How Do Rent-to-Own Home Agreements Work?

Symbol of the house with silver key on vintage wooden background.

For most people, getting married and buying a house are two of their main goals and dreams in life. While most people’s ideas of the perfect home and family are completely different, it is normal to want a home to call your own. Reaching your goals is not impossible, even if you are someone who has less than perfect credit.

There are several ways to purchase a home, including saving up to buy one, taking out a mortgage from a bank, broker, or other financial institution, taking out a personal loan, and rent-to-own home agreements. Each of these has different consequences, and it is important to understand how they work.

Rent-to-Own Home Agreements

Rent-to-Own Home Agreements are great for people who want to go ahead and buy their own homes before they have great credit. Getting a mortgage can be difficult, especially if you don’t have a good credit score or a large enough down payment. Personal loans are limited, and you may not be able to borrow enough to purchase real estate. With Rent-to-Own Home Agreements, you can avoid those problems.

Rent-to-Own Home Agreements Process

Rent-to-Own Home Agreements are simple in nature. Someone who has entered into a rent-to-own agreement is paying rent like a regular tenant, but with the ability to buy the property under certain agreed upon conditions. There are two parts to rent-to-own home agreements:

  • a standard lease agreement between the owner and the person taking over the property and
  • an option to buy the property

However, rent-to-own home agreements are more complicated than regular lease agreements, where neither party has a real commitment. Anyone entering into a rent-to-own home agreement needs to be very careful about protecting their rights to make sure they are really working toward their homeownership goals.

Here are some of the most important caveats when it comes to renting to own:

  • The agreement is basically a contract, and the person who wishes to rent to own is required to pay rent for at least a certain amount of time.
  • There are two basic ways a Rent-to-Own Home Agreement allows renters to buy the property — renters either have the option to purchase the property when the lease expires or, if there is a lease-purchase agreement, the renter is required to buy the property as part of the contract. In the first instance, the renter has the option to buy but is not obligated.
  • Sometimes — but not always — some of the rent payments will be applied to the purchase price of the home.
  • Depending on the contract, you may be required to maintain the property while you rent, repairing fixtures, taking care of the lawn, and performing other jobs that a landlord is often responsible for.

Non-refundable Upfront Fees

When you enter a rent-to-own agreement, you will be required to pay a fee upfront, usually between 2.5% and 7% of the total purchase price, that will give you the option of purchasing the property later. This fee may be called the option consideration, the option fee, or option money.

Advantages and Disadvantages of Lease-option vs Lease-purchase

Again, the lease-option gives you the option of buying the home at the end of the lease, but if you choose, you can just walk away at that point. You will lose your upfront fees and you won’t have anything extra to show for your time paying rent, but you can make the choice to move on to a better option without any extra fees or punishment.

With a lease-purchase contract, you are obligated to buy the home as part of the terms of the contract. If it turns out that you cannot afford the property, or if you have to move, or if you just really hated living in the house, you are still required to buy the home under the terms of the contract.

Purchase Price Agreements

This is tricky in a rent-to-own situation. Is the purchase price going to be determined by the current market value or the value at the time you finally purchase the home at the end of the contract? Often in rent-to-own situations, the purchase price is higher than the current market value, but you may be able to lock in a lower price if you negotiate.

Applying Rent to the Principal Balance

Many people are shocked at the end of the rent-to-own period when they discover that their rent payments were not applied to the purchase price. Sometimes the credit is equal to a certain percentage of the rent, and the rent is higher to accommodate for that. You may even be able to have your option money applied to the principal as part of the contract.

Home Maintenance and Expenses

Most landlords pay for repairs and maintenance, but you need to make sure to note what the contract says. You may be responsible for all of those duties plus homeowner’s association fees and other fees. You should also carry renter’s insurance so you are protected in case anything happens.

Renting vs. Owning Your Home

The first thing you need to decide is if you should rent or own your home right now. Even if your eventual goal is to own a house, you need to consider your current situation and goals before making a decision. Buying a house takes some time, and by the time you get started, you can feel confident that you are making the right decision for yourself and your family at the same time. When you rent a place, you can simply apply with the landlord/owner, hand over your deposit and first month’s rent, and move in. When you purchase a home, you will need to go through several steps and be patient.

Saving Money is Always Important

You can use a rent vs buy calculator to compare your rental costs to your expected mortgage costs. You can plug in the amount of the down payment, how long you plan to pay on your home and current interest rates. There are times when you can save a lot of money by renting. If you can cut down on your monthly expenses, you can pay down some of your other debt, save up for a down payment for your home, or take care of other important financial obligations while you save money.

How Long Will You be Staying in Your Current Location?

There may be many reasons that you don’t expect to be in the same location for very long. You may plan to move to a neighborhood with better schools when you have children, or you may be wanting to move closer to your family when you get a chance. Some people are in a job where they know they can expect to be relocated within a certain amount of time. While it is not always necessarily true, you will probably spend less money renting if you are only going to be in a specific home for a few years.

Other Factors That Make a Difference

There are some differences you have to consider when estimating the difference between renting and owning. Renter’s insurance may cost less than homeowner’s insurance, and utilities will cost more in a big old house. You can get a security deposit back, but the down payment on the house is part of the house price. The rent vs buy calculator also takes into account factors such as fluctuating home prices and the accumulation of equity when you make mortgage payments.

Deciding Whether to Stay in Your Rental

Sometimes through no fault of your own, you find that you are unable to pay your rent and you don’t have another place to go. You could be facing eviction and a black mark on your credit report. In those cases, it might be best for you to take out a rent loan. So you and your family can stay there while you recover from whatever financial disaster has occurred. You may be able to take out a security deposit loan, backed by the money you paid when you moved in, a good credit rent loan, if your credit is good, or a bad credit rent loan, even if your credit is not good or you don’t have much history. If you don’t want to stay in your rental but can’t afford a house, Rent-to-Own Home Agreements might be a good alternative.

Before You Take Out a Mortgage

A mortgage is just a loan for real property, such as a house and/or a piece of land. Just like with any loan, you will have to pay interest on your loan. And the lower the amount of interest, the less money you will end up paying. This is especially important when you consider the amount you are borrowing. Before you even consider trying to find a lender so you can get a mortgage, you should evaluate your current circumstances. There are a lot of factors a lender will consider before offering you a loan, and it helps if you are prepared.

Your Income

This is one of the most important considerations for any loan. Because it speaks to your ability to pay back the loan. The lender will want to know that you are earning enough money to be able to afford your monthly mortgage payment. And that means that you need to be able to prove that you earn not just the mortgage amount but that you have enough left over to pay your other bills and expenses. Your lender will want to know your work history, too. Because they want to know that you are able to stay in a job long enough to pay off the mortgage.

Your Savings

Your lender will want to see that you have savings. Because this proves that you are proficient at managing your money. Also, you should have some savings to put toward a down payment. As a homeowner, you also might need to pay for your own repairs now that you are no longer renting.

Your Down Payment

How much money are you willing and able to commit to your mortgage down payment? Anything you pay down at the beginning is money you won’t have to pay interest on later. Also, you can get a better interest rate with a bigger down payment. Besides that, when you put a big chunk of your own money down at the beginning, lenders know you’re really committed.

Credit History

Do you have a history of making regular on-time payments? If not, lenders will think you aren’t reliable. If you can, you should start early in building your credit history. So that future potential lenders will look on you favorably.

How Much You Already Owe

Lenders look at how much money you owe and how much credit you still have left on your credit cards. Every debt means another monthly payment, and lenders don’t want to give someone money who’s already drowning in debt.

Your New Home

Even though you are the one who will be living there, lenders care a lot about the property you’re purchasing. If you can’t pay, they want to be able to take the house and get their investment back. Most lenders will require you to get an inspection and carry homeowner’s insurance and mortgage insurance (although you can cancel your mortgage insurance once you have 20% equity in your home).

Choosing a Mortgage Lender

It never hurts to start boosting your credit before shopping around for a mortgage lender. Once you do finally start, shopping around for the best. The most trustworthy lender with the best rates can save you money and stress. Even if you don’t feel very secure because of your credit history, it still makes sense to put yourself in the best position possible when buying a new home. When you go through the pre-approval process, you can make multiple inquiries without affecting your credit score as long as you do it within a two week period. You will get different options depending on what kind of rate you are looking for and how much you qualify for.

It’s important that you go to the right lender when taking out a mortgage loan. Our advice is to consider the following lenders brought to you by Fiona, our trusted partner. By putting in your information, you will be able to see the lenders you may qualify for, and you may even get offers from them:


Mortgage Tips

Especially if you have never purchased your own home before, the process can seem overwhelming. There are several steps you need to take and there is also a lot of waiting in between. Here are some mortgage tips to make the process smoother and less stressful.

Start Saving Early

You don’t need to start saving for your new house. Go ahead and start as soon as you start earning money. Keep the money in a special account that you don’t let yourself touch until you need it.

Compare Your Loan Options

There are different kinds of loans based on whether you can get government backing and how much you can afford to make as a down payment. Making a bigger down payment may get you better loan terms and will also cut down on your monthly payments.

  • A conventional type of mortgage is basically regular home loans that aren’t backed by the government. You may be able to put down as little as 3% for your down payment.
  • If you take out an FHA loan, you can put down as little as 3.5%. And the loan will be backed by the Federal Housing Administration, meaning you might be able to get better terms.
  • VA Loans are guaranteed by the Department of Veterans Affairs and may not require a down payment at all.
  • Rent-to-Own Home Agreements will be based on the terms of the contract. And will be decided between you and the seller.
  • You may also be able to choose between adjustable-rate loans, where the interest rate varies depending on the economy, and fixed-rate loans, which never change. In the beginning, your payments go mostly toward interest.

And don’t forget One of the most important things to know – what factors mortgage lenders are looking at.

Find Programs for Local and State Assistance

Especially if you are buying a home for the first time, you may be able to get help with your down payment, closing costs, and lower interest rates.

Get a Preapproval Letter

When you have a letter in hand, you will know how much you can spend. And under what terms when you approach a seller to make an offer.

Find a Good Buyer’s Agent

It can make a world of difference to go through the home buying process with a good real estate agent by your side. Your agent can help you make sure you are getting the house and neighborhood you want. And answer any questions about the process as you go through it.

Make Sure you Budget the Other Necessary Expenses

When you buy a house, you have to consider closing costs, moving expenses, and other necessary expenses. You may have to buy new curtains, rugs, furniture, and other important items to make your new house a home.

Taking Out a Personal Loan for Large Purchases Instead of a Home Mortgage

When you take out a personal loan, you can use the money for anything you want instead of being committed to buying something specific. If you don’t use the property as collateral, you can only borrow up to about $50,000 with a personal loan. But if you can’t use traditional methods, this might be the best way for you to purchase a home. The terms of your loan will depend on your creditworthiness.

Conclusion

There are a lot of ways to buy a home, depending on your current financial situation. You may be able to get a house mortgage or a personal loan for a large purchase, or you may be able to enter into a rent-to-own home agreement. Whichever you decide is best, make sure you understand what you’re agreeing to so you can protect your interests.

Should You Use a Traditional Bank or Mortgage Company?

Businessman holding two houses and can not decide choosing the right house

When it comes to buying a home, there are a lot of moving parts and the process can be confusing. From the moment you start the home buying process to the day you end up paying off the mortgage, there is a lot to think about and a lot to figure out. One of the biggest things is where you should get the mortgage. And there are a lot of options with that, too.

What’s Better- Traditional Bank or Mortgage Company?

You want to make the right decision as it can affect you for the next 30 years- or however long your mortgage term lasts. Two of your options are to get your mortgage through a traditional bank or mortgage company. Both of these have benefits and risks associated with them, so how do you know which to choose? It starts with understanding them both and weighing out the pros and cons of each.

Traditional Bank

When talking about a traditional bank, we are referring to the financial institutions through which you can open a checking account and savings account. Most people are familiar with traditional banks more so than other financial institutions because they are referred to more often than others. When it comes time to get a mortgage loan, traditional banks are usually the first lender’s people think of. Here are the pros and cons of using a traditional bank for a mortgage:

Pros

  • Traditional banks usually have one- sometimes a couple- of people dedicated to mortgages. These mortgage bankers are specialized in the home loan products that their bank offers. They can often look at your financial situation, determine if you are a good fit prior to applying for a mortgage and if you are not, let you know exactly what you need to work on to fix it.
  • Most often, the banker is employed by a bank that either you, a family member or a friend have experience with. Sometimes- though not always- this can help you out a great deal because there is a foundation there that you can build on.
  • Traditional banks often pay their mortgage bankers a salary, meaning that you are not paying extra for fees.

Cons

  • A mortgage banker is specialized in the bank’s products, but that is about it. If you are not a good fit with that particular product- or those products- you are pretty much out of luck.
  • A traditional bank tends to have a pretty stringent approval process. There is not a lot of flexibility involved.
  • Because the banker gets paid a salary, they have no real vested interest in you getting a loan. They get paid regardless. Obviously, if they never approve loans, the bank would probably not be very happy with them, but whether or not you, in particular, get a loan is not a factor in their pay.

