The 7 Best Mortgage Lenders That Make You Feel At Home

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Finding the right mortgage loan is an essential step in purchasing a home. There are many different mortgage lenders out there. You need to find the best one for your needs. Many mortgage lenders provide mortgage loans that won’t work for you. Doing your research is important. You should start your search for a mortgage loan by analyzing the lenders out there. You need to know what to look for in a good lender.

Here we have a compiled list of the best mortgage lenders. In compiling this list, we wish to provide useful information to any consumer out there. The list below provides lenders who provide mortgage loans to a wide variety of consumer types. Regardless of your financial situation, you can find a mortgage lender offering a suitable product. As long as you have a high enough credit score to qualify for a mortgage, you should be able to find a mortgage lender on the list below who you can do business with.

In addition to knowing who the best mortgage lenders are, you also want to explore details on how to evaluate mortgage lenders. You also need to go through a few steps to find the right lender for your needs. Below is the key information you need to find the right mortgage lender to work with. Make your dream of homeownership a reality by finding a mortgage product today.

Things to Look For in a Good Mortgage Lender

For buying a house mortgage, there are a few key considerations. You need to know how to evaluate various mortgage lenders. Your mortgage lender is important to your financial health.

You need to consider the costs of the mortgage. You have to pay your entire mortgage plus interest back over time. You also have to pay various fees for some mortgages. It’s important to shop around. As with any large purchase, you want to find the most affordable option available.

Cost isn’t the only consideration. You also need to find a mortgage lender that will be there for you when you have questions. It’s good to work with a mortgage lender that will be flexible about repayment. Things might come up that cause you to be late on a payment. You want to look for a mortgage lender that won’t penalize you too severely if you need to skip a payment.

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The 7 Best Mortgage Lenders to Consider

When you start looking for a mortgage, you might feel overwhelmed. There are many lenders out there, and there are many types of mortgages. It can be complicated to evaluate the hundreds and thousands of lenders out there. Yet it’s important that you don’t select a lender randomly. You need to be informed regarding your choice of lender.

We want to help you to become familiar with the best mortgage lenders. The mortgage you choose will impact you financially. You don’t want to pay more than necessary for your mortgage loan. Finding a fair and affordable deal is your priority.

Go through the information below on seven great mortgage lenders. Look at the products and approval requirements of these lenders. Then, you can find the best lender to meet your borrowing needs.

Citi Mortgage

If you’re looking for a good mortgage lender, consider Citi Mortgage. This mortgage provider is worth considering. Citibank is a huge, mainstream financial institution. The company, therefore, has a good reputation. You can rest assured that you’ll get a fair deal with Citi Mortgage.

One good thing to know is that Citi Mortgage has a wide variety of mortgage products available. You can get either adjustable-rate or fixed-rate mortgages from Citi Mortgage. You can also choose from a variety of loan terms including 10, 15, 20, or 30-year mortgages.

One of the biggest advantages of taking out a mortgage with Citi is the options to enjoy a low down payment. You can put as little as three percent of the home value down to take out a mortgage with Citi. If your credit score is high but your savings are low, Citi Mortgage might be the answer. However, a relatively low down payment isn’t the only advantage. You can also benefit from the fact that Citi Mortgage offers mortgages on properties in every state in the country. If you’re already banking with Citibank, you could take advantage of a discounted mortgage. It’s also worth noting that Citi will consider data outside your credit report. If your credit score is low but you have a strong history for making regular payments on rent, for example, you could still qualify.

You’ll also want to be aware of a few disadvantages of a mortgage loan with Citi Mortgage. You can’t apply online to work with this mortgage provider. Though Citi is among the best mortgage lenders, you will have to pay an application fee to apply with Citi as part of the mortgage process. Another thing to consider is that there are origination fees on these mortgage loans.

Chase

Chase bank is another financial institution to mention when discussing the best mortgage lenders. Like Citi, Chase is another large financial institution. This means that Chase has a recognized reputation for providing standard financial products like mortgages. Also, like Citi, Chase offers mortgage loans with as little as 3 percent as a down payment.

You can qualify for a mortgage from Chase with a credit score of 620. One advantage that Chase offers over Citi is tat you can apply over the Internet. As with Citi Mortgage, Chase also offers discounts on mortgage products for pre-existing clients.

There are a lot of different loan products available from Chase. You can take out a traditional mortgage. You can also get home equity, refinances, or jumbo mortgage loan from Chase. The case offers fixed and variable rate mortgages. Chase also works with the USDA to provide USDA home loans.

One of the disadvantages of a mortgage loan from Chase is that you will have to pay both, an origination and an underwriting fee. You will also need to speak with a mortgage banker as part of the process of applying.

Quicken Loans

Those who take out a mortgage loan from Quicken Loans are often surprised with the convenience of the process. You can take out a loan from Quicken Loans if you have a credit score of at least 620. You can also benefit from the convenience of applying online. One thing that’s particularly easy with Quicken Loans is verifying employment. This can be done instantly for many American workers. You might be particularly interested in borrowing from Quicken Loans if you are taking out a fixed-rate mortgage. Quicken Loans offers custom fixed-rate mortgage loan products. These can vary in term length between eight years and 30 years.

If you’re interested in an FHA loan, you might want to work with Quicken Loans. Quicken Loans also offers USDA loans. There are also some Freddie Mac and Fannie Mae products carried by Quicken Loans. Quicken Loans is in some ways slightly more limited in terms of the products they carry. They do not carry home equity loans, for example. Quicken Loans relies a great deal on credit score data. If your credit score is low, you might struggle to get approved. Unlike Citi Mortgage, Quicken Loans will not allow alternative credit data to strengthen your application.

Quicken Loans is among the best mortgage lenders for many consumers. This mortgage provider might be ideal depending on your unique needs. It might be worthwhile to research your options with Quicken Loans if your credit score is strong and you’re looking for a fast and convenient online process.

KeyBank

There are quite a few mortgage products to consider from KeyBank. There are also some home equity loans you might want to consider if you already own a property. One thing to know upfront is that KeyBank only offers mortgages in 19 states. If you don’t live in one of these 19 states, you’ll have to look elsewhere.

That being said, there are numerous advantages to working with KeyBank on your mortgage. KeyBank can potentially offer you a mortgage loan for no money down. If your credit and income are strong enough, you could potentially b a property without paying anything upfront. Homebuyers are often surprised at the various discounts they can take advantage of with KeyBank.

You might be able to be approved for a loan with KeyBank despite not having a traditional credit history. KeyBank considers nontraditional credit data in qualifying applicants for mortgage loans. You might find KeyBank to be among the best mortgage lenders if you are interested in a Fannie Mae HomeReady Mortgage. This is one of the federally backed mortgage loan features that KeyBank offers.

One drawback is that you can’t apply online with KeyBank. Another drawback is that KeyBank doesn’t offer any USDA mortgage loans.

Rocket Mortgage

Rocket mortgage loanIf your credit score isn’t very high, Rocket Mortgage might be a good option for you. You can qualify for a mortgage from Rocket Mortgage with a credit score as low as 580. Rocket Mortgage also offers a full range of mortgage products. In addition to both fixed and adjustable-rate mortgages, Rocket Mortgage also offers jumbo, FHA, USDA, and VA mortgages.

If you’re looking for the best mortgage lenders with extensive online capabilities, Rocket Mortage is a good option. In fact, Rocket Mortgage offers one of the most convenient mortgages processes out there. They also give you a lot of opportunities to customize your loan to your needs.

