
For some homeowners looking to save money over the course of
their mortgages, it could be a great time to refinance. The average 30-year
fixed-rate mortgage has dipped below the 4.0% mark, and by any historical
measure, home loans remain incredibly cheap. If you can shave at least 1
percentage point from your primary mortgage rate by getting a new loan, then
refinancing probably makes sense.
For many homeowners, the financial goal of a refi is often as
simple as getting lower monthly payments over a new loan term. If your current
home loan originated during a time of higher interest rates than today, and if
your credit score has improved, chances are a refinance mortgage can save you
money over the life of the loan.
As an example, let’s say you have a 30-year mortgage at 5.5%
APR. You’re 15 years in, paying $1,520 in monthly mortgage payments with
$118,000 remaining. Refinancing at today’s lower interest rates (let’s say 3.5%
on a 15-year refinance) would reduce your monthly payment to around $850, a
monthly savings of about $670, and save you around $120,000 in interest that
you would have paid toward the original loan.
The best deal for most borrowers is usually the one that offers
the lowest interest rate, with no points and lender fees of $2,000 or less.
Property values have increased in most parts of the country,
boosting the amount of equity homeowners hold. The more equity you have — the
difference between the balance on your current mortgage and your home’s current
market value — the easier it is to refinance.
Borrowers with good credit and 20% equity can qualify for a
conventional loan, which is the most common, and usually the cheapest, way to
go for most borrowers. The average cost of a 30-year conventional loan was
3.68% in September. Borrowers who successfully refinanced their homes had an
average FICO credit score of 741 and 36% equity.
You can refinance with an FHA
loan even if you have little or no equity in your home, a much
lower credit score or higher debt than lenders usually accept. The Federal
Housing Administration, a division of the U.S. Department of Housing and Urban
Development, doesn’t actually make loans.
It guarantees that private lenders will be repaid, even if you
default. But you’ll pay for that guarantee in the form of up-front and monthly
mortgage insurance. With the government standing behind you, banks and mortgage
companies can make loans they wouldn’t normally offer at competitive interest
rates that could cut your monthly payments by hundreds of dollars.
The average cost of an FHA loan was 4.63%, according to Ellie
Mae. (It’s the mortgage insurance FHA loans require, with significant up-front
and monthly premiums, that ultimately make them more expensive.) Borrowers who
successfully refinanced their homes with an FHA loan had an average FICO credit
score of 662 and 21% equity.
An even better option is to refinance with a VA
loan, which we consider to be the best mortgage program around.
Millions of veterans, as well as anyone on active duty and those in the
National Guard and reserve units, are eligible.
With the Department of Veterans Affairs standing behind these loans, they’re
also less risky for lenders.
That means you can have a lower credit score and less home
equity than you’d need for a conventional loan and, in some cases, a higher
debt-to-income ratio. Indeed, you can have no equity and qualify for a new
mortgage, and there’s never any mortgage insurance required with a VA loan.
The average rate on a VA loan 30-year fixed rate mortgage is
3.25%, or about a third of a point less than for conventional mortgages.
Borrowers who successfully refinance their homes with a VA loan had an average
FICO credit score of 699 and 10% equity.
A little more patience is the one thing you’ll need, whatever
type of loan you decide to pursue. Lenders are now taking an average of 46 days
to process refi applications. Before you decide on a lender, make sure you shop
around for your the best deals out there.
With all the factors to consider, you don’t want to rush. You
need to familiarize yourself with the terms and conditions of your current
mortgage as well as those of the new loan. Your current loan may have a penalty
for early payoff of the mortgage balance. Similar to your original mortgage,
the new one won’t be free. The refinance loan will have origination fees, an
application fee, an appraisal fee, and more. All costs need to be considered to
ensure you don’t negate the savings you hope to achieve with the mortgage
Type of loan
30-year fixed rate
Dec. 5, 2012
15-year fixed rate
May 1, 2013
30-year fixed jumbo
Sept. 7, 2016
calculator can help you evaluate any offer more precisely by
showing how much your monthly payment will decrease and how long it will take
to recoup any fees and closing costs.