Mortgage Company

A mortgage company is quite different from a traditional bank. They are strong in the areas traditional banks are weak, but they do have their own struggles, too.

Pros

  • A mortgage company is often associated with a much wider range of lenders and financial products. What this means for you is that they have more options when it comes to connecting you with a loan. Let’s say that one of their associate lenders only approves a 680 credit score and a DTI of 30 percent. For some people, this would mean they might as well hang up the idea of a mortgage at this time. However, as mortgage companies have many lending partners, they may also have a lender who is willing to approve a 580 credit score with a DTI of up to 50 percent. In this sense, a mortgage company can often get more people approved than traditional banks can.
  • As mortgage companies specialize in their lending partners, they can usually take a look at your financial situation and easily determine which lenders will probably approve you. This saves you from having to apply to a long line of lenders that you may not have a shot within your current state.
  • Because a mortgage company runs off of commissions, performance-based fees, and affiliate sales, they do have a vested interest in you getting a loan. This typically means that they are going to work hard to get you approved for a loan.
  • Mortgage companies are also often associated with reputable credit repair organizations or at least have names you can work with. If they see that your financial situation may not yet be where you need it to be, they will often guide you in the direction you should go to make it what you need.
  • Mortgage companies also have a much better chance of providing you with multiple interest rate options. Where a traditional bank is mostly stuck in a box when it comes to interest rates and terms, a mortgage company has a wide range of lenders that offer varying interest rates and terms.

Cons

  • One of the biggest downsides is that mortgage companies tend to charge fees for their work. You end up paying for these fees depending on the value of the loan.
  • Sometimes, a mortgage company- especially one that is not very established yet- may not find you the best rates and terms. Sometimes, they ever guide you in the direction of a higher loan amount in order to earn higher fees.

Should I Choose a Traditional Bank or Mortgage Company?

As you can see, both have their upsides and downsides, so there really is no way to say one is always better than the other. Instead, choosing between a traditional bank or mortgage company really depends on the individual and his or her situation. And, more often than not, an individual will not know for sure whether to choose a traditional bank or mortgage company until he or she try them both out. For the best results when mortgage shopping, follow these mortgage tips:

Mortgage Shopping Tips

1. Shop Mortgage Lenders

Absolutely do not take the first offer. If you speak to someone who gives you preapproval for a loan with low interest and good terms, great! Still, do not sign on the dotted line yet. It may sound good, but that does not mean it is the best.

You should take the time to shop mortgage lenders. This means that you do not have to choose between a traditional bank or mortgage company before you know what they offer. Talk to multiple lenders of various types. Figure out what each can offer you and choose the best option from there. You can start looking here on Loanry. Fill out the form below to get offers:


2. Apply Within a Time Limit

Every time you apply for credit, it puts a negative hit on your credit. While you cannot prevent every hit, you can minimize the damage. Most often, when you apply for credit within the same industry, such as for a mortgage loan, you should do all of your applications within a two week period. If you do, all of those hits will only count against you once on your credit. This means that comparison shopping to choose between a traditional bank or mortgage company will not affect you too negatively.

3. Check Your Credit

Some places can get you a preapproval without running your actual credit. They still have to do a hard check when they are finalizing the loan application, but not necessarily when they are simply preapproving you. By checking your own credit score ahead of time, you can give the traditional bank or mortgage company something to work with.

As an additional point on your credit score, it is important to know that while companies like Credit Karma can give Credit score rangeyou a good idea of your score, the score of a traditional bank or mortgage company will pull will actually be 10 – 15 points under what you see. This is simply because it is factored differently when you are applying for actual credit as opposed to just checking your score. It is nothing to worry about.

When you talk to a traditional bank or mortgage company, they are aware of this difference. Therefore, if you say, “I checked my credit score on Credit Karma and it’s a 650,” they already know to factor in a smaller score. If you get a preapproval, it should be based on the score they expect to pull, not what you see.

You should aim to get a preapproval prior to house hunting, too. With a preapproval in hand, you know how much house you can look for and it is much easier to negotiate with sellers when they know you are serious about purchasing.

It is important to note, though, that just because the bank says you can borrow a certain amount does not mean you have to borrow the full amount. Instead, you need to determine how much house payment you can afford to pay each month.

4. Optimize Your Financial Situation

It really does not matter whether you are considering a traditional bank or mortgage company. The bottom line is that the better your financial state, the better options you will have. Here are some of the areas to pay special attention to:

Credit Score

There are many types of mortgages available. Some require a near-perfect credit score and some work with scores well below others. As far as the credit score itself goes, there really is no cut-off. Because some of your other financial factors can help you be approved for different loan types. Even those with terrible credit may get approved for certain loans, like USDA loans, if you meet the other requirements.

However, your credit score does have the propensity to affect the interest rates and terms of your loan. A credit score of only a few points can mean the difference in thousands of dollars in interest. Your credit score will often play the biggest role in determining whether you should choose a traditional bank or mortgage company as it can determine what loan you can get and the terms that go along with that loan.

Payment History

What does your payment history look like? Does your credit show that you have paid your debts well? Do you have any collections? If so, there may be a little work you need to do to make things easier for yourself.

Pay Off Some Debts

Paying off even one or two debts can bring your score up 20 points or more. When choosing which ones to pay, though, consider this: The longer a debt has been on your credit, the less weight it carries. Usually, debts have the largest impact on your credit score in the first two years that they show up on your credit.

So when choosing which debts to focus on, choose the ones that have been there the least amount of time. And, before you pay the full amount, call the creditor to see if you can get a settlement. The difference in settling a debt for a lower amount and paying it in full is only about two points. If you can get a settlement, you will be saving yourself money and improving your credit.

Debt-to-Income Ratio

Whether applying with a traditional bank or mortgage company, your debt-to-income ratio can impact your chances. The desired DTI can vary according to the lender, but the lower your debt, the better off you are. Is there anything you can pay off quickly or easily?

You might seriously consider getting a personal installment loan to consolidate your debt. This can help you decrease debt, decrease the interest you pay, and decrease your credit utilization- all of which can have a large positive impact on your credit. Additionally, when you owe less each month to other things, it can make it much easier to pay your monthly mortgage payment.

Factors to Consider When Choosing Traditional Bank or Mortgage Company

There are so many mortgage loans along with different options. Pay attention to each of these factors that I will represent to you. They can all affect your overall mortgage approval and process. You might also consider speaking to a financial advisor prior to applying. As they are on the outside and not affected by whether or not you buy a home, they can take an objective look at your credit, your financial situation, and your financial goals. They can advise you on how much would be safe for you to borrow so you are not easily swayed if you are offered more by a lender.

Again, it is hard to decide between a traditional bank or mortgage company when you do not know what they are offering. Once you have your offers in hand, there are a few things to consider when choosing your lender:

Interest Rate

Sometimes, you might get offered a very similar interest rate, such as 2.5 percent from one lender, 2.7 percent from another, and 3 percent from another. These are all close to one another, but they can each add on hundreds or even thousands in interest, depending on your mortgage amount. You must actually calculate what each rate will cost you over the life of the loan.

It is important to note, though, that the lowest interest rate does not necessarily mean it is the best loan. The interest is only a part of the equation- albeit a very important part. Calculate the interest, but do not make your decision based solely on it.

Mortgage Term

Different lenders may offer you a different amount of time to pay the loan. While 30 years may seem better because the monthly payments tend to be smaller, you usually end up paying a lot more over that 30 year term thanks to interest. Sometimes, a 15-year mortgage term is better. Even if the monthly payments are a little higher, you usually end up saving a ton over the mortgage term.

Fees

As we discussed above, you are facing fees. There will always be fees with a traditional bank mortgage, and there are usually fees with a mortgage company. Compare the fees you will be charged as they may mean a difference of hundreds or thousands of dollars.

Approval Process

How stringent is each approval process? Traditional banks are usually more stringent, but you will never know until you ask. Give each a call and determine what all will be included. While it may not always be the case, sometimes extra fees are added depending on the approval process. Be sure you check it out before jumping into anything.

Credit Factors

While you are calling the traditional bank or mortgage company, ask them what credit factors they require? You might save yourself a lot of time because this can help you decide where to apply or even if you should wait a little longer until your credit is better.

Monthly Payment

The monthly payment is a big deal- if you cannot afford your monthly payment, you may end up without the home you are working so hard for. Understand the monthly payment of each option before deciding.

Conclusion

Buying your home is one of the most important financial moves you will ever make. If you want to make all the process easier than maybe a mortgage broker can help you. You need to proceed cautiously so that you can make the best decision for you and your family. No matter what type of lender you choose, the most important factor is making sure that you consider all of your options and only make a decision when you feel comfortable.

Mortgage Loan Options When Buying a Fixer-Upper

Interior designer showing wood swatches to his customer, laptop, tools and house projects on desktop top view

A fixer-upper may need extensive renovations before you’re able to move in. A  standard mortgage doesn’t cover this type of situation. Thankfully, there are two types of mortgage loan options that combine the mortgage with a renovation loan, so you don’t have to put in multiple applications for this process. When you shop mortgage lenders, you can use the renovation loans for your ideal setup.

Mortgage Loans For a Fixer-Upper

There are two basic mortgage loan options. A standard mortgage loan covers the sale price of the home and the seller receives it in one portion. The home’s price is based on its appraised value and that of comparable properties surrounding it. The funding you receive only covers the cost of the home – it does not include any extra funding.

A renovation mortgage loan covers the cost of the home’s sale price and renovations. The loan consists of two parts. The first pays for the home’s sale price, much like a standard mortgage loan. The second portion is the amount for the renovation funding, and it sits in an escrow account. After the mortgage lender conducts a successful inspection of the renovation project by the mortgage lender, they send the money to the contractors doing the work. The total loan amount that you get depends on the type of renovation mortgage you select, the scope of your work, and the completed appraised value of your home following all planned renovations.

FHA 203(k)

The Federal Housing Administration offers a government-backed renovation loan called the FHA 203(k). The financial institution that offers the loan also issues it, but the FHA insures it in the event that a borrower defaults on the loan. This allows lenders to have a higher risk tolerance and be willing to work with people who have credit profiles or income that are not generally ideal for a conventional mortgage loan. This mortgage loan option is available as a standard and streamlined option and covers renovations that are cosmetic in scope, or structural. Luxury renovations are not supported by this loan, although the definition of luxury may be dependent on the lender that you’re working with and whether you have the same things in mind when you think about luxury products. A streamlined FHA 203(k) is for renovations that will total $35,000 or less.

These renovations must not include structural work. The advantage of the streamlined loan is that it’s great for getting a renovation mortgage loan quickly that can cover many cosmetic concerns. A standard loan requires more documentation, but it allows you to add in major structural work and is for projects that will exceed the $35,000 limit. The minimum amount of rehabilitation is $5,000 and the house has to be at least a year old. So you need to keep all this in mind when you look at mortgage loan options.

Some Requirements for The FHA 203(k) Loan

For the FHA 203(k) loan, you must be using it as a primary residence. If you have a 10 percent downpayment, some lenders may be willing to work with credit scores as low as 500. However, 580 is the necessary credit score for access to 3.5 percent downpayment options. Lenders may have higher requirements, and 620+ is a common number that they aim for. When you use the standard FHA 203(k) option, you need to work with a HUD consultant. They guide you through the contractor bidding process for the renovations, as well as acting as an overseer when it comes to the inspection process.

Once the loan closes, you can have renovation work start without any delay. A quick turnaround time allows you to get into your new home sooner. A few ways that you can use this loan product include fixing any problems that could lead to health concerns or safety issues for people living in the home or their guests, modernizing systems in the home, fixing the plumbing, improving the interior and exterior appearance of the home, replacing and repairing the roof and flooring, making significant changes to the yard, and making it easier for disabled people to access their home.

If you buy a fixer-upper that is not habitable, this mortgage loan option may also be able to cover the rental costs of another property while you wait for the home to be rehabbed. You are permitted to build a home up from a foundation, which is an option that may make sense for buildings that are in particularly bad shape. You can also rehab part of the property for non-residential uses, or convert it to a one to the four-unit building.

Fannie Mae HomeStyle

There are many mortgage loan options out there. The next we’re talking about is maybe not so familiar to you. The Fannie Mae HomeStyle loan has more flexibility on the type of homebuyers who can use it, as well as the renovations that you do to your home. Unlike the FHA 203(k) renovation mortgage, the HomeStyle mortgage allows primary residents, people buying second homes, and property investors to access this product. However, we can see the expanded access reflected through higher credit score requirements. The base requirement is 620 minimum for a credit score. Your downpayment is either 3 percent or 5 percent. You get access to a lower downpayment if the home is owner-occupied, it’s the first time you ever purchased a home, or you have a low to moderate-income level for the area.

You need to work with an inspector who will approve the renovation documentation by the contractor. And you can choose your own contractors and the renovation loan also covers associated administrative costs of these projects. If you’re unable to live in the home while it’s being worked on, you can have up to six months of payments on your mortgage covered in the loan amount so you have a place to live during the process.