On the other hand, Rocket Mortgage might not be a good option if you want one-on-one assistance. Another possible drawback is that your interest rate might be high with Rocket Mortgage. Also, Rocket Mortgage might not approve you if you’re carrying a particularly high debt load.

Guild Mortgage Company

It might be a good idea to apply for a mortgage with Guild Mortgage Company. This mortgage provider offers mortgage in 48 states. This means that this company most likely provides mortgages in your area. However, this company does not provide mortgages in New Jersey or New York. Another thing that puts Guild Mortgage Company among the best mortgage lenders is its long history. Guild Mortgage Company has been in business since 1960.

Those who are buying a home for the first time might be especially interested in working with Guild Mortgage Company. The company has a reputation for being especially helpful with first-time home buyers. Another advantage of working with Guild Mortgage Company is that they offer so many different mortgage products. You can take out a conventional mortgage loan with Guild Mortgage Company. You can borrow an adjustable-rate or fixed-rate mortgage. You can also apply for FHA, USDA, or VA loans. If you are struggling to save up a down payment, you can take advantage of down payment assistance with Guild Mortgage Company.

There are a few fees to be aware of if you take out a loan from Guild Mortgage Company. You will have to pa an insufficient funds fee of $15 with these mortgage loans. You could also be charged a late payment fee that depends on the amounts that are past due on your mortgage account.

AmeriSave

AmeriSave is a good mortgage lender to work with if you’re wanting to apply for government loans. This lender takes consumers with credit scores as low as 600. They are among the best mortgage lenders because they don’t charge you to apply. They also don’t charge you an origination fee. One huge perk you can enjoy with AmeriSave is that you can get rewards as high as $4,500 if you buy a property using the assistance of one of the companies affiliated real estate agents.

The major drawback to being aware of when it comes to working with AmeriSave is that interest rates can be a little on the high side. That being said, you don’t have to have a large down payment with AmeriSave. In fact, you can qualify with a down payment of only three percent of the home value.

There are many different mortgage products available from this lender. You can work with AmeriSave to purchase a home. You can also work with AmeriSave to refinance your existing mortgage. You can take out government-backed mortgages like FHA, USDA, and VA mortgages with this mortgage provider. The average amount for an AmeriSave mortgage is slightly more than $250,000. If you are looking to buy a home with a price of around $250,000, AmeriSave might be a good mortgage provider to work with.

Steps to Evaluating These Mortgage Lenders

To find the best mortgage lenders, you need to go through a few steps. Start by analyzing your situation. Then consider exactly what you’re looking for. You probably are looking to by a property in a particular area. Maybe you are dreaming about the country life. In that case, you should think about rural mortgages. You’re also looking for a property of a certain size with certain amenities. Determine what you want to start out. Then determine how much your envisioned home will cost you.

Figure out what your credit standing is. If your credit score is lower than 580, you probably have little to no chance of getting a mortgage loan. Once you analyze your income and credit score, figure out which lenders mentioned above are most likely to work with you.

You should now understand how to shop for a mortgage. You should also have some key information on who the best mortgage lenders are. The sooner you get started preparing to apply for a mortgage, the sooner you’ll be a homeowner. You might be surprised at how easy it is to qualify for a mortgage. Resourcefulness and effort are key. You need to put time into acquiring the information you need to become a homeowner.

Some mortgage lenders offer fair and accessible products. Others offer mortgages you may not qualify for. Still, others provide mortgage products but don’t offer good customer service. Some mortgage lenders charge interest rates that are excessively high. You need to understand which mortgage lenders are the best on the market.

In Conclusion

Home ownership is a dream that’s within reach for so many consumers. Unfortunately, a lot of consumers don’t know which lenders to work with. Research the seven mortgage lenders mentioned here. Then, you can apply for the best prospect for your financing needs. Strengthen your finances with the right mortgage. Owning a home puts you in complete control of your living situation. We hope to help you on your journey to home ownership with this important information.

How to Choose a Mortgage Lender for Your Situation?

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Regardless of whether you’re a first-time homebuyer or looking to purchase your third house, the mortgage lender you choose is important. There are many homebuyer grants and programs available today. However, the selection process can be daunting if you’re not sure what criteria to use or how the process should work. Fortunately, the process isn’t that difficult if you know what to do and what to look for. Developing a fundamental understanding of what a mortgage is and how to go about securing one that’s best suited for you isn’t impossible. It’s part of the selection process you should use to choose a mortgage lender.

Take All the Information and Choose the Right Mortgage Lender

A mortgage loan is very similar to a car loan. Instead of having to buy a car outright, you can pay for your car a little at a time by getting a car loan. Add a little or a lot of interest to the purchase price and you have a car loan. A mortgage works similarly. Most of us don’t have the money to buy a car or a home upfront. This is why most of us finance our cars and our homes. Lenders, in turn, have the option of repossessing our car or home if we miss too many payments. The financed item operates as collateral. However, one key difference between a mortgage and a car loan is perhaps the fact that the interest on a home can have varying terms.

Typically, there are two forms of interest rates common to a mortgage. A fixed mortgage rate and an adjustable-rate are common interest terms for mortgages. However, you should also consider the interest in addition to the annual percentage rate as one determinant in terms of which lender may be best for you. However, there are several factors that should be considered to choose a mortgage lender.

What Should I Consider Before Shopping for a Mortgage?

Buying a home is not for the faint of heart. Be careful and try to avoid mistakes in the process of homebuying. There are many personal and financial factors you should strongly consider before deciding to buy a home. However, several big variables can make you a good candidate for buying a home. If your credit score is fairly strong, you have money saved, you’re good at managing debt, you have a down payment and closing costs, and you’re ready to settle down, you may be a good candidate for buying a home. All of these factors will be beneficial when shopping for a mortgage lender.

For example, a strong credit score, a down payment, and closing costs may make you a good candidate for a mortgage lender. The better your credit score is, the better your interest rates will be. Plus, having money down and closing costs will also make it easier to manage a home loan.

Credit Factors

However, there are other factors that you should strongly consider. At the very least, you need a credit score of at least 580 to buy a home. For many conventional lenders that score jumps forty points and should be no less than 620. However, every lender will have their criteria. IN particular, an FHA mortgage lender requires a minimum credit score of 580. With this being said, your first stop in the mortgage lender search process should be your credit. You need to know where you stand and possibly make some proactive moves if your credit is a little short.

Take a Close Look at Your Credit…

You need to know your credit score. Checking only one credit report won’t get the job done, however. You need all three credit scores. A mortgage lender will usually take the median of all three credit reports. One of the main reasons why you should do this is knowing your score will allow you to get an idea of what terms mortgage lenders would offer. Of course, if your credit is extremely poor, you may need to forego buying a home until you clean up your credit. However, if your credit isn’t too shabby, there may be a few things that you can do to boost your score in a hurry if you need to. Websites like MyFICO.com can provide you with all three of your credit scores, however, there are others as well.

Boosting Your Credit Before You Start Looking for Lenders…

As stated above, if your credit is in really poor shape and your credit score is far below 580, more than likely, there won’t be too many quick ways to make your credit shine in a pinch. However, if you need to add a little sparkle or slight boost to your credit you can consider using one technique. You can reduce your credit utilization which is another way of saying paying down or reducing the amount of credit you are using. Lenders look at credit utilization as part of their approval process. Plus, it accounts for thirty percent of your credit score. If you’re carrying high balances on some of your credit cards, consider paying down some of your debt to improve your credit utilization. It will help.