There is a certain
pride in completing a project with your own hands that you simply can’t get
from shopping in a store or hiring professionals. But with the booming DIY market, not all projects end in pride and
Taking on home improvement projects by yourself can lead to
mistakes and injuries that end up costing more than letting the professionals
handle it. Of course, having insurance adds a level of protection to the
possible downfalls, but which projects are ultimately worth taking the chance?
We asked over 1,000 homeowners about their attempts at DIY home
improvement projects and got some words of wisdom for those thinking of picking
up a hammer. Keep reading to find out where projects go wrong, and which
projects may be worth the risk.
It can be hard to truly understand do-it-yourself projects until
you, well, do one yourself. Perhaps experience plays a role in baby boomers
being the most knowledgeable about DIY when it comes to home improvement
Compared to more than 46 percent of baby boomers reporting to be
knowledgeable about these DIY projects, less than 40 percent of millennials admitted
as much. Ironically, though, millennials are the most likely to handle home
improvement projects by themselves and baby boomers the least.
If the majority across all generations doesn’t consider
themselves particularly knowledgeable about DIY projects, why are so many
people doing them?
Eighty-five percent take a project upon themselves as a way to
save money, and almost 80 percent do one to improve their home. While many DIY
home improvements can often be the best option for budgets, they have positive
effects on more than just your wallet.
Thirty-eight percent attempt DIY projects simply because they
find them fun, over 23 percent feel they help them express themselves and offer
a creative outlet, and almost 22 percent receive a sense of joy from doing
If saving money isn’t enough of a perk, studies have shown that creative self-expression aids in cognitive, psychosocial,
and physical health.
Luckily for our respondents, 95 percent had homeowner’s insurance. The added
buffer in case of a mistake may make people more comfortable undertaking DIY
home improvement projects.
The majority of people turn to DIY projects as a way of saving
money, but is this route the most effective? When it comes to tiling a roof,
creating a shelving unit, and installing hardwood floors in a bedroom, doing it
yourself seems to be the best option for saving money.
Compared to the lowest potential price for a professional, DIY
can save you $9,050, $1,490, and $1,500 for each project, respectively. It’s
important to take the type of project into consideration, though.
Doing it yourself may save you some money, but the extra expense
for professional help may be worth it for the more dangerous projects like
electrical repairs and those involving gas appliances.
The type of project will also help determine if calling a
professional might break the bank. For some projects, it may be cheaper than
attempting a DIY job. Replacing a shower head by yourself will cost you around
$40, but the lowest potential price for getting a professional to do the dirty
work is only $50.
Installing a kitchen sink not only falls under projects not
recommended for DIY-ers but is also a project that is potentially more
expensive to do yourself. Installing one yourself can run around $200, while
the lowest potential price for a professional installation is only $99.
Installing a screen door is another project that may be worth
getting a professional to do. Doing it yourself can cost around $100, the same
as the lowest potential price for a professional. Of course, however, these
prices vary by location and are heavily influenced by the scope of work and the
quality of the materials used.
Professional or DIYer, mistakes happen. But when you’re taking projects upon
yourself to save money, the mistakes may end up costing more than hiring a
professional would. On average, people spend $137.50 fixing mistakes made
during DIY home improvements. Millennials report spending an average of $200
fixing DIY mistakes – four times as much as baby boomers.
The significant difference between generations regarding money
spent on mistakes may be due to the difference in types of mistakes most
commonly made by each generation. Sixty percent of baby boomers start DIY
projects without the necessary supplies or tools – the most common mistake made
across all generations.
Gen Xers used the wrong paint more than baby boomers and
millennials, and the youngest generation was the most likely to skimp on
Most people attempt home improvement projects by themselves with
the notion that they’ll successfully hit the nail on the head. However,
slip-ups happen, and cuts, bruises, and serious injuries may occur.
Of those we surveyed, 1 in 4 homeowners had been injured while
attempting a DIY home improvement project. Around 75 percent of injuries
involved cuts from sharp tools or project materials, and 58 percent of
respondents said they hit themselves with a hammer or other tool.