Fannie Mae HomeStyle Utilization

The renovations that are allowed with this mortgage product include cosmetic, structural, and luxury. You have a lot more leeway to add high-end touches to your home, as long as they’re permanently affixed to the property. It’s designed more for people who want to upgrade the home they already live in or people who are looking for a good return on their investment or a vacation home. You can finance renovations that can cost as much as 75 percent of the appraised value of the completed home. You have to complete these renovations within a set time limit, which is typically one year from when you get the loan.

The maximum mortgage amount given from Fannie Mae is $484,350 on a single unit property. This amount may be adjusted for particularly high-cost areas, in which case it maxes out at $726,525.

Why Choose a Fixer-Upper

A fixer-upper is an excellent option for many home buyers who are not finding home inventory that meets their needs. Here are a few of the benefits of choosing a fixer-upper.

Save Money

If you have a tight home budget or you would like to live in a neighborhood that’s more expensive, a fixer-upper can be a good approach to getting the type of home in the location that you’re looking for. You’ll be able to get mortgage tips and find your way into a home that is affordable without needing to compromise on where it’s located at. This benefit is particularly useful if you’re trying to get into a certain school district or you want to move closer to your work to lower the commute time. Sometimes in areas that become incredibly popular, going fo a fixer-upper is the only way to access a lower-priced home that’s in line with how much houses used to cost there. To really save money, looking into mortgage loan options is mandatory. So start on time and make sure you pay attention to details.

Putting in Sweat Equity

If you like taking on projects, using your handy skills to handle a whole house is an excellent way to express that and decrease how much you need to pay for a house. You get to bring your own preferences to the table and leverage your willingness to put work into your own home. You get a lot of satisfaction over checking off items on the to-do list, whether you want to take a DIY approach or you are working with contractors (or both!).

Reducing The Price Tag of Renovations

When a home seller renovates their home shortly before selling it, they’re going to try to maximize the income that they’re making off of those improvements. Because of this, you’re not just paying the base cost of the renovations. You’re also paying for the improved value of the home, as well as whatever profit the seller is attempting to put on top of that work. When you choose a fixer-upper to renovate, you are paying for the base pricing of the project without any of the overhead that ends up in the listing price. This also influences which of the mortgage loan options you choose.

Customize Everything

Cookie-cutter houses are enough to make me yawn, and that’s the case for a lot of people. You’re not a cookie-cutter human, so getting a fixer-upper and doing renovations on it is the perfect way to show off your unique style. When you have full creative control, you get to make the housework for your lifestyle and family. Make the perfect room flow, divvy up the space in the way that makes the most sense, and put in the touches that make you happy to walk into your home.

Paying Less Property Tax

When you make a home purchase, the property tax that you’re responsible for calculated by looking at the home’s sale price. While it will probably be re-appraised down the road, in the meantime, you could be saving thousands of dollars per year on taxes.

Less Competition

Many home buyers want something that’s move-in ready and newer. They don’t want to mess around with renovations or trying to imagine what the house would look like with changes. They just want to make a straightforward purchase and are willing to pay extra for the convenience. These houses get a lot of competition in many areas, but the fixer-upper is not. You end up being at a better place when you’re negotiating with the seller, which can lead to many perks in the process.

Make Your Home Worth More

Want to sell your home eventually? Improving a fixer-upper means that you’re going to get back a lot more than you paid. This is especially true when you’re in a hot neighborhood and you got in there by buying the cheapest house on the best block. So keep in mind that whichever of the mortgage loan options you choose, you may, ultimately, get your investment back and earn money.

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Choose Where You Allocated Your Resources

A chef’s kitchen doesn’t make a lot of sense for a couple that primarily eats out at restaurants. You can choose exactly where your renovation resources are going. So that you get the best features in the areas that you care about the most. This creates a home that is uniquely suited to your needs in the short and long-term.

Look Into Local Loans and Grants

If these renovation mortgage loan options don’t quite cover all of the costs for your expected home renovation plans, you may have the option to look into local grant and loan programs that provide additional funding. Community redevelopment loans, incentive programs for buying vacant houses, and state-specific mortgage programs are a few ideas of organizations that could assist you with this process. When you’re looking into these options, make sure to confirm that they would stack with the renovation loan product you’re using. You don’t want to end up counting on money that you’re not actually eligible for. Trying to redo a renovation plan in the middle of the process can throw off the schedule entirely, which is a significant problem if you have Fannie Mae HomeStyle loans that have a time limit.

Considerations Before Buying a Fixer-Upper

A fixer-upper is an excellent option for many home markets. But there are a few considerations you want to keep in mind so you can avoid mistakes in the process of buying house and renovation.

Can You Deal With Months of Renovations?

Home renovation cost estimator by house size In the big picture, you deal with renovations for a short period of your life. Then you can go on to enjoy a great customized home. However, that’s little comfort in the event that the renovations get in the way of your daily life. If you are buying a home that requires top to bottom renovations and there’s no untouched part of the house, you may want to consider adding rental or mortgage funding into mortgage loan options you look into, while you wait for renovations to complete

Are You Able to Deal With Cost Overruns and Schedule Changes?

A home renovation includes a lot of moving parts, and they don’t always work together properly. There are many reasons that a renovation project can get behind schedule, or go over budget.  You need to be ready for things to not go as smoothly as you’d like. And be able to roll with the punches. If that level of uncertainty is stressful, then you may want to consider a move-in ready house instead

Do You and Your Family Members Agree on The Scope of The Renovation?

You don’t want to take out a renovation mortgage loan and then find out that people in your family are upset because you didn’t add in the renovations that they like. It might be hard to come to a consensus on each aspect of the project. But make sure that everyone is on the same page. And willing to make compromises to make the best possible house for everyone involved

Think about the short and long-term when you are putting together a renovation plan. Your kids may be fine sharing rooms today, but are they going to feel the same way when they’re teenagers? What happens to the playroom as a family gets older? Do you have hobbies that are shoved in a corner because there is no dedicated space? What type of storage solutions will be necessary for a new property? Consider all of these questions so that you’re not overlooking anything major during this process.

In Conclusion

Fixer-upper mortgage loan options are a perfect solution for many home buyers. There are mortgage products that support both mortgage and renovation funding. You can consult a mortgage broker who can offer you various options from different lenders.

Get yourself in the home of your dreams. If you’re making major structural changes to the property, spend some time observing how you use your current home. The flow from room to room, and areas that you would like to improve. You don’t want to go through the trouble of restructuring a house just to have the flow end up being completely opposite of the ideal for your family. Use the help of a HomeStyle or FHA 203(k) renovation mortgage loan option!

Mortgage Refinance – Everything You Need to Know About It

A mortgage refinance will replace your current loan with a new one. Many times, people decide to refinance to reduce their interest rate, tap into home equity, or lower monthly payments.

Mortgage refinance applications are a significant portion of all mortgage applications. The relatively low-interest rates have persuaded homeowners to reorganize their loans and finances. Whether or not a mortgage refinance is right for you will depend more on individual circumstances instead of just the rates.

Everything About Mortgage Refinance

Before everything, it is very important to know when is the right time to refinance your mortgage. And keep these things in mind before you decide if a mortgage refinance is right for you.

Home Equity, Credit Score, Taxes and Your Debt-to-Income Ratio

The first qualification you will need in order to refinance is your home’s equity. Many home values have been on the rise and the share of underwater homes has dropped. However, some homes haven’t regained value. You may not be able to refinance with little or no equity with a conventional lender. But there are some government programs available. The best way to find out if you qualify is to visit with a lender and then discuss your individual needs. If you have at least 20% equity, it can be much easier to qualify for a new loan.

Credit Score: Lenders have tightened standards for loan approvals. So you may be surprised to find that even if you have good credit, you don’t necessarily qualify for a low-interest rate. In order to qualify for some of the lowest interest rates, you need a score of 760 or higher. If you have a lower score, you can still qualify for a new loan but the fees or interest rate can be higher.

Debt-to-Income Ratio: If you have a loan, you may think that you can easily get another one. However, lenders have also become stricter when evaluating the debt-to-income ratio. If you have substantial savings, a stable job history, or a high income, it can be easier to qualify for a loan. Lenders want to keep the monthly housing payment under 38% of your gross income. You may want to focus on paying off some debt before your refinance in order to qualify.

Rates vs The Term

You don’t want to just focus on the interest rate but also establish some goals when refinancing to determine which product meets your needs. If the goal is to reduce monthly payments then you want to choose a loan that has the lowest interest rate for the longest term. Maybe you want to pay less over the length of the loan. Then look for the lowest interest rate at the shorter term. If you want to pay off the loan as quickly as possible then look for an option with a short term and payments that you can afford.

Liens or a Second Mortgage: If you have liens or a second mortgage then refinancing can be a challenge since the new loan is used to pay off the first mortgage. You want to resolve any liens or tax liabilities before you begin the refinancing process.

The Cost of Refinancing, Taxes, Break-Even Point and Insurance

Refinancing a home isn’t free. However, you can find different ways to cut down on the cost or wrap the cost into your loan. Some lenders have a “no-cost” refinance option. This means you pay a slightly higher interest rate in order to cover the closing cost. Don’t forget to shop around since some refinancing fees can be reduced or paid by the lender.

Taxes: Many people rely on the mortgage interest deduction to lower their federal tax bill. If you refinance and are paying less interest, your tax deduction could be lower. Very few people think of this as a reason not to refinance but it’s still something to keep in mind.

Your Break-Even Point: One calculation that plays into your decision is the break-even point. This is the point at which the costs of the refinance are covered by what you save monthly. If the refinancing costs you $2,000 and you are saving $100 every month then it takes you 20 months to recoup those costs. If you plan to sell or move within those two years then a refinance doesn’t make sense.

Private Mortgage Insurance: If you have less than 20% equity in the home, when you refinance you will have to pay private mortgage insurance. If you are already paying this, it shouldn’t make a big difference to you. If the home value has decreased since the purchase date then you may need to pay PMI for the first time. The lender you are working with can help you calculate whether you will need to pay this and how much it adds to your monthly payment.

Why You May Want to Refinance

There are a number of reasons why a mortgage refinance may make sense to you.

8 Facts behind Refinancing

Reduce the Monthly Payment and Pay Off the Loan Faster

If your goal is to pay less each month then you should refinance with a lower interest rate. You can also reduce the payments by extending your loan term but with this option, you will pay more interest in the long run.

If you refinance from a 30-year mortgage to a 15-year one then you can pay off your loan in half the time. Due to this, you would pay less interest over the life of the loan. There are pros and cons to a 15-year loan but one of the reasons why more people don’t choose this option is because your payments usually go up.

Get Rid of Private Mortgage Insurance and Avoid Balloon Payments

Get Rid of Mortgage Insurance: One of the top mortgage tips is to eliminate this when you can. Private mortgage insurance on a conventional home loan can just be canceled. But if you have an FHA loan then the mortgage insurance can’t be canceled. The only way to get rid of the insurance is to sell the home or refinance once you have enough equity.

Balloon programs like adjustable-rate mortgages seem like a good option for lowering the monthly payments and rate. However, at the end of the term, if borrowers still own the property then the mortgage balance can be due, which can be a lot. A refinance can allow you to avoid these balloon payments and instead continue on with affordable monthly payments.

Equity and Fixed-Rate Loan

Use equity, when you refinance to borrow more than you owe on the current loan. Your lender will give you a check for the difference This is called a cash-out refinance. Some people can get a cash-out refinance and a lower interest rate at the same time.

Switch from an Adjustable-Rate to a Fixed-Rate Loan. Interest rates on an adjustable loan can go up over time but the fixed rate stays the same. When you refinance into a fixed loan, you can have more financial stability and more steady payments.

Cash-Out Refinance

When you get a cash-out refinance, you can have cash in hand to spend on debt consolidation, financial needs, or home improvements. You need to have built up equity in your home. You aren’t able to pull out 100% of your home’s equity but you can pull out some. For example, if the home’s value is $200,000 and the balance is $100,000, you can refinance the $100,000 loan for $150,000 and then have $50,000 for renovations.

This type of refinancing may give you a lower interest rate if you bought the home when mortgage rates were higher. If you want to lock in the lower interest rate and don’t need cash then you can go ahead with a traditional refinance.

Good Things About Cash-out Refinance

A cash-out refinance can make sense for a few reasons:

  • Debt Consolidation: You can use the money to pay off your high-interest credit cards and save yourself money in interest
  • Higher Credit Score: When you pay off your cards, you can build your credit score since you lower your credit utilization ratio
  • Tax Deductions: The mortgage interest deduction may also still be available on this type of refinance if the money is being used to improve the home
  • In addition to the benefits, there will be some cons that you need to consider for this type of mortgage refinance
  • Foreclosure Risk: Since the home is used as collateral you are risking it if you aren’t able to make payments. If you are doing a cash-out refinance to work on paying down your credit cards then you end up paying for unsecured debt with a secured debt
  • New Terms: Your new mortgage has different terms so you want to make sure you check your fees and interest rate before you agree to the new terms
  • Private Mortgage Insurance: If you borrow more than 80% of your home’s value then you have to pay for private mortgage insurance
  • Enables Bad Habits: Using a cash-out refinance to pay off credit cards can backfire if you rack up debt again and don’t have this option to pay off the balance

When Can You Refinance the Home?