In other words, increase your available credit to give your creditworthiness a boost in a pinch. Of course, payment history is the most significant factor when it comes to your credit score, but credit utilization follows closely behind.

Consider Your Debt to Income Ratio

Mortgage lenders will also pay attention to your debt to income ratio. In plain language, this is how much debt you have compared to the amount of money you make. Lenders will consider this factor when it comes time to determine if you can afford a home loan. It’s also a good idea to have money set aside to fund paying for your home because you will need to consider paying for more than just your down payment. Repairs and other essentials will need to come from this fund. All of these factors, in addition to the above-listed factors, will require consideration.

Use the Mortgage Pre-approval Process

Once you’ve got a strong handle on your credit, as well as any other areas of concern, it’s a good idea to utilize the pre-approval process. Many home buyers fear this process because they feel it will hurt their credit. However, your FICO score makes allowance for mortgage rate and car loan shopping as well as it’s dome within two weeks. All of these inquiries will only count as a single inquiry. You can use this time to shop around by filling out a full application with a few lenders, without a particular house in mind. This will give you an idea of the type of interest rates you could be approved for.

Once You Start Fishing, Consider These Things…

Interest vs. APR

Most people don’t understand the differences between interest and APR when they start shopping for a house. Interest is the fee you’ll pay for borrowing money. For example, if you take out a $1000 personal loan at four percent, you’re paying forty dollars to borrow the money. The annual percentage rate is a horse of a different color when it comes to a mortgage lender, and far more important than simple interest. The annual percentage rate is the complete cost of borrowing money from a mortgage company. This includes interest, the finance charge, the mortgage orientation fee, in addition to any other fees. This number is far more significant than simple interest and should be a focus.

You can be interested in two different mortgage lenders with the same interest rate. However, the APR can be significantly different. This difference can have a huge impact on the total price you end up paying for a home. Don’t be fooled by simple interest, let the lender’s APR act as a guide. You can help yourself in this area by using your credit score and national average mortgage rates to get an idea of the average APR you can expect to get. This should be part of the pre-shopping mortgage process.

However, there are quite a few tools that you can use to help you in the mortgage shopping process. You will also need to consider the different types of interest that you will need to decide on and pay attention to. FOr example, you will need to determine if you have an interest in a fixed interest rate or an adjustable interest rate. What you choose should be based on your preferences as well as your finances. The process you use to choose a mortgage lender should encompass several different factors.

What Type of Interest Rate is Best for Me?

This is a very personal question that should be based on your preferences as well as your financial situation. However, there are pros and cons to both. If you are on a fixed income, you may be better off seeking a mortgage with a fixed interest rate. Your payments will never change. Although the amount of money that goes to the interest and the principle will change over time, your payments will remain the same. A mortgage with a fixed interest rate is considered a traditional mortgage and is part of what some people look for in order to choose a mortgage lender.

However, you may be interested in a mortgage with an adjustable-rate if you are interested in capitalizing on the best interest rates possible. The rates will change according to the federal reserve. However, this means that sometimes the interest rates will be lower. Although this is a benefit, the rates can also be higher at other times as well. With a fixed interest rate, you will pay the same amount of interest even when federal reserve rates or lower. This may not be a benefit but you will pay the same rate, which may be lower when the interest rates rise as well. In essence, there are pros and cons to both.

The majority of your loan will be the amount you borrowed plus the interest. However, there are other fees as well. You will also be responsible for paying for insurance and taxes. Many different factors should be considered to Choose a Mortgage Lender.

Fixed Mortgage Rate?

This is simple. A fixed mortgage interest rate is one in which the interest stays the same over the entire life of the loan. For example, if you have a thirty-year mortgage with a fixed interest rate of five percent, all of your payments will be broken up into equal amounts based on an interest rate that will not change. In the beginning, most of the mortgage payments will go towards interest. However, as time passes, the payments will be applied to the principle, the original loan amount, more and more as time passes and the borrowed amount decreases. This payment process is called amortization. When you choose a mortgage lender, the amortization process should be considered as well. This is part of determining how much you will pay for your home over time.

Adjustable Mortgage Rate?

Conversely, an adjustable mortgage rate changes over time. This type of interest rate changes in conjunction with market rates. Several factors can affect these rates. However, it’s simplest to say that an adjustable interest rate is determined or set by the Federal Reserve. The interest rate on your home loan should be part of the selection process to choose a mortgage lender.

Insurance…

You may ask why you need insurance and the answer is simple. Mortgage companies usually require homeowners to carry enough insurance to cover the cost of the house in the event of a fire, flood, meteor shower, as well as other natural disasters or mishaps. Because your home is collateral for your home loan, insurance is a necessity to cover any loss or damage to the bank’s investment. Also, changing insurance rates can affect your mortgage payment. If your insurance rate goes up, your mortgage payments will reflect this and you’ll be paying more. Your payments, inclusive of all your fees, are also part of the selection process to choose a mortgage lender.

How Do Taxes Affect My Mortgage Payment?

Property taxes are built into your mortgage payment. Mortgage companies project your yearly property taxes and break them down into twelve equal payments that can be paid monthly. This ensures that your property taxes will get paid and neither you nor the mortgage company stands to lose your home. Unpaid property taxes can result in the loss of your home to the government as well as the loss of the mortgage companies’ investment. Including property taxes in your monthly mortgage payments is a safety net to ensure that those property taxes get paid. This is common with many mortgage lenders and should be part of the selection process consideration to choose a mortgage lender.

The Human Element Could be Deciding

There’s nothing worse than choosing a lender that leaves you on hold for long periods or doesn’t return your calls. You need to choose a lender that will be responsive. This is important just as APR, interest, and all those other factors are. The human element is real and can be quite frustrating if there is a lack in this department. If you find two lenders that you are equally interested in, yet one has a more responsive customer service, choose the one that has the stronger human element. Paperwork isn’t automated and there is a human element that you will be dealing with as you shop for a mortgage lender.

In the end, if you don’t have much time and all that paperwork and procedures makes you nervous, maybe you should take a mortgage broker. This person will find the best loan for you and gather all the necessary documentation.

Some Little Things On Which You Should Pay Attention

Also, don’t ignore your experiences with different lenders during the shopping process. Are they too busy to answer questions? Do they return calls? These should all be factors int the company you choose to go with. you may even have a home loan but be interested in shopping for reverse mortgage lenders. You will still need to follow certain steps to determine the best lender for you and your unique situation. Either way, it’s extremely beneficial to know how to shop for a mortgage. Choose a mortgage lender based on the right criteria.

All the pieces that comprise the mortgage lender shopping process can be overwhelming. However, the considerations don’t stop there. You will need to do more than just complete pre-approval applications. You will also need to read reviews and find out what other people have said about different lenders. Even customer service should be a factor when you’re considering who to get a home loan form.

When you finished reading the text above, you learn something more about mortgages and how to choose the right lender for your financial situation. Here on Loanry, right below, you can enter your information and you may find out if you qualify for any of the suggested, trustworthy lenders:


Conclusion

Shopping for a home loan can be a scary process, particularly if you’re a first-time homebuyer and don’t know what to expect. The process can be confusing. However, it helps to know what to focus on when it comes to your situation, as well as what to look for in a mortgage lender. Even if you’re buying your tenth house, there are certain factors that you may or may not be aware of, that you’ll need to pay attention to.

Before you ever fill out an application, you need to know what condition your credit is in. You don’t need to be surprised to find that your home loan application has been rejected because your credit score is 480. You must first develop clarity on your credit situation. Know all three of your credit scores. This will help you gain an idea of what interest rates you can expect from different lenders. Besides, studying your credit will also allow you to make a few tweaks if need be or may expose the fact that you’re not ready to purchase a home quite yet. Either way, knowledge of your credit situation is an absolute necessity when shopping for a home loan.

