First-Time Homebuyer Tips You Don’t Want to Miss

Model house, construction plan for house building, keys, calculator and clipboard.

You have just made a really big decision. The decision to stop renting from someone else and buy your own home. Buying your first home is not only a big life decision it is a big financial decision. It will change the way you spend money and your priorities within your budget. But it’s also exciting to have a place to call your own. A place where you can paint the walls without asking anyone for permission. A place where you can change out the faucets just because you feel like it. If you are embarking on this process here are some first-time homebuyer tips you don’t want to miss.

First Time Homebuyer? Do Not Miss These Helpful Tips

Buying a home is usually the largest financial decision a person makes. But following our homebuyer tips will help get you through the mortgage process. The first thing to do is to save enough money for both the down payment on the property and all of the costs that come up while trying to close the deal. Once you’ve saved the money run your own credit check before any potential lenders do to assess your credit score and catch anything that has been reported in error. Once you are confident in your credit, visit several lenders and become pre-approved for a mortgage. That makes you more attractive to sellers.

Start Saving

Ideally, you are paying yourself first out of every paycheck and are building savings. In order to buy a home, your lender is going to require a cash down payment, usually of 20 percent of the purchase price. According to the real estate website Zillow, the median price of a home in the United States is $247,084. While certainly there are some areas where houses are less expensive and other areas where houses are more expensive, 20 percent of the median price of $247,084 is a down payment of almost $50,000.

Even if you have been saving regularly, you may not have enough for the full down payment. So if you are committed to purchasing your own home, you may have to readjust your budget to divert more money to savings. This might be a time to set a financial goal of having a certain amount of down payment money saved by a specific date.

It’s also not enough to just save the amount of the down payment. You will also need enough cash on hand to pay the costs associated with closing on the property.

Check Your Credit Score

If you are going to try and qualify for a mortgage you should probably do your own credit checkup first. Check with some of the major credit reporting agencies like Experian, Equifax, and TransUnion to see what your credit score is like. A credit score is generally calculated as a three-digit number. Scores that are in the high 600s are thought of as good credit and scores in the middle 800s are considered to be excellent. Higher credit scores give you access to mortgages with lower interest rates.

One of our first-time homebuyer tips is to do your own credit checkup you can also catch potential problems in advance and get them resolved. Maybe a credit agency reported that you made a late payment when you didn’t. Or maybe there is something on the report that doesn’t have anything at all to do with you. If you see the problems in advance you have the opportunity to address them and clean up your credit history.

Get Pre-Approved for a Loan

Once the down payment money is saved and you’ve checked on your credit score one of our next first-time homebuyer tips is to get approved for a residential mortgage. This is where you begin encountering the paperwork portion of this process. In order to get pre-approved for a home loan, you will need to provide a prospective lender with:

  • Social Security Number
  • Tax returns from the last 2 years
  • W-2s from employers for the last 2 years
  • 30 days worth of paycheck stubs
  • 60 days worth of bank account activity statements

During the pre-approval, process lenders will dig into your financial well-being. They want to establish your creditworthiness, your debt-to-income ratio, employment history, current income and a tally of your assets and liabilities. Once they pre-approve you they will you a letter that says that. Many sellers want to see that letter before they will consider an offer. The letter is generally good for 60 to 90 days.

You aren’t limited to just visiting one lender for pre-approval. You can shop around to several.

Find Your New Home

Things to consider when buying a new house

Once you have saved enough money to cover the down payment and closing costs and you have been pre-approved for a mortgage it is time to go shopping for that new home. You can start to get a feel for the housing market where you want to live by taking advantage of online listings. One of our first-time homebuyer tips is to browse through the real estate listings at Realtor.com, Trulia and Zillow. You can see what the inventory is like that is in your price range. How many bedrooms? How many bathrooms? Are you looking at single-family or multi-family dwellings? What are prices like in the center of the city as opposed to 15 miles away in the suburbs?

The photos and virtual house tour videos let you get a real glimpse of what you’ll find inside. Is the kitchen hopelessly outdated in harvest gold and avocado or has it already been updated with more modern finishes? Do the bedrooms have walk-in closets or are they much smaller? Are the bathrooms small or spa-like?

Once you get a better feel for where you want to be and what you can afford one of our first-time homebuyer tips is to engage a buyer’s agent in your search. Buying a property is a major financial and emotional investment. Experts agree that a first-time homebuyer needs an agent in their court. A real estate professional can interpret the market, explain trends, comb through the legalese and negotiate on your behalf. You want a real estate agent making offers on your behalf and evaluating any counter-offers. Your realtor should be able to tell you when the time is right to sign on the dotted line and when you shouldn’t.