Most lenders and banks require that you maintain the original mortgage for at least a year before you are able to refinance. However, each lender and the terms are different. Don’t hurry, shop around and see which lender has the best offer for you. It’s recommended to check with your specific lender to see any details or restrictions. In many cases, it would make sense to refinance with your original lender but it’s not required. It’s easier for a lender to keep a customer than get a new one so some lenders don’t require a property appraisal or a title search if you are sticking with your current lender. Many will offer a better price to a borrower looking to refinance. You may be able to get a better rate when you stay with your original lender. But you still want to shop around just to make sure.

The Cost of Refinancing

Refinancing does come with some costs, just like with a typical house mortgage.

Application Fee: Lenders have this charge to cover their cost of checking your credit report and the initial cost to process your loan request.

Title Search and Title Insurance: This charge covers the cost of the policy and insures the policyholder for a specific amount. It covers any loss caused by discrepancies found in the property title. And covers the cost to look at the public records and verify the ownership on the property.

Attorney Review Fees: The lawyer or the company that conducts the closing charges the lender for fees and, in turn, the lender charges those to you. Borrowers may also be required to pay for other legal services and fees related to the loan.

Fees and Points Incurred in Loan Origination: Lenders will charge an origination fee for the work in evaluating and preparing the loan. Points are prepaid financial fees imposed by the lender at the time of closing.

Risks of Refinancing

A mortgage refinance can be a smart move but it’s not beneficial for everyone. Refinancing can be a risk if you aren’t able to lower the interest rate by that much or you incur a lot of fees.

Refinancing Isn’t Free: Your mortgage refinance comes with costs, such as origination fees, title insurance, taxes, and an appraisal. Just like your original mortgage. Even if the refinance comes with a lower monthly payment, you aren’t actually saving money until the monthly savings make up for the cost of refinancing. It’s helpful to do the math ahead of time and use a refinance calculator to see how many months it takes to reach this point. If you are even thinking about moving before then, this it’s not worth it.

Prepayment Penalty: Some lenders may charge you extra for paying the original loan amount off early. A high prepayment penalty may persuade you to stick with your original mortgage instead of refinancing.

Total Financing Can Increase: If you refinance to a new 30-year mortgage then you will pay more in fees and interest over the life of the loan than if you have kept the original mortgage.

Reasons Not to Refinance

One of the main reasons to not refinance is if you are going to be moving soon. You need to consider your break-even cost and know that it usually takes a year or two to break even on the cost of a refinance. If you will be considering moving then it’s not worth it.

If you are close to paying off your mortgage then it may make sense to wait instead of a refinance. This is true even if the terms of the refinance are better than the current terms. By refinancing, you might extend the term of the loan and increase the cost, which means that refinancing may not be worth it in the long run.

If you are having financial problems then you may want to reconsider. Refinancing may seem like a good way to consolidate debt but in some situations, it puts you at risk for further financial problems.

Step-by-Step Process to a Mortgage Refinance

If you are ready to tackle the mortgage refinance process, here are the steps you want to take:

  1. Set the goal. Whether it’s lower payments, a shorter loan term, or getting rid of the insurance, knowing why you want to refinance is an important step
  2. Start shopping around for the best refinance rates. In addition to looking at interest rates, you also want to look at the fees. When you shop mortgage lenders, you can be sure to get the best deal
  3. Apply with different lenders. You want to get information from about three to five lenders but apply within a two-week period so you can minimize any impact on your credit score
  4. You need to choose a lender after you have compared the loan estimate documents you receive. The loan estimate also tells you how much cash you need for any closing costs
  5. Lock in your rate. When you do this, your interest rate can’t be changed during a specific period. You and the lender then try to close your loan before this expires
  6. Close on your loan. During this time, you pay the closing costs listed in the closing disclosure. Closing on a mortgage refinance is very similar to closing on your purchase loan but no one is handing you keys at the end of it

About this second step, maybe we can help you. Try here to find the best options to refinance your mortgage loan. Put in your information below and see what suggestions you will get. Good luck!


Conclusion

A mortgage refinance can be a great option for you if you are trying to lower your monthly payments. And eliminate your mortgage insurance, tap into the home’s equity, or pay off your home early. There are plenty of things to consider before you start the refinance process. Consider your credit score, your financial situation, and if it really makes sense to go through the refinance process. You want to make sure you have goals in mind when starting the process since refinancing is not free and you will have to pay some closing costs.

There are certain situations where refinancing doesn’t make sense and you want to consider all your options. When you are ready to start the mortgage refinance process, know that the process is similar to getting an original mortgage and you want to shop around for the best rates.

Rural Mortgages for Those That Like Country Living

Living in the city can be incredibly convenient. Having pretty much anything you need within minutes- possibly walking distance- is awesome. It definitely saves money on gas, but there are some things that living in the city just does not offer.

I had the privilege of growing up in the country. I had a huge yard to run around in and plenty of trees to climb. My cousins and I played football and softball in my front yard and rode four wheelers all over the place. The neighbors all knew one another and I could walk down to the little general store down the road without fear. These are things that I cannot give my kids in the city where we currently live, though I really want to.

If you are like me and dream of giving your family wide open spaces to play and grow, rural mortgages just might be the answer for you, especially if you are having trouble obtaining any other kind of mortgage.

On more than one occasion, I have looked around and wondered, “How can people just buy a house?” For many, first-time home buying is nearly impossible due to credit issues, low income, and a lack of down payment. Personally, my head spins when I think about all of the steps I need to take for a mortgage lender to approve me. Improving your credit, increasing your income, and saving for a down payment all at once is quite the feat.

This is why so many people still rent, even though rental payments are often twice the price of a mortgage payment. Fortunately, there are rural mortgages for those who think it is impossible to own their own home.

What Are Rural Mortgages?

Rural mortgages are mortgage loans that people can get for homes in rural areas. They are also known as USDA loans. The USDA has what they call the Rural Development Guaranteed Housing Loan Program, which is intended to help improve life in rural areas.

Rural mortgages are zero down payment mortgages that are for low-income borrowers. These can be an excellent option for families who cannot qualify for other mortgage loans or afford the payments. They give people who feel that it is hopeless to own a home a chance.

Due to the name of these loans, many people assume that they are intended for farmers. While farmers who meet the eligibility requirements can certainly apply, being a farmer is not part of the requirements.

Who Is Eligible for Rural Mortgages?

USDA loans require the following:

  • The borrower must actually live in the residence and it must be his or her primary residence. As this program is intended to help families with their living arrangements, those looking to simply use the property for investment purposes or as a vacation home do not exactly meet the need that the program is trying to fill.
  • The homebuyer must be legally able to enter into a financial obligation. In short, those with any mental incapacity deemed unable to enter into binding contracts do not qualify.
  • The borrower must meet the income and debt-to-income ratio requirements set forth by the program:
    • You must prove that you have had dependable income, usually for at least two years. However, if extenuating circumstances, such as an injury, interfered with your steady income, that will be taken into consideration.
    • You must fall within the income limits of your county. The income used to determine eligibility is the combined income of all persons over the age of 18 in the home, regardless of who is and is not on the mortgage paperwork.
    • Your monthly debts, excluding your mortgage, cannot exceed 41 percent of your income.
    • The mortgage payment, including interest, taxes, and insurance, should not exceed 29 percent of your income.
    • For example, if you make $1,000 per month, your mortgage payment should be no more than $290 and no more than $410 should be going out to other debts.
  • The homebuyer cannot have been suspended or otherwise barred from federal programs.
  • The borrower must be a U.S. citizen or have permanent residency.
  • The homebuyer should meet the following credit requirements:
    • Have had no debts sent to collections in the last year- unless it is due to extenuating circumstances, such as a medical problem
    • There is no minimum credit score, but those with a credit score under 640 may face more requirements
    • Those with no or little credit history can provide credit references from utility companies, previous landlords, and so on.

What Type of Property Qualifies?

For a property to qualify as rural, it needs to be outside of any cities or towns. Basically, rural properties are those set in the country instead of the city. Some people describe it as anything that is not in an urban area. If you are considering rural mortgages and are unsure if a particular property qualifies, you can ask the lender for clarification or check here.

Types of Rural Mortgages

There are actually three types of rural mortgages or USDA loans. Besides rural mortgages, there are more types of mortgages that you should be familiar with. Every information can help you decide which type is the right one for you.

Direct USDA Loan

If specific criteria are met, the USDA provides mortgages directly to the borrower instead of the borrower going through a bank or other mortgage lender. These loans are better suited for those who fall within the very low to low-income brackets for their area who do not qualify for any other financing. In addition to the previously mentioned requirements and the specific income requirements, USDA Direct Loans are often intended for those that are without safe and sanitary housing and on homes that are 2,000 square feet or smaller.

Guaranteed USDA Loan

Sometimes, the borrower will go through a lender, such as a bank, to get a USDA loan. This is most often for borrowers that fall within the low income to moderate-income bracket for their area. The USDA guarantees your mortgage, which means that if you do not pay it, they will repay the lender. This makes lenders more comfortable about loaning money to people who normally would not qualify for a loan.

USDA Home Improvement Loans

These loans are for low-income borrowers that need to repair or otherwise improve their homes. Sometimes, a part of these loans is actually grants, meaning you do not have to repay them. One can borrow up to $20,000 with an interest rate as low as 1 percent and with 20 years to repay.

Benefits of Rural Mortgages

No Down Payment

A huge benefit is that they do not require the homebuyer to have a down payment. This is a very unique benefit and is one thing that makes home ownership possible for those with low income.

Low Interest

USDA loans offer some of the lowest fixed interest rates available on the market.

Favorable Terms

While you do have the option to choose a 15-year mortgage, you can also stretch it out to 30 years.

No Prepayment Penalties

If your financial situation changes for the better and you decide to pay off your mortgage early, you will not be charged any prepayment penalties.

Bankruptcies Are Not a “No”

Filing bankruptcy usually hurts a person’s ability to get credit in the future, at least for a time. Fortunately, USDA loans may still approve those who have filed bankruptcy if:

  • You have made all of your payments on time for at least a year
  • You have been discharged from Chapter 7 bankruptcy for at least three years

It is rare to find mortgage programs open to applicants with a recent bankruptcy, so this is a really awesome benefit of rural mortgages.

Even Some Suburban Areas Qualify

You may be thinking that you have to find a house out in the middle of nowhere, but that is not actually true. There are many suburban areas that qualify as rural. In fact, the majority of the country qualifies.

They Can Include Closing Costs

Just like down payments, closing costs can be a problem for low-income buyers. With USDA loans, the closing costs can actually be included in the loan amount.

Loan Can Be Used For A Lot

While the major point of these loans is to buy a home, they are actually good for much more. You can use them to refinance or build a home. Any needed repairs can be covered with the loan. A USDA loan can also be used to make the home energy efficient, to pay connection fees of utilities, and household equipment, such as refrigerators, that are conveyed with the home.

Flexible Credit Requirements

As previously stated, there is no set of credit requirements. Unlike most other mortgages, the USDA is not so stringent. They actually take into consideration the financial challenges that low-income families face and remove as many of those challenges as possible.

Full View of Your Situation

With most loans, the lender deals in absolutes. If you show a gap in employment, it usually does not matter if it was due to an injury that kept you out of work. The fact is that there is a gap in income. This is, of course, not true with every lender, but with many, it is.

Thankfully, the USDA takes a full view of your financial situation before making a decision. They deal with each individual situation as they come in. If you did miss income due to something like an injury, they take that into consideration. If you do not hit every requirement the USDA has, they actually consider the reason behind it.

No Max Loan Amount

There is no set maximum loan amount for rural mortgages like there are with other mortgage types. The loan amount depends on the home’s appraised value, the borrower’s income, and the borrower’s ability to repay.

Downsides of Rural Mortgages

Mortgage Insurance

You are required to have private mortgage insurance (PMI) if you choose not to put down 20 percent, but it can be included in your loan.

Limited Location

Though most of the country is open, you do have limits on the location you can buy a house. These limits are very small, mostly only blocking out highly populated areas, but they are still limits.

What to Expect from the Process

While every situation is unique, there are the following basic steps you will go through:

Preapproval

You first need to find a lender. Even though you are applying for a USDA loan, you want to do some mortgage loan shopping. Different lenders may have requirements separate from the USDA’s requirements.

For instance, a lender may choose not to work with anyone who has a credit score of less than 650. That is not the USDA’s requirement, so you can still get a USDA loan. You will just need to do it through a different lender. Once you find your lender, if you meet all of the criteria, they will give you a preapproval.

If you want to check right now whether you can get offers for a loan, put in your information below and you’ll get offers in seconds.


Find Your Home

After you have your preapproval and know the amount you can borrow, it is time to start looking for your dream home. If you have kids, be sure that you check out the schools in the areas you are considering. Looking into potential employment in the area can also be helpful in making a decision.