Everything flows from this beginning process and puts you in the driver’s seat to begin collecting information and narrowing down your choices. However, if you use the right approach and criteria that take into consideration your personal situation, it’s not hard to choose a mortgage lender.

Everything You Want to Know About Reverse Mortgages

There has been a lot of talk lately about a different kind of mortgage called a reverse mortgage. There are a lot of opinions about the pros and cons associated with a reverse mortgage. It has caused quite a bit of confusion for many people. Reverse mortgages are marketed towards senior citizens or those who have paid of their mortgages. That group of people are both susceptible to scams and also unwilling to make changes. Continue reading to find out more information about a reverse mortgage. I will also give you some general information about all types of mortgages, so you can have a full wealth of knowledge.

What Is A Reverse Mortgage?

A reverse mortgage is basically a loan against the value of your house. You must be 62 years of age or older to qualify for a reverse mortgage. You must also have a large amount of equity in your house, or your house must be paid in full. When you take out a reverse mortgage, you can get one lump sum, a regular payment each month, or a line of credit. With this loan, you do not have to make any loan payments. You pay back the loan upon selling the house, moving out of it, or death.

Reverse mortgages are federally regulated and the lender cannot loan more money than the value of the house. If the loan amount exceeds the value of the house, you or your estate is not responsible for the difference. This can happen when the value of the house drops or if you, as the borrower, live longer than expected. This type of loan gives senior citizens access to money that is tied up in the value of their home when they need it instead of it going to their estate upon death.

Are Reverse Mortgages Scams?

In general, a reverse mortgage is not a scam. However, they are geared toward a population of people that tend to be vulnerable. Senior citizens often suffer from the inability to make sound decisions and often look for ways to solve their financial burdens. They do not want to be a burden to their families and feel like they should have something to leave behind besides debt. A reverse mortgage can be a fast and easy way to make a large sum of money so it is an area that is subject to criminals.

Contractors and vendors have been known to prey on seniors to persuade them to obtain a reverse mortgage to pay for improvements to their homes, which may need be needed. The contractor may not perform the work, or do a shoddy job and just take the money from the senior. Unfortunately, many people have taken advantage of senior citizens for a long time. Even family members have been known to take advantage of the older family members. They make claims that they are not able to handle their money and force them to get reverse mortgage just to steal the money. The reverse mortgage itself is not a scam, however, people use reverse mortgages to scam people.

What Are The Advantages To A Reverse Mortgage?

There are many reasons why a reverse mortgage might be a good idea for you. A reverse mortgage is similar to a line of credit or a home equity loan. A reverse mortgage gives you a lump sum that you can access when you need it, not later when you decide to sell your home. One of the major advantages of a reverse mortgage is you do not need any form of income. Your credit score does not matter when you want to obtain this type of mortgage. Another huge advantage is you do not have to make any loan payments as long as you live in the home. Any other mortgage or loan has monthly payments associated with it.

For most people over the age of 62, their home is their largest asset, but they cannot access the cash in it. You can tap into the equity in your home without having to sell it or make any payments. This type of mortgage is the only way you can do essentially take out a loan but not make any type of payment. Seniors often find it hard to pay basic expenses. Some of the many reasons for this is the increased cost of health care and people living longer. Often seniors have basic medical coverage and the cost of prescriptions is through the roof. This gives them a way to make those payments easier. When someone takes out a reverse mortgage, that person is still responsible for paying the property taxes, insurance and continuing to maintain the house.

What Are The Disadvantages To A Reverse Mortgage?

When considering a reverse mortgage, you should know that there are some disadvantages, too. You should be aware of them so you can make an educated decision when determining if a reverse mortgage is right for you. One of the key pieces of which you should be aware is for you to qualify for a reverse mortgage you must be able to state that you will not have to move into assisted living within one year of the loan.

The reality of a reverse mortgage is that you tap into the equity in your home and take a large chunk of it. This means that when you are ready to sell your home, you will not make as much, or any money on the house. Another possibility is that you pass away while living in the home and your heirs do not get the full value of the house. However, that may not matter to you for many reasons. This is a determination that you need to make and determine if this is the best thing for you right now.

Typically, when you elect for a reverse mortgage, there are several plans from which you can pick. You can pick a lump sum or line of credit and those amounts of money may not last you for the rest of your life, especially if you live longer than you expect. Another option is you can receive monthly payments but the key is to make sure the payments would give you enough money per month for the rest of your life.

What Are Other Types Of Mortgages?

There are many different types of mortgages on the market. A reverse mortgage is completely different from most typical mortgages. In this case, you are a certain age and you already own your home, or have a large amount of equity in it. I want to touch on all the other mortgages that are for buying or refinancing a home. It is important to understand these distinctions when you shop mortgage lenders. This helps guide you to making the right decisions when you are looking for a mortgage.

Fixed Rate Mortgage

The most common and safest mortgage is a fixed rate one. The largest benefit of this type of mortgage is that the payment amount remains the same each month. These types of loans are offered in ranges from 10 to 40 years, with the most common being 15 and 30 year repayment lengths. Lenders want you to have a down payment that is 20 percent of the price of the house. If you cannot have a down payment of 20 percent, the lender most likely requires you to have private mortgage insurance (PMI). This insurance protects the lender if you do not pay your mortgage. You usually need a higher credit score to be able to obtain a traditional mortgage and you need a fair amount of documentation.

Adjustable Rate Mortgage

Another type of mortgage is an Adjustable Rate Mortgage (ARM). This type of mortgage has a level of risk that you have to accept before you obtain one. Just as the name states, the interest rate is adjustable, so it does not remain the same. One of the most common types of an ARM is a 5/1 type of loan. This means that the rate stays the same for 5 years and then changes every year for the life of the mortgage.

The interest rate for the first 5 years tends to be lower, which can translate to a huge cost savings for you. However, once the rate increases, it may get so high, you cannot pay the mortgage. Often homeowners sell their homes or refinance before the end of the 5 year period to a more traditional loan. This type of loan can get you in your house and you can work to improve your credit or build equity in the house so you can qualify for better rates before the end of 5 years.

Interest Only Mortgage

Another type of mortgage is an interest only mortgage. This type of mortgage allows you to pay only the interest of the loan for the first 5 to 10 years. After that time period, you begin to pay off the mortgage as if it was a conventional mortgage. This type of mortgage can decrease your monthly payments, however, it can increase the time it takes you to pay off your mortgage. It also decreases how much equity you earn in the house.

Your Guide to Understanding the Different Types of Mortgages

How Do I Go About Getting A Mortgage?

No matter if you are interested in a reverse mortgage, or some other type of mortgage, you should do some research. It is important that you know how to shop for a mortgage. It is also important that you understand the differences between the mortgage types, so you can ensure that you are choosing the best option for you. You should have an understanding of how happens when you apply for a mortgage, so you know what to expect and be prepared.

  • Check your credit and if you need to improve it, start working on it.
  • Get prequalified. This way you’ll show to any seller that you are a serious buyer. And you can check how much money you’re able to get. With this information, you basically know what your budget is and which price range can you look at.
  • Choose a mortgage from all the options that you found. Make sure you choose the best mortgage for your situation. The best mortgage is that which you can actually afford.
  • Find the right lender for you. Not only is the mortgage important, but so is a lender that is willing to work with your credit and down payment.
  • Gather all documents. Some of the documents you’ll need are where you worked for the last two years, pay stubs, tax returns in the past two years, two years worth of W2s, any proof of pension. You should also get documents which prove dividend earnings, bank statements, and any other debts that you have.
  • Another step is to check out a mortgage calculator and determine the amount you can afford to repay.
  • Apply.