DIY injuries often need more than just a small bandage, though.
Data from the National Electronic Injury Surveillance System (NEISS) shows the
most ER visits are due to injuries by ladders, with fractures being the most
Studies have shown these injuries aren’t necessarily involved in
the height from which one falls, but rather, severity is dependent upon the person’s age.
Almost 45,000 ER visits are due to accidents involving nails, screws, or tacks,
which often result in puncture wounds.
If you’re thinking of taking up a home improvement project by
yourself, take advice from those who have made the mistakes for you. The
biggest piece of advice from our respondents is to only work within your skill
Attempting to complete projects that might be too technical is a
quick way to get injured. Stick to what you know and the project is more likely
to go smoothly without ending in mistakes or injuries. Respondents also
recommended purchasing the correct materials and
tools and having a set plan.
Not heeding the warnings or taking advice from experienced
DIY-ers can lead to some of the horror stories above. If the mistakes are
severe enough, it may be more than just money you’re gambling with.
Do-it-yourself projects have become more and more popular,
especially in the home improvement department. While some of these projects can
save you a ton of money, consider the price of a professional before getting
your hands dirty.
If doing it yourself seems to be the best option, make sure
you’re prepared and operating within your skill level. Mistakes and injuries
can happen — turning a home improvement project into a potential home-wrecking
Wearing protective gear while attempting projects can save your
fingers, but what about your home? Insuring your home with homeowner’s
insurance is the best way to protect against DIY mistakes. Picking insurance
doesn’t have to break the bank, though.
At Clovered, we help you find the best plan to cover your needs
at a cost you’re comfortable with. Whether your home is a house, condo, or an
apartment, we’ve got you covered. Before you pick up that hammer, visit us online today.
responses from 1,015 homeowners by administering online surveys via Amazon’s
Mechanical Turk. Of the total 1,015 people polled, 12.0 percent identified as
baby boomers, 31.9 percent as Gen Xers, and 56.1 percent as millennials.
All other generations were excluded from certain breakdowns due
to insufficient sample sizes. To qualify for the survey, participants were
required to be homeowners and to have attempted a do-it-yourself (DIY) home
The highest and lowest potential prices for DIY home improvement
projects were determined by averaging project estimates gathered from reputable
online sources, which included: fixr.com, homewyse.com, angieslist.com,
The main limitation of this project is that DIY price points
were solely based on participant estimations
To determine the number of estimated annual visits to the
emergency room, we collected data from the National Electronic Injury
Surveillance System (NEISS) for 2017 (latest year available). The data was
filtered to enable our team to analyze injuries occurring in the home and as a
result of using home improvement tools or hardware.
The information we are presenting relies on documented ER visits
and does not include unreported injuries.
Homeowners can do
plenty to spruce up their home and make it more enticing for buyers.
But when they're narrowing their list, what are a few quick fixes that can have
a big impact? Besides a fresh coat of paint, Redfin highlighted some additional
ideas on its blog, including:
Update the door.
front door can be a cost-effective update that can make a big difference, real
estate pros say. “Solid wood doors are always a classic style for homes not to
go out of style anytime soon,” Redfin notes on its blog. “They’re solid and
typically last much longer than alternative materials like fiberglass.
Additionally, front doors with inlaid glass can also give your entryway more
natural light for the interior of your home.”
make sure all interior lights have the same color temperature so it’s
consistent throughout the home. “Updating your light fixtures, ceiling fans,
and even your hardware on doors and cabinets is an easy and cost-effective way
of increasing the perceived value of your home,” Redfin notes. For example, replace
dated brass light fixtures to more contemporary ones, like lights with a black
finish. Find fixtures that will add more light and brighten your home too.
Upgrade your mailbox.
sound trivial, but the look of the mailbox is all part of helping to build a
strong first impression from the curb. “It’s also the easiest home improvement
you can do,” Redfin notes at its blog. “It could just be a new mailbox that
replaces the old, weathered one you’ve had for years. … Or you could upgrade to
a ‘next generation’ mailbox that allows USPS to deliver large packages to your
mailbox instead of your front door.”
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