Sign the Paperwork

After you find your house, it is time to start the official paperwork. During this step, someone usually checks out your soon-to-be home to ensure it falls into the USDA’s guidelines.

Get Your Final Approval

Your mortgage application goes to the USDA for a final review and approval.

Close

If everything lines up, you finish signing your paperwork. Within a few days, you should be moving into your new home. The entire process typically takes a few weeks.

USDA Loan Process in 7 stepsApplying for Rural Mortgages

If you are ready to apply for a rural mortgage, you need to know where to apply. Direct loans and home improvement loans come straight from the USDA, but guaranteed loans go through participating lenders. To learn where to apply in your state, check here.

Next, it is time to prepare for your application. The following shopping for mortgage tips can help:

If you are applying for a guaranteed loan, talk to a few different lenders. Going with the first one you find is not always the best option, so shop around a little before deciding.

Check your credit. Make sure that you have had no collections accounts added in the last year.

Have the necessary documents available:

  • ID and social security card or proof of permanent residency
  • Copy of bills and debts you pay each month
  • Proof of income for the past two years and tax returns
  • Documentation of any extenuating circumstances that may have affected your income or credit

Know what kind of payment you can afford. Lenders tell you what they think you can afford, but sometimes they grossly overestimate. They take into account your bills but not everything else.

For instance, let’s say you have committed to donating $100 per month to a charity or you pay for your kid to take gymnastics. The lender does not know this or any of your other financial goals, so they may think you can afford a $400 payment each month when you can actually only pay $300.

The easiest way to prevent this is to know how much you can afford to pay prior to applying for the loan. Figure up your bills and all of your extras, including your Netflix subscription and date night. Add in any groceries you buy and household products, like cleaning supplies and tissue.

If you know you spend money on it regularly, add it up. Subtract that amount from your income and you will have how much you can afford each month. Prepare to share this amount with the lender you speak with. This can help you find a house within your budget instead of finding yourself in debt you cannot repay.

You may find that the amount you can afford is not going to help you obtain the house you want. If this is the case, you can always go through your budget and look for areas in which you can cut back. You might also consider a second job. Either way, be sure that you can comfortably afford the payments before you accept the mortgage or even look for the house.

Conclusion

If you are looking to buy a home outside of a metropolitan area and you cannot get approved for a regular mortgage, looking into rural mortgages just might be the best decision you can make for you and your family. Take a look at the income requirements to determine if you are eligible. If you are, gather your paperwork and start looking for lenders. You might find yourself in your dream home sooner than you can imagine.

Balloon Mortgages Lift You Up and Bring You Down

Buying your first house is exciting and stressful. Getting the money to buy the house is not always easy. A house is the largest purchase you make and houses are expensive. As a result, you may have difficulty finding a lender that is willing to loan you that amount of money. I cannot help you save money for a house. But I can explain some information about mortgages that may help you. You may not be aware of the different types of mortgages available to you. Continue reading to find out what you need to know about mortgages, especially balloon mortgages.

What Is A Mortgage?

If this is the first time you have considered buying a home, you probably do not know much about mortgages at all. If you do not mind, I am going to take a step back and give you some basic information about mortgages to ensure you have all the information that you need. The term mortgage is often used to describe the loan you receive to pay for your house. But it is actually the document that you sign when you buy a house giving the lender the right to take your home if you do not repay the loan. A copy of this document is filed with the county as a legal claim against the house, in case it is needed.

Included in the mortgage documents is a promissory note. This is the actual loan document where you agree to pay back the money that the lender has given to you to purchase your house. Included in a mortgage loan is the money for the house, commonly known as principal, interest, taxes, and insurance. Depending on the type of mortgage you have, including balloon mortgages, the percentage of the various parts of the mortgage will vary. However, these are the common parts of most mortgages. Homeowner’s insurance and taxes are almost always included in your mortgage.

How Is A Balloon Mortgage Different?

Balloon mortgages are a little different than your typical mortgage. You should make sure that you completely understand how they work before you seriously consider obtaining one. Balloon Mortgages are usually intended to be a short term solution. They can also be a high-risk mortgage. Usually, the lender gives you a lump sum for the mortgage. Then you either do not make any payments, or you make interest free monthly payments.

Balloon Mortgages can have a fixed interest rate, which means it does not change for the life of the mortgage. They can also have variable interest rates. This means that the interest rate can change throughout the life of the mortgage. There are different ways that the interest can and will change. You should discuss those details with your lender and make sure you understand them before signing any documents. This information is outlined in the document. These loans can be issued anywhere from 2 to 30 years.

At the end of that term, you must pay the loan in full. During that 2 to 30 year period, you may make low, interest-free payments, which reduces the amount you owe at the maturity of the loan. You may also make no payments, which means you owe the full amount. Often times, those who take on a balloon mortgage either refinance to a different type of loan or sell something significant to pay off the loan in time.

Are There Other Types of Mortgages?

There are many different mortgages other than balloon mortgages of which you should be aware of. When making a decision about a mortgage, you should have all the information about what is available to you.

Interest Only Mortgages

There are interest-only mortgages. These are exactly what they sound like they are and you only pay the interest on the mortgage. This means that you are not making any payments on the principal of the loan for anywhere from 5 to 10 years. This is the amount of money you borrow to purchase your home. After the interest-only period ends, you then begin to pay a higher payment amount which includes principal and interest.

Adjustable Rate Mortgages

Adjustable-rate mortgages are those where the interest rate is variable, or changes, throughout the life of the mortgage. A common adjustable-rate mortgage is one where the interest rate remains the same for 5 years and then is changeable for the rest of the life of the mortgage. If you have a 30-year mortgage, that means your interest rate may change for the next 25 years. The interest rate for the first 5 years is usually fairly low and reduces your mortgage payment substantially. However, when it changes, it can go up so high that you may not be able to afford your mortgage payment. This type of mortgage does pose some risk. Many who choose this type of mortgage often do so because they do not have much to put down for a down payment and then they refinance before the interest rate increases.

You should consider all the options before making a decision. Also, you need to do your research and go with a reputable lender. Loanry is here to help you make sure you’re on the right path. Put in your information below and if you meet any lender’s criteria, you may get an offer:


Federal Housing Administration

Another type of mortgage is one that is backed by the Federal Housing Administration (FHA). The backing by the FHA gives insurance to the lender to protect them against you failing to pay your mortgage. These types of loans are good for those who do not have great credit scores or do not have a large amount of money for a down payment. This mortgage has federal government backing and helps you qualify for a mortgage that you would not otherwise be able to obtain. Anyone, first time or repeat homebuyers, can obtain these loans.

Differences Between An ARM and A Balloon Mortgage

There is a very distinct difference between an ARM and a balloon mortgage. I want to highlight that difference to you because it is important for you to understand. When you have an ARM, you have a lower fixed interest rate for a specific period of time, typically five years. Then the interest rate can increase along with the prime interest rate for the rest of the life of your mortgage. You are also paying against the principal with each payment you make. Every mortgage payment pays both interest and principal. Remember, the principal is the actual price of the house. Interest is on top of that. When you pay the principal, you are gaining value in your house.

I will highlight this with numbers. I am completely making up these numbers, but here we go.

The house costs $200,000 and you borrow $200,000. The lender adds $50,000 of interest. When you make your mortgage payment of $1,000, you are paying $500 of interest and $500 of principal. By the end of a year, you have made 12 payments of $500 towards the principal, which is $6,000. Now, the house is valued at $200,000 and you have paid $194,000 of that and you have $6,000 of value in the house.

With a balloon mortgage, you typically make interest-only payments for the life of the mortgage. You are not paying down the principal. At the end of the term, you owe the entire principal for the house, which is the actual cost of the house. Typically, when you owe the balloon payment, you have not paid into the value of the house. The value of the house may have gone up but you have not paid into it at all.

What Are The Advantages To A Balloon Mortgage?

Balloon mortgages have one major benefit such as lower interest rates. When you have a low interest rate, you also have a lower payment each month. This is very advantageous for you when obtaining a mortgage. Hopefully, with the money you are saving each money, you put in an account where it can accrue interest so that when the time comes to make that large house payment, you can pay it. This may be a good idea for you if you expect that your income will increase drastically in the coming years. If you also have less than perfect credit, this may be a good option for you. When you make your payments on time, it can increase your credit score.

You are locked in at a set interest rate, so you do not have to worry about the interest rate going up at any point during the length of your mortgage. And you may be able to qualify for a large mortgage with this type of loan than you would with a traditional type of mortgage. You could also consider this type of mortgage if you know that you are going to sell your house before the full, or balloon, payment is due. Planning to sell your house is only a good idea if you can sell the house for more than what you owe and you can make some money on the house. If you are fixing up the house and you know it will be worth more when you plan to sell, this could be a good option for you.

What Are The Disadvantages To A Balloon Mortgage?

There are some disadvantages to balloon mortgages, also. You should be aware of these before you make any decisions about choosing this type of mortgage. This type of mortgage is risky for you. Many people who choose this type of mortgage do so because they are planning to refinance their mortgage. However, you know what they say about the best-laid plans…it may not work out the way you have it planned. Depending on when you refinance, interest rates can increase significantly between the time you obtain the mortgage and when you refinance. This may mean that your refinanced rate is much higher than what you are currently paying.

There is a chance that you may not qualify to refinance. While you plan to improve your financial situation in the years between your original mortgage and a refinanced mortgage, that may not happen. You may lose your job or your credit score may take a nosedive. Anything can really happen. Property values may also go down. Real estate is cyclical and house values can drop. This could impact how much your house is worth and therefore change the value for which you could sell it. It can also impact your ability to refinance your mortgage, or at least impact that amount for which you are able to refinance.

Should I Refinance My Balloon Mortgage?

There are times when you should consider refinancing your mortgage. One of those reasons may be to get yourself out of one of those balloon mortgages. There are some other times when you may want to consider it. Here are some mortgage tips about when refinancing may be a good idea for you.

If interest rates have dropped and you can get a fixed interest rate lower than what you have now, you should consider refinancing. You can save yourself a large amount of money and stress. You can save yourself from a variable rate interest mortgage or balloon mortgages by refinancing. If you would like to increase, or possibly even decrease, the length of time you have to repay your mortgage, you should refinance your mortgage. If you want to consolidate your debt or use the equity in your home for something, such as home repairs, you should consider refinancing your home. This allows you to take a loan from yourself.

When it comes to balloon mortgages or other mortgages where you are able to pay a lower amount upfront but then are faced with a larger payment, you may want to consider refinancing. Not only can refinancing decrease your interest rate and your monthly payment, but it can also allow you to switch to a different mortgage type.

What Should I Do If I Cannot Refinance My Balloon Mortgage?

If you want to refinance your balloon mortgage, you should start that process early. As much as six months before that final balloon payment is due. That should give you enough time to apply, be approved for, and pay off the balloon mortgage. However, things do not always work out as we have them planned. In the case where you cannot get approved for a refinance, you still have another option or two.

You can try to modify or extend your current balloon mortgage. For example, you can ask to modify your balloon mortgage. Make it a fully amortized mortgage with a term of 15 or 30 years. A fully amortized mortgage is one where the cost of the mortgage, plus interest, and often insurance is broken down in monthly payments. If interest rates are lower than your current balloon mortgage, you can also ask your lender for a lower interest rate along with your mortgage modification. This can help to reduce your monthly payments and allow you to pay off your mortgage sooner.

Another option is if you have enough equity in your house, you may be able to get a home equity loan. This gives you enough money to pay off the balloon payment. You build up equity in your house by making monthly payments. So that the amount of the money you owe on your house is less than the value of your house. That might be hard when you have a balloon mortgage. But if you have done a lot of work to your home and significantly increased its value, it could be possible.

How Does My Credit Impact My Ability To Get A Mortgage?

With balloon mortgages and any other type of mortgage, your credit score directly impacts your mortgage interest rate. You should have some understanding of your credit score before you attempt to obtain a mortgage.  This can prepare you for where to shop for a mortgage. Getting a mortgage with good credit is always easier. If you have less than perfect credit, you may have to do a little more research about where to find the right mortgage for you.

The three-digit number that is on your credit report is your credit score. Your credit report shows a detailed listing of all of your credit activities. It shows items such as your payment history and how you use your debt. Your credit report gives lenders an idea of the age of your credit which impacts your credit score. Basically, everything, including late or missed payments impacts your credit score. You build your credit over time and it tells lenders your credit worthiness. The better your credit score is means the easier it is for you to get a lower interest mortgage.

Conclusion

Mortgages can be confusing and overwhelming. There are many mortgage options available; you may be able to afford more than you realize. It is important to find out as much information as you can before agreeing to any type of mortgage. If you choose balloon mortgages, make sure you fully understand them so you can make the best choice.

How to Find A No Income Verification Mortgage Loan?

You have reached that time in life where you feel ready to settle down and live the homeowner’s life. So you want a house. And you want to decorate it. You keep seeing those Wayfair commercials and thinking, “Hey, I have just the place for that.” Then, you realize you do not. Actually, you live in a tiny apartment. Or a mobile home. Or an RV. Maybe, you still live with your mom and dad. Bummer. Uh oh.