If you want to check right now whether you can get offers for a loan, put in your information below and see if you can get a loan:

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What Is A Mortgage Broker?

Whether you are interested in a reverse mortgage or a traditional mortgage, there are mortgage brokers available to help you. You do not need to have a mortgage broker to get a mortgage, but you may find one helpful.  A mortgage broker finds the right mortgage for you and your needs, but there are fees. A mortgage broker does not work for a bank. They get paid by the fees that they charge you. They must have a license to operate.

A mortgage broker usually has various loans from different lenders to offer you a wide variety of options. A mortgage broker can work with lenders to secure a loan for you. For example, if you only have 8 percent to put down for a house, the broker can find lenders that accept those terms. A broker can do all the negotiating for you. This may be especially helpful if you do not have the best credit. A broker may be able to find some of the best homebuyer grants and programs for you so that you do not have to do any of that work.

Mortgage Broker Fees

If you are considering a broker, you should be aware of the fees that you may have to pay. The broker may use lender based compensation fees which means that the lender pays the fees of the broker and then adds those fees on to your mortgage. If the mortgage broker chooses borrower based compensation, that means you pay the broker fees at closing. Every broker charges a different fee amount and they may call them by different names.

Here are some of the common fee names and types that you hear:

  • Loan origination fees – the lender charges origination fees which are a percentage of your mortgage, and sometimes the broker can add their fees to this. If this happen, make sure you ask for a breakdown of these fees so you can see how much exactly has the broker charged.
  • Yield spread premium – this is the amount the broker gets from the lender because they got you to get a mortgage with higher interest. Make sure you have a competitive interest rate if this is the case.
  • Upfront fees – when you get a jumbo loan, you also have these fees to pay and they are usually flat rate fees.
  • Administrative fees – this is the fee that the broker adds tot he standard lender fee. You should ask the broker to waive it if you see this fee in the breakdown.

Important Mortgage Terminology

When you are determining where to shop for a mortgage, it is important that you understand some key terms. When you fully understand these terms, it makes it easier for you to make a sound decision about the right mortgage for you. Even if you are interested in a reverse mortgage, understanding the terms are a key part to obtaining the proper mortgage.

Some terms of which you should be aware are:

Amortization – this is when your mortgage is broken down into scheduled payments of principal plus interest. Those payments need to be higher than the interest or the loan balance increases.

Amortized Loan – this is any type of loan that has been paid of in equal payments.

Closing – this is when you meet an attorney to sign the final documents for the mortgage and buying a house. This is when the attorney takes your funds from your lender, which includes any fees or commissions. The attorney pays the seller for the house. All of this paperwork is recorded at the local courthouse.

Closing costs – this covers all the costs including any administrative costs. It may also include appraisal and credit report fees, attorney fees, recording fees, survey fees, termite inspections and title insurance.

What Factors Impact My Mortgage Payment?

There are two major factors that impact your mortgage payment, except when it comes to a reverse mortgage. Interest and down payment are two of the major contributors to your mortgage payment. A down payment is the money you put down upfront to buy a house. This is the amount of the purchase price that you pay out of your own pocket. This money is not factored into the loan amount that you ask to borrow. The higher your down payment amount, the less money you need to borrow which means the less money you owe. This also means the lower your monthly mortgage payments is going to be.

Obviously, the higher your down payment, the lower the amount you must borrow. You may qualify for lower interest rates if you put down a larger amount of money. When you put down a larger amount of money, you are reducing the amount of risk a lender has because you own more of the house. When the lender has a lower risk, you see that reflected in a lower interest rate.

Interest is what the lender charges you for allowing you to borrow money. The amount of interest you pay is directly related to your credit score and the amount of your down payment. If you have a bad credit score of less than 579, it adds about 2 percent on to the lowest interest rate. And if you have poor credit, you see an interest rate that is about 1 percent higher than the lowest rate. But if you have average credit, you should not see much increase in the interest rate. If you have excellent credit, the lender offers you the best interest rate they can.

Does My Credit Make A Difference?

The good news about a reverse mortgage is your credit does not make one bit of difference. However, if you would like another type of mortgage, your credit absolutely matters. A lender looks at your FICO score and the credit score. The difference with a mortgage is the lender pulls a credit report from each of the three credit bureaus. Typically all three scores are a little different. The lender uses the middle range score. If your credit scores are 600, 620, and 650, the lender uses 620.

What If I Have Bad Credit?

If you have bad credit, it will not impact a reverse mortgage. However, if you think you have bad credit, you should find out for sure before you attempt to get any other type of mortgage. A good rule of thumb is to look at your credit score about 4 or 5 months before you apply so you have a good idea of your credit score. You can use one of the many sites that gives you access to your credit report. A 740 or above is a great credit score. Anything between 680 to 739 is average. A score between 620 to 679 is fair. Anything between 580 to 619 is poor and a score below 579 is bad.

If there is an error on your credit report, fix it immediately. This can improve your credit score. You should work to decrease the amount of debt you have. You should also improve your payment history. One of the top reasons for a low credit score is late or missed payments. You should begin making all of your payments on time and in their full amount. It takes consistent work, but you can begin to improve your credit score.

Credit Terminology

It can be difficult for you to improve your credit score without a decent understanding of credit and credit terms.

FICO score – this is the three digit number that informs lenders of your level of risk and credit worthiness. The higher your number then the less risk you are to a lender.

Credit report – this is the report that contains your credit score. It also contains your entire credit history. And it shows your payment history, along with all your debts and income. It shows if you have filed for bankruptcy and any other credit problems you have had.

Debt to income ratio – this is the amount of debt you have compared to your income. This number is a percentage and lenders prefer your debt to income ratio is less than 30 percent.

Affordability – this is a term used with mortgages. This is the amount that a lender feels you are capable of repaying when it comes to purchasing a home. This is typically the amount for which you can obtain a mortgage. Be careful with this number. Do not let the bank tell you what you can afford. Use a mortgage calculator and determine for yourself just how much you can afford to pay for a house.

Conclusion

This article contains a lot of information about a reverse mortgage and other general mortgages. As with any type of loan, considering a reverse mortgage is a big deal and not something you should take lightly. You should weigh all of your options to make sure a reverse mortgage is the best answer for you. Keep in mind, it means that when you sell your house or pass away, you have cut into the equity in the home and there will not be any money for your or your survivors. That might be great for you, and if that is the case, a reverse mortgage might be right for you. You should decide this after you have educated yourself to understand all of your options.

A Review of First-Time Homebuyer Grants and Programs

Buying a house can be one of the most stressful and exciting times of your life. There are many things to consider when you want to buy a house. You want to make sure you are getting the best mortgage for you. A mortgage is a loan you obtain specifically to purchase a home. You use the house you want to purchase as collateral for the loan. When you use that house as collateral, it provides a safety net for the lender. This way if you are not able to pay the mortgage, the bank can take ownership of the house. There are many home buyer grants and programs of which you should be aware when you want to buy a house. Continue reading to find out more mortgage tips and information on the programs that are available.

What Is A Conventional Loan?