How Do I Find a Real Estate Agent?

The best place to get a referral to a real estate agent is through word of mouth. If you have had any friends or colleagues rave about their recent home buying experience, find out who their agent was. Another one of our first-time homebuyer tips is to select a realtor that is connected to you or your circle.

If you don’t know anyone who has a great real estate agent, look for an agency with positive reviews. And keep in mind there are different realtors with expertise in different parts of the market. You might not want to engage with a specialist in million-dollar homes if the top of your budget is $250,000. That agent may have different expertise than you need.

One of our homebuyer tips during the search is to remember that there might not be a perfect home. To satisfy your budget you might have to compromise. A garage might have been tops on your wish list until you find that perfect cottage with a gravel driveway. A fireplace might have been non-negotiable until you found that townhouse with the family room built-in bookcases instead.

Trust your instincts. You will be living in the house. When you feel like you have found the perfect place, you probably have. This is the part where you need a professional real estate agent to guide you through the process of making an offer on the property and potentially having to come up with a counteroffer. Expect some back and forth before you come to an agreement.

Choose the Right Mortgage

When this process began you learned where to shop for a mortgage by visiting several lenders to get pre-approved for a loan. Once you have settled on a purchase price you have to go back to these lenders and formally apply for a loan. They will likely have some mortgage options for you.

We connect you to reputable lenders quickly and efficiently. By filling out this form below, you allow us to research the database and find unique offers suitable for your situation. Sounds good? You can see if you can get a mortgage loan, right now:


Fixed-Rate Mortgage

A fixed-rate mortgage has one pre-determined interest rate that lasts for the life of the loan. The payment on a fixed-rate loan doesn’t change over time. That means the payment will be a consistent financial obligation for the homeowner.

Adjustable-Rate Mortgage

This type of mortgage begins with lower interest rates but will be adjusted in the future to correspond with current market trends. An adjustable-rate mortgage is like a game of chance. After a certain amount of time, the interest rate and the payments could go up, or they could go down. Adjustable Rate Mortgages are often favored by buyers who want to get into a home in the least expensive way but are prepared to increase their financial commitment down the road.

Balloon Mortgages

Balloon mortgages are the least common types of mortgages. They have a fixed monthly payment but at the end of the loan an extra payment, usually a very large one, is due.

There are some federally backed mortgage options for those who qualify.

FHA Loans

These loans are guaranteed by the Federal Housing Administration. They were created for low to moderate-income homebuyers. FHA loans require smaller down payments than conventional loans and usually have lower interest rates. FHA loans have strict terms but they are popular with first-time homebuyers because of the reduced down payment.

VA Loans

U.S. Armed Forces veterans may qualify for loans from the Department of Veterans Affairs. Sometimes the VA loans will act as a bank and provide direct loans for veterans. Other times the VA will guarantee a portion of the loan that is made by a private lender.

What are the Terms of a Mortgage?

Lenders usually write mortgages for either 15 or 30 years. The longer the loan the more you will pay in interest, but your monthly payments will be lower.

What is Private Mortgage Insurance?

Private Mortgage Insurance, or PMI, is purchased when the buyer is making a down payment of less than 20 percent of the selling price. It protects the lender in case the borrower defaults on the loan. The lender arranges for this type of coverage with a private insurance company. Sometimes the total cost of the PMI is due in one big payment at the closing. More commonly it is rolled into the monthly mortgage payment. One of our first-time homebuyer tips is to monitor how much equity you have built up over time by making mortgage payments. When you get to a certain amount you will be able to cancel your PMI.

What are Mortgage Points?

Mortgage points are fees homebuyers pay to lenders to get a reduced interest rate on a mortgage. That’s why they are also known as discount points or a way to buy down the interest. Generally, each point is worth 1 percent of the amount of the loan. Financial experts often recommend this strategy for homebuyers who are planning to stay in their homes for a lengthy amount of time because it lowers the interest. One of our first-time homebuyer tips is to calculate whether or not you should pay points for the interest rate deduction you by looking for your “break-even” point. Divide the cost of the points by the monthly savings you get from the points to find out how long you have to stay in the house to make it financially worthwhile.

Home Inspection

After the seller has accepted your offer and your lender is exploring mortgage options there is one very important step to take. Another of our first-time homebuyer tips is to schedule a home inspection. A professional home inspector is trained to look for things that may already be a problem with the home or things that are about to become a problem. Having a home inspection helps to eliminate surprises after the deal is closed.