How to Find a No Income Verification Mortgage Loan

You just got a notion to search for mortgage requirements. You found out how hard it can be to qualify. What is that income check thing?

When you apply for a standard mortgage, you learn that the lending institution will not only check your credit, it will check your income. You must have verifiable income at an appropriate level for them to approve you.

That means you must provide your pay stubs, your employer’s name, phone number and address, your W-2s, your tax returns plus copies of your bank statements. The lending institution may contact them via mail, email or phone to verify your income. This applies to both a mortgage for the initial purchase and a refinancing loan.

So, what does one do if you happen to be self-employed? What if you own your own business?
You can apply for a no income verification mortgage although this cuts into your interest rate shopping. That does not mean you can have no income. It is handy though in several valid situations.

Who Can Use a No Income Verification Mortgage?

While many individuals may find this handy, a few common scenarios exist. You might want to read on if any of these situations apply to you.
• You invest in real estate and carry over passive losses. These eradicate your earnings on paper although you have proven cash flow.
• You work on commission and your income varies vastly from month to month.
• You own your own business and pay yourself, but without a formal paycheck or you are a sole proprietor.

No Income Verification Mortgage Qualifications

Very simply, you qualify for a no income verification mortgage. It requires you to still provide documentation of your income, but a different set of documents than a standard mortgage. You need to have an IRS 1099 or be retired, but with a steady income.

Some organizations, like Mortgage Depot, offer a no income check program. To qualify, you must deposit a 25 percent down payment for the total cost of the purchase transaction and obtain 65 percent Loan to Value (LTV) financing for refinancing. Other requirements exist, but that is the monetary minimum. The Depot’s program is available in 46 states. While you must provide a significant outlay to qualify, you will not have to provide the following:
• tax returns,
• W2’s,
• pay stubs.

Through the program, you can qualify for loan amounts of up to $3 million on investment properties of one to four residential units or condos. In NY, you can use the loans for a primary residence. Other property options include multifamily and mixed-use properties of five units or more, as well as automotive service, office, retail, self-storage and warehouse space. There is no limit to how many properties you can own.

The Self-Employed Borrowers Program

You may not qualify for the no income verification mortgage, but you may qualify for its separate Self-employed Borrowers’ program. This is a different program. If you are self-employed and did not meet the occupancy requirements of the Mortgage Depot No Income Verification Mortgage program, you might qualify for the Self-employed Borrowers’ program. This uses bank statements to verify an individual’s business or personal deposits to calculate income and lets your occupancy include your primary residence.

This probably sounds odd since the lender still is verifying that you have income. These alternatives simply let you use a different form of income to prove you can pay back the loan. No institutions of finance will approve a loan without you proving that you can pay it back. These methods though do allow you to have the bank or credit union consider alternate income which can include the following:
• Social Security benefits,
• Pension funds,
• child support payments,
• funds from retirement account distributions,
• unemployment benefits,
• disability payments,
• employment offers for a future position that includes the salary and start date,
• housing/rental income,
• capital gains from investments,
• income from a spouse or partner,
• trust income,
• savings or cash,
• VA benefits,
• a government annuity.

Potential Lender Requirements

Your lending institution may require a few various items before agreeing to extend a loan to you if you do not have a typical income source. These items range from setting up automated payments to a co-signer.

Automatic payments: You would need to set up automated payments so your monthly amount due was deducted on the same date each month from your bank account. This ensures you consistently pay in full and on time.

Security: You might need to provide collateral such as a paid in full vehicle or another property. It is usually easier for a person to obtain a secured loan than any other type.

Cosigner. A cosigner is a third-party individual who applies for the loan with you. If you purchased a new car when you were a teenager, you probably already took out a loan once that used a cosigner. If you fail to pay your loan payments on time, the bank will contact your cosigner for the funds.

Your Credit Is Very Important When Getting a No Income Check Mortgage

Your credit history and credit score still matter. Besides your raw score, any bank will consider your debt repayment consistency and your credit utilization. So, what if you do have less than perfect credit? That is when you have to take a few months – at least six – to improve your score first. Improving your credit is one of the most important mortgage tips to follow.

While you have many ways to check your credit, going to Creditry lets you check your credit, then monitor it, too. You can learn to better manage your credit by using its blog. You can learn important things like:
• how to organize your payment due dates,
• how to request to move a due date,
• calculating your credit-to-debt ratio,
• the impact of opening or closing a credit line on your credit score.

You need to learn those things so you can better manage your credit and build a strong financial history. You also need to check your credit so you know your FICO score. If it is above 679, you need not worry. Credit scores range from 350 to 850 (or 900, depending on the credit bureau). A 680 places you in the good range. If you have a score that places you in the good, very good or exceptional range, you should have an easy time obtaining a loan although you have retirement, variable or unearned income as the source or sources for your monthly payments.

Let’s say your FICO score ranges between 350 and 679. You will probably have a tough time getting a loan. You will get subprime interest rates if you can get approved. For any score below about 550, you will probably need to obtain a secured loan.

Remember that six months thing I mentioned earlier? Well, it takes that long to turn around your credit. If you have a lower credit score you can raise it quickly by making timely payments. It only takes six months to boost it. It only takes one month to mess it up. Even one delinquent payment messes up your credit but once you make six monthly payments in a row, your score improves. Everything stays on your credit report for seven years.

You can also very quickly boost your credit score by altering your credit utilization. When you try to obtain a no income verification mortgage, you will find your credit score means even more. This is the toughest type of mortgage to get. If you can quickly pay off some of your existing debt, you can up your score quickly. Your credit utilization score refers to the total amount of credit you have available versus how much you are using. This comprises 30 percent of your credit score. If you pay down your balances but keep the accounts open, then you can quickly increase your score.

You can check your credit score for free by visiting the federal government provided free credit report website. Every twelve months you can obtain a copy of your credit report from each of the major credit bureaus. That means you will have three copies to compare and contrast. You need all three because every bureau gets different information. Not every creditor reports to the same bureau. Some only use one, while some use all three or just two.

Check and double-check all of the information on the report. The info may not all match but all of it should be correct. If you find inaccurate information, you need to immediately report it to the credit bureau so they can change it or remove it.

If you are disputing a debt, you must request validation of the debt. Other information, like an incorrect address or telephone number, you only need to report as inaccurate and give them the correct information. This step increases in importance as your credit score goes lower. It is already hard to get a loan, but a no income verification or self-employment income based is the toughest to land.

No Income Verification Mortgages Rarer Now

Today it is even harder to qualify for because of the rarity of these loans. This type of mortgage became wildly popular in the early 2000s. While they did help the tiny percentage of individuals with high incomes that could be tough to document, lenders started misusing them for their gain. They began extending the loans to subprime borrowers around the time the housing bubble developed. That made for twice the problem for the financial industry.

It got worse. As lenders continued to extend loans to subprime borrowers, without reliable income, the problem grew. Then those who outright did not qualify began to apply. They knew they did meet the qualifications and they lied on their loan applications to get approved. No income verification mortgages began to get the name “liar loans.” The name liar loans became most applicable in expensive markets where mortgage approvals were extremely rare for all but prime borrowers. The subprime borrowers could not afford the homes for which they applied for mortgages and they defaulted on the loans.

About 2005, the finance industry revamped its low- and no-income verification loans, deciding to try to save themselves by offering more loans. They loosened the requirements which at least meant people no longer had to lie on the applications, but the subprime lenders dropped the qualifications too low in exchange for a higher interest rate. During the period from 2000 to 2007, no income verification mortgage loans more than quadrupled. In those seven years, the loans rose from two percent of home loans to nine percent.
Here’s the deal. Banks and those employed by them have incentives to make loans. Those incentives tipped the scales to them offering too many to people who should not have them. The main reasons are:

1. Loan officers earn a commission on every loan. It does not matter if the homebuyer defaults on the loan or not. The loan officer still gets paid.
2. Mortgage lenders planned to re-package the loans and sell them to investors as mortgage-backed securities.
3. The bank itself makes money on the loan origination fees, so the volume of loans makes them money automatically. Bad or good loan, as long as it went through the system, the bank got paid.

All of the mistakes accumulated and in 2008, the boom went bust, and the banking/financial crisis occurred. According to The Financial Crisis Inquiry Report, by the time the crisis came to a head, investors held more than $2 trillion of the repackaged mortgage-backed securities. They also had invested in about $700 billion of collateralized debt obligations which included mortgage-backed securities.
Delinquencies and defaults occurred the most in what real estate calls sand states – the states of Arizona, California, Florida, and Nevada. Real estate’s expense in these desirable locations caused serious delinquencies – those where payments are late by more than 90 days. That accounted for 13.6 percent of sand state mortgages. Compare that to 8.7 percent nationally.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created a rule set that lenders must meet to end the bad decision-making. It included an “Ability-to-Repay” rule that requires the mortgage lending institutions to confirm each borrower can repay the loan before offering it.

The history lesson comes so you understand just how tough it will be to qualify for one of these mortgages, especially if you live in a sand state. The only loans to which the Dodd-Frank did not apply were those for loan modifications timeshares, reverse mortgages, and temporary bridge loans.

No Income Verification Mortgages Today

A select number of financial lending institutions still offer no income verification mortgages but now the government mandates the qualifications for obtaining one of these loans. The required credit scores range significantly higher and these types of loans come at great expense to the consumer. You will need a score of “very good” or “excellent” to qualify now. This type of mortgage still comes with a higher interest rate than a typical mortgage. The updated law does not apply to business and commercial mortgage purchases.

How Loanry Can Help

You probably picked up on it by now that it is not easy to qualify. And you must be the best of the best of the best as the line from “Men in Black” goes. You can only qualify as yourself and only by being completely honest and genuinely meeting all of the required criteria. So, you probably will not qualify.

That does not mean you have to give up on your dream of owning a home. You can obtain a different type of loan. Use Loanry to search for financial institutions that offer personal loans or business loans. You could qualify for an alternative type of loan. Put in your information below for potential offers:


Final Thoughts

You could purchase a home as a business investment to qualify for a no income verification mortgage. You also could apply for a generic type of personal loan. Loanry provides various educational tools to determine which loan type works best for you. You can complete a small form to get started and it will suggest for you the best loan solution(s). You may get an email of suggestions or you may get automatically forwarded to a lender that offers loans to individuals with your credit history.

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.

11 Important Tips to Reach Your Financial Goals

Finances tend to be a topic about which many people do not want to talk. It is often a stressful conversation and people want to avoid it. No matter how uncomfortable the topic makes you, you should not avoid it. While it may seem overwhelming, if you follow a few simple steps, you can quickly have a plan to help you reach your financial goals. It is important for everyone to take control of their finances, no matter how much money you have. If you implement some changes, you could have more money. Continue reading to find out how to get rid of debt and increase your financial wellness.

What Is Financial Planning?

Dave Ramsey tells us that financial planning includes three important pieces. Those pieces are knowing where you are financially and determining where you want to be. Then you create a plan to reach those financial goals. You could reach out to a financial planner to help you plan your financial future. There is a cost to hiring someone to help you. I encourage you to do as much of it as you can on your own. It takes a little bit of knowledge and a deep understanding of your own goals.

Financial planning puts you in control of your money. It allows you to take control of how you spend your money. It is important that you create goals for you. Do not take on someone else’s goals. You have to do what works for you. Working towards a secure financial future takes consistent work. It often takes compromise. If you are not doing it for the right reasons, you may not be able to get the rough moments. When thinking about your financial plan, you should think about goals, short term and long term. It is much easier if you break your goals down into small manageable pieces. The tips below are a great place to start.

Tip #1 – Know Your Goals

I am going to start with an obvious statement here. The first place to start when you want to achieve your financial goals is to create your goals. You should start with the end in mind. You cannot put yourself on a path if you do not know where it is going. Think about what you want your end result to be. It can be anything from paying off debt, saving for retirement, or creating an emergency savings account. Perhaps it is all three of those things. Start by writing down your goals, no matter how many you have. Once you have done that, you can prioritize your goals. When you complete those steps, you have taken key steps to achieving your goals.

The goals you set today do not have to be the same goals you have next year. You may want to create a long term goal of saving for retirement. That is a goal that you continue to work towards. Then you have several short term goals. They may be pay off your debt and create an emergency savings fund. You can work towards both of those goals at the same time, or you can focus on one at a time and check them off when complete. Once you achieve your short term goals, you can create more short term goals. You may decide to create many short term goals and put them in priority order and work towards them one at a time.

You should also pull your credit report and take a look at it. This allows you to look at your credit card score and your credit history. You can see if there are any errors on the report. If there are errors, you should fix them immediately. Making sure you have the best credit score possible can only help you with your financial plans.

Tip #2 – Negotiate Your Bills

When considering your financial goals, decreasing your debt may have been one of yours. When it comes to debt, it often seems like a mountain that you just cannot climb. While it may seem that way, it is possible to decrease debt. It does not happen overnight. You need to dedicate yourself to the task over the long term. One way that you can decrease your debt is to negotiate your existing bills.