There are many different types of mortgages along with various homebuyer grants and programs available when you are ready to purchase your first home. A conventional loan is the most common type of mortgage. It has a fixed rate so it is safe for all homebuyers. Your monthly payment remains the same each month so you will not have to worry about it changing from month to month. A conventional loan usually comes in terms such as 15 year, 20 year, 30 year, and even 40 year loans. The most common ones are 15 or 30 years. A lender wants you to have 20 percent of the cost of the house to put down on the house.

That means if you want to purchase a house that costs $300,00, the lender wants your down payment to be $60,000. If you cannot put down this amount, the lender requires you to have private mortgage insurance (PMI). Lenders prefer that you have a high credit score to qualify for these types of loans. If you have a high credit score, lenders may approve you for a loan with only 3 percent down. They also request a fair amount of documentation to prove your income, employment, and assets.

What Is An Adjustable Rate Mortgage?

Another type of mortgage for your consideration is an adjustable rate mortgage (ARM). The most important thing to understand about this type of loan is that the interest rate changes, hence the word adjustable in the name. One of the most common ARMs is a 5/1 mortgage. That means that the interest rate remains the same for five years, but then changes for the rest of the term of the loan. The interest rate will change based on the current economy. This type of loan is appealing because it keeps your monthly mortgage low for those five years because your interest rate is low. However, your mortgage can increase to a really high rate, much higher than you may be able to afford. When you cannot afford to pay your mortgage, the lender may foreclose on your home.

Some who decide to get an ARM attempt to sell their house, or refinance their loan for a different mortgage type in an effort to avoid payments they cannot afford. However, the value of your house can decrease to a point where you are not able to refinance. An ARM is risky type of mortgage, so you should be prepared for that. You may want to consider all homebuyer grants and programs that are available to you before you consider an ARM.

What Are FHA Loans?

One of the homebuyer grants and programs that is available to you are those offered through the Federal Housing Administration (FHA). These loans are perfect for those with less than perfect credit and a low down payment. FHA loans are backed by the federal government and have mortgage insurance built in to the loan. This is a great option for those who may not qualify for any other type of loan. You do not have to be a first time home buyer to qualify for this type of loan. This type of loan may still require you to pay mortgage insurance if you do not have 20 percent as a down payment. You always have to pay the mortgage insurance with this type of loan even after you have a certain amount of equity in the house.

There are several different types of FHA loans. The FHA 203(k) loan lets you buy a home and renovate it all with one mortgage. If you currently own a home, you can use the FHA 203(k) loan to refinance and use it to renovate your home. The FHA Energy Mortgage helps you buy a home that is energy efficient. You can use this loan to buy an old home and renovate it to make it energy efficient.

The FHA Section 245(a) loan is for you if your income is going to increase. This loan has your payments starting at a low amount per month but your payments go up as time goes by. There are different variations of the 245(a) loan that has varying payment amounts that increase at different rates. To qualify for an FHA loan, you must visit a lender that is approved by FHA. The FHA is not giving you the loan. A lender still gives you the loan, but the FHA guarantees it.

Are There Other Government Funded Loans?

Many different government funded homebuyer grants and programs exist. There are too many to list in this article, but if you go to govloans.gov you can read about all of the different types of loans backed by the federal government. There is a mortgage loan type for just about every person in every scenario. So there should be one for you. There are a handful that I would like to highlight in this article, but do yourself a favor and learn how to shop for a mortgage. Your first step is checking out the gov loans site.

There are Veteran Affairs (VA) loans which are backed by the Department of Veteran Affairs. Most of these types of loans do not require you to have any money to put down on the house you want to buy. These loans are specifically for veterans of all the US armed forces, and sometimes spouses, to buy a home. These loans are usually the most flexible and provide the best terms for mortgages for veterans of the military.

Another type of federal loan is a loan that is funded by the US Department of Agriculture (USDA). These types of loans are intended to help those in rural areas with low incomes qualify for a loan. There are limits to these types of loans and they are based on the size of the family. The amount of the mortgage is also limited by the conditions of the local market. These loans can be used for manufactured, modular, or regular homes, but they cannot be more than 2,000 square feet.

Do I Need A Mortgage Broker?

You do not need to have a mortgage broker to get a mortgage. You do not need a mortgage broker to buy a house. A mortgage broker is helpful to you when searching for the best mortgage, but there are fees. You can do the work yourself, or you can pay someone else to do it. A mortgage broker does not work for a bank. They are independent workers. And they get paid by the fees that they charge you. They must have a license to operate.

A mortgage broker usually has various loans from different lenders to offer you a wide variety of options. It is that person’s job to find the best mortgage available to you and for you. This is what you are paying them to do. A mortgage broker can work with lenders to secure a loan for you. For example, if you only have 8 percent to put down for a house, the broker can find lenders that accept those terms. A broker can do all the negotiating for you. This may be especially helpful if you do not have the best credit. A broker may be able to find some of the best home buyer grants and programs for you so that you do not have to do any of that work.

Are There Fees Associated With A Mortgage Broker?

Yes, there are fees for you if you select a mortgage broker. This person is doing a job for you and expects to be paid. You may not need to consider a broker if you are going to use homebuyer grants and programs. If you are considering a broker, you should be aware of the fees that you may have to pay. The broker may use lender based compensation fees which means that the lender pays the fees of the broker and then adds those fees on to your mortgage. If the mortgage broker chooses borrower based compensation, that means you pay the broker fees at closing. Every broker charges a different fee amount and they may call them by different names.

Here are some of the common fee names and types that you hear:

  • Loan origination fees – sometimes the broker adds his fees to the origination fees that the lender charges. If this is the case, you should ask for a breakdown of the origination fees so you can see what the broker charged. The loan origination fees are a percentage of the mortgage.
  • Yield spread premium – this is what the lender pays to the broker for getting you, the borrower, to obtain a mortgage with higher interest. If this is the case, be sure you have a competitive interest rate.
  • Upfront fees – these fees occur when you obtain a jumbo loan. This is usually a flat rate for making the loan happen. If there is not some type of fee from the broker make sure that the broker is not getting a yield spread premium.
  • Administrative fees – this is when the broker adds their administrative fees in with the standard fee from the lender. If you see this type of fee, you should ask for the broker to waive it.

Mortgage Broker Fees Explained: Home Loans 101

What Steps Should I Follow To Get A Mortgage?

When looking for the perfect house, you should also look for the right mortgage by doing some rate shopping. After you do some shopping around to see what loans are available, you should also see what homebuyer grants and programs are available also.

After that, you want to take some other steps, such as:

  • Check your credit and get it in better shape, if needed. More about your credit a little later in this article.
  • Get prequalified. This shows any potential sellers that you are serious about buying a house. This also lets you know how much money you are able to get in a mortgage. This can guide the price range for your potential houses.
  • Select a mortgage from all the options that you found. You need to select the right mortgage for you. You also need to make sure that you are going to be able to afford the mortgage.
  • Find the right lender for you. Not only is the mortgage important, but so is a lender that is willing to work with your credit and down payment.
  • Get all of your documents together. A lender is going to ask for documents, you know that, so start collecting them. You should gather your employers for the last two years, pay stubs, two years worth of tax returns, two years worth of W2s, any proof of pension. And you also need to provide proof of dividend earnings, bank statements, and any other debts that you have.
  • You should check out a mortgage calculator and determine just how large of a mortgage you can afford to pay.
  • Apply.

Here are some mortgage options for you, just put in your information, and you may get suggestions about a potential lender for you:

Does My Credit Matter?