One large source of debt for many people are medical bills. They are often a bill that you are able to negotiate fairly easily. They may be willing to take a partial payment if you can pay it immediately. Some creditors would rather take less money today but guarantee they are getting the money, instead of hoping you make regular payments for however long that takes.

There are some tips to approaching negotiating all bills, not just medical bills. You should wait a short time after you receive your bill before you make contact with the creditor. Do not wait too long. You do not want your bill to go to collections. Give the creditors a little bit of time, then contact them about reducing the amount you have to pay. Make sure you call the creditor in the morning because most people are more agreeable in the morning. When you are on the phone, do not allow your emotions to take over. This is not a personal conversation, it is about reducing your bills. Remain pleasant, but ask for a supervisor if you are not able to get anywhere with the person on the phone.

Tip #3 – Investments

One of the best ways to reach your financial goals of saving for your future, is to invest in it. Your investment goals may depend on some factors. Your age and how soon you want to retire may drive how aggressive you want to invest. An easy way to invest your money is consider your employer’s 401K plan. If your employer offers this type of plan, you should consider investing that way, if you are not already doing so. A 401K can help you save more money than you would with a traditional savings account. Typically, your employer matches a certain amount of the money you put into your 401K. You should find out how much your employer matches and put that much in your account. This is a fast way to double your investment.

You can start by putting a small amount of money into your account with each paycheck to determine how it impacts the amount of money you take home. The good news is the money is taken out of your paycheck before you pay taxes. This decreases your tax liability, which means you pay less taxes and bring home more than you think. You can slowly increase the amount of money you put in your 401K. If you do not have access to a 401K, you can create an IRA. Once you set up an IRA, set a goal of how much money you want to save per month. Another way you can invest is to purchase real estate by purchasing a house, if you do not already have one. When you purchase a house it becomes an asset that becomes a tax benefit.

Tip #4 – Pay Off Mortgage

If you are serious about reaching your financial goals, and you own a home, it may be in your best interest to pay off your mortgage. There are differences of opinion as to whether or not paying off your mortgage is a good idea. Everyone has good ideas and mortgage tips for you. For purposes of this discussion, I am only going to focus on the benefits to paying off a mortgage. You should understand that there are positives and negatives to doing so. You should consider both sides if you decide to pay off your mortgage. When you pay off your mortgage, it frees up the money you are paying on your mortgage to be used in other ways.

If you have other debts, you can use that money to pay off those debts. If you do not have other debts, or you only want to use half of the money for debts, you can use the rest to invest. There are many options in which you can invest, such as securities and bank certificates. You can also invest your money into stock, especially if you are looking for long term investments. The potential return on your investment is greater than you were paying on your mortgage.

If you are considering making more aggressive investments, you should considering consulting a professional to help you with your investments. You do not want to lose all the money you could be saving. If you do not want to risk losing your money, you could save it in a regular savings account. You will not get as high a return on your investment, but you will save money.

Tip #5 – Create A Budget

One of the best tools to help you reach your financial goals, no matter what they are, is to create a budget. There are many reasons why it is a good idea for you to create a budget. I can understand why you do not want to. It is not something that most people want to consider, but it is something you must do. We know it can be stressful to think about money and how you are spending it. It does not matter what type of financial goals you have. None of them can start without having a budget in place. Without a budget, you do not have a clear understanding of how much money you earn or spend.

You may not be able to change how much money you make with each paycheck, but you can control how much you spend. Even when you think you cannot control it, believe me, you can. It may take some hard work and sacrifice, but it is possible to save money. Here are many budgeting apps and websites available to you for free. You should consider one of these to help you create a budget. They are simple and easy to use. They have predefined sections for you to fill in the appropriate information. This makes it easy to see how much money you are spending and in which areas of your life.

Tip #6 – Cut Spending

Once you create a budget and you see where you are spending money, it gives you a good idea of where you can make changes. Keep your financial goals in mind. This helps to keep you in check when you no longer want to follow your own budget. It can also help you in weak moments when you want to splurge on something. This gives you a reason to pause and decide how badly you want that item. You may decide that you really want it and splurge on it. That is ok as long as it does not happen frequently and you understand how this impacts your financial goals.

For now, I want to focus on other ways you can cut spending. Start with the simple things, such as that gym membership you do not use. If you have one that you are not using, cancel it. You should drop everything and cancel it right away. If you have other subscriptions that automatically charge you each month, take a look at them and determine if you actually use them. And if you do not, cancel them. If you do use them, check the frequency and make sure it is appropriate to your needs. And if you think you should keep the same frequency, make sure it helps keep you in alignment with your financial goals.

Tip #7 – Insurance

Paying for insurance is one of those necessary things that you really should do, but it can be expensive. There are some ways to save money on insurance. If you can save a decent amount of money you can take steps towards reaching your financial goals. There are many apps available that allow you to look at several different insurance companies to see who can give you the best rate. You can compare the prices without any real impact on you.

Some other ways to save on insurance is to see if you can remove parts of your current policy. If you have complete coverage, you may want to consider to decrease it to liability only. This is a good option if you have an older car because you may pay more in insurance premiums than the car is worth. You should also check to see if you are paying for double coverage. For example, if you have roadside assistance through some other means and you have it through your insurance, you are paying for it twice. You should cancel one of them to save money.

Tip #8 – Decrease Utilities

Another great way to reach your financial goals is to save money on your monthly utility bills. You are probably thinking, the utilities are what they are so there is no way I can save money. That is not true. There are always ways to save money. There are some simple ways to save money, so I will start there. You should change all the lightbulbs in your house to more efficient energy saving bulbs. This can save you hundreds of dollars a year. You should make sure you  unplug all appliances when you are not using them. This can also save you hundreds of dollars. Sometimes turning off the appliances are not enough because they are still drawing energy and you pay for that.

Another way to save hundreds of dollars per year is to adjust your thermostat. If you set your thermostat two or three degrees higher in the summer and two or three degrees lower in the winter, you will be amazed at the savings. That small temperature changes is not that noticeable. You can wrap up in a blanket to stay a little warmer in the winter. And you can keep your blinds and shades closed in the summer to keep out the heat. You may also want to consider ceiling fans to help keep the air moving in the summer time so that it does not get stuffy in your house. And you may not even notice the slight change in temperature. You will definitely notice it in your bill.

So, you are probably spending a ridiculous amount of money on television and internet services. The first thing you should consider is do you really need television? If the answer is yes, then do you really need all the channels you have? Could you go with streaming options and save a lot of money? Yes, you have to put out the initial investment to buy the device, but that probably does not cost as much as a month of television.

If you cannot live without your digital cable provider, you could consider a less expensive package. At a minimum you could call your provider to see if they are offering any specials that may decrease your monthly payment. You will not know until you ask. If you have not considered streaming television, you really should. It is a huge cost savings and you get just as many, if not more, options. Even better, you will pay about a fourth of your current cost.

Tip #9 – Save, Save, Save

No matter what financial goals you have, saving money should always be in the plan. You should have long term savings and short term savings. Long term savings is something that you do not want to touch. You just want to sit back and watch it grow until you are retired and then use it to supplement where you need. Your short term savings should be an emergency type of account. This account should have enough money in it to pay for three months worth of expenses in case something happens. This can be the fund you draw upon when there is a large expense that you do not have the money to pay.

Just keep in mind, any money that you take out of your emergency fund must be replaced. If you only take the money out and never replace it, you no longer have an in case of emergency option. The best way to save money is to have it come directly out of your paycheck before it ever hits your bank account. That way it is like it is not even an option. Not only does it not become money available to spend, but when it happens automatically, you do not have to be responsible for moving the money. There is not temptation on your part to spend it instead of save it.

In addition to saving  money in a bank account, you should look at other ways you can save money in your spending. A quick way to do that is stop eating out. This means all types of eating out, including quick stops at the coffee shop. Cut it all out and see how much money you save. You probably do not even realize how much money you are spending per month. You can pack your lunch and take that to work instead of going out to eat.

Not only is the healthy for your bank account, but it is better for your overall health. You can make coffee at home instead of stopping at the coffee shop. If you spend $5 per day on coffee 5 days a week, that is $25 per week and $100 per month. Over the course of a year, that is a savings of $1200. I am sure you can find much better ways to use $1200 than at the coffee shop.

Tip #10 – Estate Planning

If one of your financial goals is estate planning, you should begin to think about that now. If you really want to leave an estate to your children or those close to you, you have to have a plan. Anything can happen to you at any time. It does not matter if you are not considered elderly, things happen every day. You need to be prepared. So you can go online and create your own will with a form. You can always visit an expert in estate planning to help you. As you age and your assets change, you should revisit your will. You also should consider who is going to care for you when you are older. You should begin to think about things like medical directives and the like.

Tip #11 – Reduce Debt

One of your top financial goals should be to decrease your debt. If you have any type of debt that is not useful to you, such as a mortgage, you should work to reduce it. Most debt does not do anything for you but cause stress and anxiety. We live in a world where it is difficult to have no debt, but you can work hard at keeping it as minimal as possible. If you have a high debt to income ratio right now, you should work hard to reduce it. If you allow your debt to grow, you pay more money in the long run.

You should devote all extra money you have to paying down your debt and reducing it as quickly as you can. It does take time to reduce debt, so you must remain focused and consistent. When you are deciding to purchase something, you need to ask yourself, what I rather have this item right here? Or would I rather get out of debt faster? No matter which one you choose, as long as you understand the consequences of your decision, you are in control. It is important to remain in control of your spending to pay off debt sooner. Debt can become a vicious cycle, so it is important to decrease it to a manageable level.

Conclusion

Your financial goals are important. However, it is important that you truly understand them. Working toward any goal is challenging, but if you keep your goals in mind, it is easier to stay the course. However, when those goals are not yours and they are what someone else tell you they should be, it is really hard to stay on track. Paying off debt, staying on a budget, and saving money are challenging. When it gets hard, you need a reason to stay on track. If you are not fully invested in working towards the goals, you will not be able to stay on track when it matter. Focus on what you really want and work hard to get there.

Refinance Your Mortgage At Historically Low Rates

Refinancing is a process of obtaining a new mortgage to substitute your current mortgage. The new funds you obtain are used to pay off the remaining payment of your current mortgage, and then you will be accountable to repay the new loan. Like with the current mortgage, the new loan will need application charges, title searches, and an assessment.

How will you know it’s time to refinance your mortgage? Is refinancing your mortgage a smart idea? If it’s the best decision, how will you refinance, and what are the requirements for refinancing a house? First, make sure you know your financial objectives. The moment you determine what you intend to achieve, then you will start thinking about refinancing alternatives.

Common Types of Refinancing Mortgages

There are three main types of refinancing mortgages in the market. They include rate-and-term, cash-out, and cash-in.

Rate-and-term

The most popular form of refinancing is the rate-and-term. It implies that the rate or term of your loan or even both are dissimilar from the existing mortgage. The terms of the mortgage might chance for a period of a 30-year fixed rate to a 15-year fixed rate. Or you might be required to refinance from a 30-year loan at a 5% rate of interest to a 15-year loan at a 4 % rate of interest. That will lead to significant savings in the long run.

Cash-out

This refinance alternative allows homeowners to refinance for a mortgage of a larger amount than the original loan. The homeowner takes the reminder. Therefore, if you begin with a loan worth $100000 on your existing loan and you refinance the mortgage of $120000, you will get a cash-out if $20000. Typically, banks consider this as a riskier option, but when utilized well, it is an effective plan for homeowners who intend to repay high-interest loans or improve their home equity.

Cash-in

Cash-refinance is the opposite of cash-out refinance. Instead of receiving money in return, the homeowner gives money to repay the loan balance. This assists homeowners to get lower rates on their mortgages that are accessible for lower loans or get rid of mortgage insurance premiums. This allows you to save a lot of money.

Note that the form of refinancing you select will depend on your personal financial condition and your objectives.

Since you know what refinancing is, you need to define if refinancing your home is a good option for you.

When To Refinance Your Mortgage

Once you’ve signed your home loan, it might feel like you made a wrong move, but as a homeowner, that is a myth. The move to refinance your home loan offers you the chance to save on the interest, cash out the home equity or reduce your mortgage term. If refinancing reduces the interest you are supposed to pay on the home loan; then this option is for you. Not certain that refinancing your loan is the smartest financial decision? Here are some signs that help you know refinancing is the best decision.

When You Can Get Low Interest Rates

The rate of interest for mortgage tend to fluctuate every day. Numerous aspects influence the rate of interest, such as inflation, the economy, market, Federal Reserve, and monetary policies in the US. If you realize that the interest rates are lower than what you pay, it’s time to refinance your home.

Substituting your home loan for a mortgage that has an affordable rate of interest with the same terms is known as rate-and-term funding. Is the difference in rate sufficient to opt for refinancing? Typically, if you find a mortgage that is 1 or 2% less than your current rate, its better you refinance the mortgage. However, no rule of thumb applies to every person and condition. Even though a 1% interest rate might lead to a huge amount of savings for a homeowner with a multi-million dollar home loan, the same might be different for a homeowner with a mortgage worth $100000.

You might opt for refinancing when the percentage rate of interest is less than 1%. While professionals recommend for at least a 1% decrease, that rule of thumb was used in the 50s when mortgages were small, and homeowners continued to stay in their houses until they die. Nowadays, with big loans, a negligible percentage decrease will still lead to huge savings.

Take your time to look at the updated rate of interest while comparing it to the original rate. Bear in mind that your credit rating will determine your individual rate of interest. That means that a lower interest rate is not always a must.

If You Want To Improve Credit

If you have been striving to rebuild your credit, refinance your mortgage as this will help you. Typically, a higher credit rating means you will have a lower rate of interest. Bear in mind that personal lenders define the worth of your credit rating. So, people with a credit score that is above 700 get the lowest rate of interest. However, you can still get a better deal if when your credit score falls in 600-700.

With the help of a saving calculator, you can compute your APR, cumulative interest, and monthly reimbursement. The calculation is completed based on your credit rating, a form of a loan, the principal amount of loan, and where you stay. 30-year financing for an amount of $100000 at the credit rating of 620-639 will offer you APR of 5.0006 %. That will add up to the monthly reimbursement of $537 and a cumulative interest amount of $93,388.

What will happen if you raise your credit rating to 760-850? The APR will reduce to 3.417%, the monthly payment will reduce to $444, and the cumulative interest paid will be $59.993. That is a difference of $33395.

One of the essential aspects that mortgage lenders look at is credit history. Even a single point increase in your credit score will decrease your loan fees. Luckily, there are numerous ways to increase your credit rating to make sure you get a better interest rate on your loan.

How to Improve Your Credit Score

Get a Rapid Rescore

A rescore will remove all mistakes that are affecting your credit rating. That will boost your credit score from a couple of points, even 100 points within a few days. Mortgage creditors can utilize this approach to assist homeowners to boost their credit rating.

Ask for Credit Reports

Before you start mortgage loan shopping, make sure you know your credit score by requesting a free credit report from the three leading bureaus. They include TransUnion, Experian, and Equifax. Report all errors you might find immediately. If you want to improve your score over many months, you can ask for the free credit report after four months from any of the leading bureaus. Thus will allow you to know how your credit score is progressing.

Pay Your Bills on Time

Both the present and past payment habits are considered to be a dependable pointer of your upcoming payment habits to creditors. Making your payment late or missing any payment is a fast way to damage your credit score. Therefore make sure your payment is consistent, and they are made on time. Utilize automated payment to make sure you do not forget paying any bills.

Enhance Your Debt-to-Revenue Ratio

You will improve your credit rating by paying off your loan and keeping your credit card balances at a minimum. The overall recommendation is to maintain your credit usage at 30%. That means that your credit line usage should not exceed 30%.

Leave Unused Credit Cards Open

By keeping the unused credit cards that don’t cost you any yearly charges open, you will have a chance to maintain your credit mix and credit score. You will also keep your usage ratio low.

Have you improved your credit score? Do you believe that you are eligible for a low rate of interest on your home loan? Then you can refinance your mortgage. If you think refinancing might be a lucrative option for you, make sure you do the calculations well. That is because the mortgage rates tend to oscillate and might reduce even further.

How to Improve Your Credit Score Without Crying

When You Have Experienced an Increased Revenue

An upsurge in revenue might be perfect if you want to refinance your mortgage to a short term. Shifting from a 30-year home loan to a 15-year loan term will save you a lot of cash in interest.

For example, a 30-year fixed mortgage of $100000 at a stellar credit rating of 760-850. The loan will give you a monthly reimbursement of $444, $59,993, and a 2.845% APR. If you decrease the mortgage term to 15 years, the APR will change to 2.845%, and the interest will reduce to $22, 967. That is a huge difference of $37,026 that is a huge increase in your savings.

When You Have Issues with Your ARM Adjusting

Adjustable-rate mortgages tend to differ over the lifetime of a loan. The rates are based on the market situations and also the form of loan to get. Most ARMs amend once every 12 months, while others will adjust after up to 7 years. Mostly, you will pay less interest with ARMs and attract lower monthly disbursements early in the mortgage term.

If your current mortgage has a fixed rate, and you expect the rate of interest to fall further, you may opt to switch to an adjustable-rate loan. If you intend to relocate within a couple of years, switching to an ARM might make sense for your condition. That is because you will not be in your house for many years to wait for the rate to increase.

On the other hand, the most upsetting thing about the adjustable-rate mortgage is when adjusting the loan, the rate of interest and payment might increase. Switching to the fixed mortgage rate might be a viable option if you believe you won’t be able to afford to make the payments once you adjust the loans. You can also refinance your mortgage.

When The Value of Your House Goes Up

From 2011, the value of houses in the US has increased from $250000 to $394000. Hitherto, the majority of homeowners ignore refinancing their mortgages once the value of these homes rises. Once you notice that the value of your home has increased, refinance your mortgage since it will be beneficial. If you want to repay other higher interest loans fast or finance massive purchases, these options will be appealing.

Cash-out refinancing is a funding alternative that lets you get a new and bigger loan so you can get the remainder. For instance, perhaps it was initially valued at $250000. You offer 20% on the upfront. Your home loan of $200000 is now $140000, after a couple of years of reimbursement, but the value of a house has gone up from $250000 to $300000. You might decide to refinance your mortgage for over the difference of $40000. If you decide to refinance the home for $165000, you will use a $25000 difference to repay a high-interest loan, remodel your house, or finance other purchases.

Also, if you are in a good financial condition whereby you are sure you can repay the extra $25000 of mortgage loan with ease, this might be a good move. If you plan to utilize the funds to repay other higher interest loans, make sure you define if you will be required to pay additional interest for that loan than for the mortgage. If you ultimately pay extra interest other higher interest loans, then the cash-out mortgage refinances might be a good option for you. In case you are required to pay additional mortgage interest, you might need to remain with the old mortgage.

Make sure you check your home value to get an accurate approximation before you opt to refinance your mortgage. Undervaluing or overvaluing your property might make you overpay and save less.

In case you experience any of the mentioned signs. It might be the right time to refinance your mortgage.

Questions to Ask Yourself Before You Decide to Refinance Your Mortgage

Every person would like to save money, particularly when it comes to a mortgage. Perhaps, you want to reduce your bills by refinancing your mortgage. Or you want to refinance your mortgage since you are worried that the rate of interest will increase ad it’s your only chance to get a good deal.

Mortgage rates are generally low, and you might have numerous loan alternatives. However, you will need a lot of time to find out if refinancing is your ideal option now. The period you intend to stay in the house, your financial goals, and your credit score will play a vital role when deciding whether to refinance your mortgage.


Here are some of the questions you need to ask yourself before you decide to refinance your mortgage.

Are Mortgage Rates Going to Increase Any Time Soon?

Once the Federal Reserve increases interest rates for short term loans by 0.25 percent, the majority of homeowners fear an increase in mortgage rates. However, rates for a mortgage are not affected by an increase in short term rates.

Alternatively, never expect a fast increase that will prevent you from refinancing your mortgage. You will still have time to repay the high-interest loans and improve your credit profile, and increase your chances to qualify for a high refinance mortgage.

Provided the mortgage rates are still low; people will continue refinancing their homes. The majority of homeowners who bought at a market peak, only to experience the prices go down, have now regained sufficient equity in their properties to benefit from refinancing their mortgages. Many homeowners are taking advantage of the lower rate of interest with cash-out refinancing to finance their home remodeling projects.

You will get a competitive rate of interest provided you have a good credit score, and you provide evidence of steady revenue.

How Much Can I Save On the Payments Made Every Month?

To compute your possible savings, you must add all your expenses for refinancing, like evaluation, a credit check, initial charges, and closing expenses. Make sure you find out if you have a penalty for repaying your original mortgage early. Once you know what rate of interest could qualify you for a fresh mortgage, you can compute your monthly payment to find out the amount you can save every month.

Additionally, you will need to consider if you have no less than 20 percent equity in your property. That is the difference between your debt and the market value. Check the value of your home in your estate to know how much your property may appraise now. Never depend on the online property value estimates as they are always of the real value. However, online websites will give recent selling prices of the same properties in your area. Also, a local realtor will share ideas if what your property is worth.

The amount of equity is essential since creditors will need mortgage insurance if your equity is below 20 percent. This safeguards the lender’s financial interest in case you fail to repay the loan. Mortgage insurance is extremely expensive, and it will be included in your payments every month. Therefore, make sure you include them when making calculations for possible savings.

Will the Savings be Sufficient to Make Mortgage Refinancing Worthwhile?

You will need to spend 2-3% of the mortgage in closing expenses. Therefore, you find out the number of days your savings will go towards recovering the expenses. For example, it will take you 30 months to cover $3000 in closing expenses if your payments every month reduces by $100. If you relocate during that period, you risk losing cash in a refinance.

Is it the Right Time to Get Another Loan Option?

Predict how long you want to stay in your old house and think of the details of your old mortgage. The way these aspects play off one another will have a huge role in your decision.

Let’s assume you purchased a house with an adjustable-rate mortgage for the first term of 5 years at 3 percent. You intend to stay in the house for many years. If notices that the adjustable-rate can get to normal and go high, you may benefit from refinancing your mortgage to 15 or 30-year fixed loan to have a set rate that doesn’t fluctuate.

If you think that you will be relocating in a couple of years, refinancing your mortgage to an ARM from a long term fixed mortgage will allow you to save more cash since lenders provide low rates in the mortgage.

How Does My Credit Score Look Like?

Check out if your payment history and credit rating has improved from the time you obtained the mortgage. If yes, you may be eligible for a competitive rate of interest, and this will assist you to save a lot every month.

Furthermore, experiencing some financial hardships will hinder your capability to qualify for a refinance mortgage and also the rate you will be given. If you are late on paying your credit card, purchases a new vehicle, or obtained a student loan, your credit rating will be low than it was when you obtained the first loan. Make sure you do credit repair before you refinance your mortgage.

If you are finding it hard to make payments, try to automate all of them to ensure you do not forget any. Additionally, check the difference between the outstanding credit balance and credit limit. If the report indicates outstanding balances are close to the limits, it means higher usage. Make sure you maintain the ratio at a lower level by repaying your credit card balances every month. This will determine if you are eligible for a new mortgage.

Steps of the Refinancing Process

There are numerous reasons you may need to refinance your mortgage. You want to reduce your monthly payments, reduce e rate of interest, or get some cash to repay a high-interest loan. Irrespective of your reason, you need to know what to expect from the refinancing procedure before making a decision. To refinance your mortgage, you will need to through these steps:

Ensure You Will Benefit from Refinancing

Your initial step when to refinance your mortgage is ensuring that refinancing will be helpful to you. Set your financial goals and determine if you can achieve them. Are existing rates cheap to allow you to save? If you decide to cash-out, ensure the cash you get will outweigh the additional years you spend on the loan. Every homeowner has a unique financial situation and priorities, and for that reason, you are the one to choose what is best for you.

Call the Mortgage Lender

Get a lender who will make the refinancing procedure as fast and stress-free as possible. A good lender will allow you to get reapproved within 15 minutes, with a free rate quotation and no onus quote.

Finding the right lender is very important. One of the best places to look for reputable lenders online is Loanry. This is what we do. We connect you with credible lenders and help you go through this process a bit quicker. Start here:


Fill the Loan Application

The moment you are ready to refinance your mortgage, start your application with one of the leading lenders

Sign Your Disclosure

The lender will send you the original disclosure to sign, and you might take advantage of that chance to look at the terms of the loan. This will help you make sure you achieve your goals of cashing out or reducing your rate.

Offer the Required Documentation

Once you sign, you will need to give your paperwork to the lender, including your income and property verification.

Submit the Mortgage Conditions

The lender will send your documentation to the underwriters who will check if there is anything else required.

Sign the Final Documentation

Once the mortgage is approved, you will need to sign with a lawyer.

Remember to Check Back with the Creditor

After 72 hours, whereby you are allowed to cancel the refinance mortgage without any charges, your mortgage will be financed. At this moment, your old mortgage will be repaid in full.

Start Repaying the Loan

Since you’ve completed the refinancing procedure, you can begin repaying the current mortgage that will be due in one-two months after the financing process.

Bottom Line

A good refinance must benefit the homeowner by reducing his or her monthly mortgage payment or reducing the term of their home loan. Unluckily, some complexities tend to trip up the gullible borrower, resulting in a sore deal. So, make sure you understand the process. This article shares some mortgage tips to help you make an informed decision.

Before you decide to refinance your mortgage, get your creditor, and do the calculations. This will help you to find out if the payment term is sensible to allow you to save. Take a comprehensive inventory of your financial objective and contemplate how your existing house will achieve your location and space needs.

Saving some dollars on your mortgage will help you accumulate wealth, and everyone loves doing that. If you think that it’s not the right time to refinance your mortgage, continue paying your old mortgage. Maintain your credit score such that you can be prepared when the time comes. However, doing a bit of rate shopping is important as you will have a guarantee that you will get an affordable rate.