I hate to tell you, but your credit always matters. If you are trying to borrow money from a lender, it absolutely matters. You may be able to find homebuyer grants and programs with enough federal backing that your credit score does not matter. Those are few and far between. For most mortgages, your credit matters. A lender looks at your FICO score and the credit score. The difference with a mortgage is the lender pulls a credit report from each of the three credit bureaus. Typically all three scores are a little different. The lender uses the middle range score. If your credit scores are 600, 620, and 650, the lender uses 620.

You should know your credit score when you want to get a mortgage. A good rule of thumb is to look at your credit score about 4 or 5 months before you apply so you have a good idea of your credit score. You should also begin looking at the mortgage rates. A 740 or above is a great credit score. Anything between 680 to 739 is average. A score between 620 to 679 is fair. Anything between 580 to 619 is poor and a score below 579 is bad.

What If I Have Bad Credit?

If you are not going to use homebuyer grants and programs where your credit score does not matter, you should work to improve your credit. You should go to Creditry to get a copy of your credit report and learn how to work towards improving it. When you pull your credit report, take a look at it and see if there are any errors on it. If there are errors, fix them. This is the easiest way to improve your credit score. If there are no errors, or you have corrected them all, now you need to work towards increasing your credit score. It takes consistent work, but it is possible to improve your credit score.

You should work to decrease your debt to income ratio. This is the amount of debt that you carry and how it relates to your income. If you can reduce the amount of debt you have, you can improve your credit score. A top reason why someone has a declining credit score is late payments. If you have a history or late payments, you want to work on improving that and make all of your payments on time and in the full amount that is due. You should also consider increasing your down payment amount. The higher amount you can put down on the house, the lower your interest rate may be.

You should make on last effort to see if there are any homebuyer grants and programs for which you qualify. Some of these programs negate the need for a down payment, no matter your credit score.

Why Does A Down Payment Make A Difference?

The down payment is the amount of money you put upfront to buy a house. This is the amount of the purchase price that you pay out of your own pocket. You do not borrow this money from a lender. This is money that comes out of your savings and you can pay it electronically, by check, or credit card. This money is not factored into the loan amount that you ask to borrow. The higher your down payment amount, the less money you need to borrow which means the less money you owe. This also means the lower your monthly mortgage payments is going to be. There is often much debate over the right amount for a down payment. Many people believe you should put as much down as possible, while others think that a smaller down payment makes more sense.

Obviously, the higher your down payment, the lower the amount you must borrow. You may qualify for lower interest rates if you put down a larger amount of money. When you put down a larger amount of money, you are reducing the amount of risk a lender has because you own more of the house. When the lender has a lower risk, you see that reflected in a lower interest rate. Unless you have homebuyer grants and programs that does not require you to have a down payment, the lender wants you to put at least 20 percent down. If you do not put that much down, they feel you are a bigger risk and they want you to have PMI. Paying PMI increases your mortgage payment.

What Is Interest?

Interest is what the lender charges you for allowing you to borrow money. The amount of interest you pay is directly related to your credit score and the amount of your down payment. If you have a bad credit score of less than 579, it adds about 2 percent on to the lowest interest rate. And if you have poor credit, you see an interest rate that is about 1 percent higher than the lowest rate. If you have average credit, you should not see much increase in the interest rate. If you have excellent credit, the lender offers you the best interest rate they can.

I am sure you would like to know what all the means in numbers, so let me give you some examples.

If you have credit in the great range, you may have an interest rate of 4.24 percent, which gives you a mortgage payment of $1,228.

When your credit drops into the lowest fair area, so around 620, your interest rate changes to 5.829 percent giving you a mortgage payment of $1,472.

Just because your credit went from average to fair, you see an increase in your mortgage payment of $244 per month. That is an increase of $2,928 over the course of a year and $43,920 over the course of a 15 year mortgage. If you get a 30 year mortgage, that is an increase of $87,840. That means you pay over $87,000 more for your house over the life of the mortgage because your credit score was fair.

If you know that you have fair or below credit, you should do some research and look into homebuyer grants and programs to see if you qualify for any of them. They could help decrease the amount of money you pay over the lifetime of your mortgage.

Statistic: Mortgage interest rates from 4th quarter 2018 to 1st quarter 2019 in the United States, by mortgage type | Statista

Other Mortgage Terminology

Some other terminology that may be of interest to you is:

APR – this means annual percentage rate. This is the total cost you pay for the lender to allow you to borrow money. This includes the interest rate and any upfront costs that you have to pay.

Appraisal – this is something that you must have. Most lenders require it. It is also good information for you to know. This is an estimate of the current value of your house. Someone who is a professional appraiser signs off on the document.

Points – this is optional for you as the borrower. You can pay to decrease your interest rate. This is something you pay upfront at closing and it can lower your monthly mortgage. One point decreases your interest rate by .25 percent. That means it can decrease your interest rate from 5 percent to 4.75 percent.

To purchase a point, it cost you 1 percent of your loan amount, or $1,000 for every $100,000. If you are borrowing $300,000 for a mortgage, then 1 point costs you $3,000. You have to determine if paying $3,000 up front is worth it to save however much .25 percent interest would cost you over the life of the mortgage.

Even if paying $3,000 up front only saves you $30 per month on your mortgage, that equals $360 per year and $10,800 over the span of a 30 year mortgage. You have to weigh your options to see which one makes the most sense for you.

Do not forget to look into homebuyer grants and programs to see if you qualify for them. They can save you a lot of money in the long run.

Conclusion

I have give you a lot of information and I know it all can seem overwhelming. Give it some time and let it all sink in. These are just the basics that you should understand before considering a mortgage. You should not even attempt to get a mortgage through a lender until you have done research about homebuyer grants and programs to see if there are any for which you qualify. It takes a little bit of time and research to look up homebuyer grants and programs, but if you can qualify for one of those programs, it saves you a ton of money and headache in the long run.

How to Do a Cash Out Refinance to Consolidate Debts

If you are a homeowner and have found yourself in need of funds at any point, you have probably heard of a home equity loan or home equity line of credit, both of which are very helpful options under the right circumstances. However, there is another option that many find even more helpful: a cash out refinance to consolidate debts.

This may be your first time hearing that term. You are not alone if that is the case. It is not mentioned anywhere near as much as home equity loans, but a cash out refinance can be more helpful in many situations. One great time to consider a cash out refinance is when you want to consolidate debts. So let’s explain how you can do this.

What is a Cash Out Refinance?

If you are currently paying off a mortgage loan and have been for some time, there is a good chance you have some equity in it. Equity is how much of the home you actually own. For instance, if you bought a $100,000 house and you have $25,000 equity in it, then you currently own $25,000 worth of the house while the other $75,000 is still being paid with your mortgage payments. As you pay more, your equity increases. You have the ability to borrow money on the amount of equity you have in the home.

You may be saying that this sounds an awful lot like a home equity loan. They are similar, but they are also different. A regular home equity loan actually becomes a completely separate loan from your current mortgage, meaning that you end up with two separate payments.

A cash out refinance puts your current mortgage loan and your equity loan into one lump sum payment, leaving you with one loan. In other words, the cash out refinance loan will cover the full $100,000 again (minus any costs, fees, and so on). It will pay the $75,000 to your current mortgage loan, and you get the remainder. You then have to repay the one $100,000 loan.

Will That Not Just Add Debt?

If you are anything like me, your initial reaction to paying down debt is, “Whew! I am not getting into debt again!” So the idea of doing a cash out refinance to consolidate debts or for any other reason sounds a bit counterproductive, especially if you barely got your mortgage paid down. There are, however, some potential benefits to a cash out refinance to consolidate debts, and for other purposes. Let’s break it down some.

A Cash out Refinance to Get Out of Debt

A loan to get out of debt? Is that a thing? Yes, it actually is. So how can doing a cash out refinance to consolidate debt help if you will still be in debt? It is actually simpler than it sounds, so we will keep the numbers simple as well. Let’s say your debts look something like this:

 

While yours may look different, you get the point. The above debts are just some that I have seen recently.

These payments come out to $975 per month- and that is with the minimum payments on credit cards. If you are not aware, paying only minimum payments on credit cards is going to keep you in debt- forever- so those balances do not decrease each month. They actually increase- every…single…month.

At this moment, your debts come to a total of $81,900. Remember that this includes your mortgage. If your home cost a total of $100,000, $40,000 of which you have paid down and own. You could go do a cash out refinance to consolidate debts in the amount of $81,900. $60,000 of it would go to the mortgage and $31,900 would go to your debts.

Now, let’s say you also got a lower interest rate this time of 5% instead of 10%. If you chose a 30 year mortgage, your payment would go down to around $300, which would cover EVERYTHING, not just the mortgage. If you have paid off your debt with that loan, you now only owe your refinance loan. So you have gone from paying out $975 a month on debts- including credit cards that you will not be paying off with the current payment- to paying out about $300 per month. Even if you do a 15 year mortgage instead and have around a $500 payment per month, you are still winning. As you can see, this can be a great way to get your finances in order. 

If you choose to, you could get a loan for more than what you actually need, but we are trying to stay out of debt, remember? Getting more than you need is probably not a good idea unless there is a good purpose for it, like sending your kiddos to college or something similar. Shopping sprees? Probably not a good idea.

7 Careful Steps To Consolidate Debt Without Tripping

 Why Would I Want to Do That?

Some people’s initial reaction to this information will be utter astonishment that someone would want to do such a thing. Yes, it sounds a little crazy- until you consider what it can do for you. But there are good reasons for a cash out refinance. Some people do a cash out refinance to consolidate debts. Other common reasons are home remodeling projects, college costs for their kids, buying a new car, tax deduction, better terms, lower or fixed rate, pay off high-interest debts, buying an investment property or second home, investments, starting a business, illnesses or emergencies not covered by insurance or emergency funds etc.

Резултат слика за cash out refinance infographic

What is Your “Why”?

Why are you considering doing a cash out refinance to consolidate debts? Obviously, yes, to consolidate debts, but why do you want to consolidate them? Is it to lower your monthly bill total? Improve your credit score? Start a business? Send your kids to college? Go on vacation? Invest?

The thing is that it is still a loan, and a loan has to be repaid. If this loan will, logically speaking, but you in a better financial spot, it is probably a good idea. To help you determine if this is the case, answer the following:

  • Will it save me money every month?
  • Will it lower my interest rates or eradicate high-interest debt?
  • Is the money going into starting a business or other money-making venture that will generate additional cash flow? Will that cash flow be larger than my loan payment?
  • Will I owe out more or less after I get the loan?

Is It In Line with Your Beliefs and Values?

This may seem like an odd question, but there is a purpose. If the money is going toward something you completely believe in, like college funds or ministries, it will seem like a lot less hassle to repay it than something you care nothing about. For instance, I firmly believe in providing my kids with what they need, including a head start in adulthood, sending them to college, and supporting ministries that help those in need.

This means that, for me, I would be more inclined to get into debt and repay a loan if I were doing it for college costs, to help my kids buy their first home, or to donate to a ministry that helps build homes for the homeless and feeds the hungry. That debt would not seem like such a burden. If you are considering the refinance option, make sure you believe in what you are doing. If you do not, even doing a cash out refinance to consolidate debts is going to feel miserable over time.

Benefits of a Cash Out Refinance to Consolidate Debts

Though the benefits may change from person to person, some of the potential main benefits include:

  • It might lower your monthly payments.
  • You might find lower interest rates than you currently pay.
  • Paying off debt helps to improve credit scores.
  • It can help build better credit by paying off debts and it opens up a new account. If you pay on time, your credit will continually improve.
  • If you pay off your debts and are no longer paying those monthly payments, you increase your cash flow, which is always nice.
  • You can stop debt collection agencies from calling you- talk about relief.

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Risks of a Cash Out Refinance to Consolidate Debts

As many benefits as there are, there are also risks and downsides to doing a cash out refinance to consolidate debts. It is important to be aware of these before making a decision.

  • Most, if not all, cash out refinance loans will require you to pay closing costs….again. It probably was not very fun the first time, so it is probably not something you want to do a second time. Ask around and read the fine print to find a lender that does not charge closing costs.
  • If you are not careful, you could wind up with a higher interest rate than before. Obviously, this is not what you want, so make sure you are paying attention to the loan terms.
  • You might be putting off retirement to pay off your loan. I do not know when you plan to retire, but if you are getting another 30-year mortgage, you might be working longer than you wanted.

Still Not Sure?

You could also speak with a financial advisor or a loan officer. Word of warning on that, though, if the person you are speaking to will be affected in some way by your choice, do not just take their advice and run with it. Weigh out what they say against what you have learned. Have them show you- preferably in very easy to understand numbers- how exactly this cash out refinance to consolidate debts could hurt or help.

Maybe I am asking too much, but I personally prefer looking at numerical information through charts and graphs to see how something will affect me. I am not so sure every loan officer and financial advisor feel the same way though. As long as they can show it clearly so you can fully understand, you should be good to go.

Also, try not to just jump into a decision. Again, this is a big move. Rushing into it might put you in a worse financial state than you are now. Take the time to really consider your options before you decide.

How to Do a Cash Out Refinance?

First, you have to understand that not everyone will get approved for a cash out refinance to consolidate debt. It is still a loan, so your credit will need to be checked as well as your payment history up until this point. If you have not been so good at paying your first mortgage on time, there is a good chance that the lender will not want to lend to you.

If your credit and payment history are good enough, though, your next step is to go back over all of the information above and be 100% certain this is what you want to do. Once you are sure that you are sure, it is time to start looking for your loan.

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How to Shop for a Mortgage

Understanding the mortgage process is pretty important if you’re thinking about getting into it. If you just jump online and type, “how to get a consolidation loan”, you are going to be bombarded with results and quickly overwhelmed. However, online is typically where to shop for a mortgage loan because you have a gold mine of options.

Whether shopping online or going to the bank, it is important to find a lender who is credible and who is trustworthy to keep their word when it comes to following the terms and conditions of the loan agreement in the initial stage of the application. Here, on Loanry, you can find it! By putting in your information here, you can check if you qualify for a loan with one of the carefully selected reputable lenders:


It is important that you find an interest rate that is lower than the one you currently pay. If it is higher, you are costing yourself money that you do not need to. You can always consider a cash out refinance later when rates drop. If you are using your money to consolidate debts, it might be okay if the interest rate is the same- though you would really need to do some calculations. Regardless, you do not need one higher. Even lower your rate by ½% saves you a lot of money over the life of the loan, so search until you find the best rate possible.

As you can see, knowing how to shop for a mortgage, or any other type of loan is important so you can make the best decision for yourself.

Conclusion

As you can hopefully see, a cash out refinance to consolidate debts can be a really good idea, but you have to think it through to make sure that it is good for you. Consider your entire financial state at this time, and how long you are willing to pay on your new loan. Get advice if you need to, and definitely talk it over with your spouse if you are married. Weigh out the pros and cons, then make the best decision you possibly can with the information you have.