Home inspectors generally look at the quality of the roof and whether or not there is any termite damage or damage from other pests around the home. They can look at the well or water system, the septic system and test for radon. They also look at fireplaces, chimneys, HVAC systems, the condition of the windows and more.

Once you have the home inspection report in hand you will be able to make decisions about repairs and whether to ask the seller to take care of some things before closing. Sometimes sellers will hire someone to do the work that was uncovered in the home inspection. Sometimes they will reduce the selling price but leave it up to the buyer to make repairs.

Don’t Underestimate Closing Costs

It is quite an accomplishment to save enough money for a down payment on a house. But the costs associated with buying a home don’t stop there. There are costs associated with trying to get a mortgage including an application fee, an origination fee and a fee for the lender to run a credit check. The lender will require an appraisal of the property to determine its value and that is a cost that is absorbed by the buyer. The buyer will pay for the home inspection. The property lines also have to be surveyed before the sale and the buyer pays for that. The buyer will also have to place in escrow a deposit that is generally equal to two months worth of property taxes. The buyer also has to purchase homeowner’s insurance in advance and pay any fees to transfer membership in the home owner’s association.

If your state requires an attorney at the closing you’ll pay that as the buyer. There will be a fee that covers the closing and maybe even a courier fee for transporting documents.

So another one of our first-time homebuyer tips is to save more money than you think you need to cover both the down payment and all of the costs that can be associated with closing on a property.

Conclusion

Take your time shopping for a home and learn all you can about the market where you want to live. Engage a real estate professional who can guide you every step of the way from searching for a home to unlocking the front door. Once you have a deal on a property go back to the lenders who pre-approved you and begin exploring mortgage terms and interest rates to figure out what works best for your budget. Take care of due diligence before the property is yours by ordering a complete home inspection. And before you sign the closing documents make sure you know how much money you have to bring to the table to walk away as a homeowner.

The Top Places to Shop for a Mortgage Loan

Man pushing a shopping cart with home model put on the old wood in the public park

You want to buy a house and you know it is going to cost a large amount. That might be all that you know about buying a house for the first time. There is much more to it and you should understand more of the details. In order to get the best deal that you can, you should have some awareness of the various items that go along with purchasing a home. Even if this is not your first house, there is probably some information you could benefit from knowing. In addition to understanding the details of a mortgage, it is important to understand where to shop for a mortgage loan.

The Top Places For Your Mortgage Loan

The most common type of mortgage that you will find is a fixed mortgage. A fixed mortgage has a rate that is fixed and the agreed-upon interest rate remains the same for the entire life of the mortgage. The most common length of a mortgage is 15 or 30 year terms. Lenders prefer that you have a 20 percent down payment for your mortgage. If you cannot afford to put down 20 percent for your mortgage, the lender requires you to have private mortgage insurance (PMI). Lenders want you to have a higher credit score to qualify for a traditional mortgage.

When you shop for a mortgage loan, you should keep these lenders in mind:

Rocket Mortgage

Rocket mortgage loanRocket Mortgage has been providing quality and affordable mortgages for over 30 years. They pride themselves on their customer service. You might want to start here when you shop for a mortgage loan. This type of loan is available online only and is a self-service type of loan. They are looking for you to have a credit score of at least 620 with a minimum down payment of 3 percent. They specialize in home purchases, refinances, FHA, fixed and variable rate loans. You can find out how much money you qualify for in minutes, partially due to Rocket Mortgage’s ability to retrieve documents.

NBKC Bank

NBKC bank logoNBKC Bank allows you to completely fill out your application on the bank’s website. You are able to sign all of your documents in the application. In addition, you can track your application. They do offer an actual building for you to visit in person, but only within the Kansas City area. They have a mobile application for iOS and Androids. NBKC bank does want you to have a minimum credit score of at least 620. Also, they want you to have at least 3 percent to put down for your house purchase. They also specialize in home purchases, refinances, FHA, fixed and variable rate loans. They charge a mortgage origination fee for most borrowers.

Quicken Loans

Quicken Loans has an application that is completely online but has mortgage advisors available to you. They provide amazing customer service. They can instantly verify your employment and income for over half of the people that apply. Also, they offer mortgage terms from 8 to 30 years. They do want you to have a minimum credit score of at least 620. They want you to have at least 3 percent to put down for your house purchase. Quicken Loans also specialize in home purchases, refinances, fixed and variable rate loans. They provide FHA backed loans.

New American Funding

newamerican funding logoNew American Funding is a great way to shop for a mortgage loan when you have a low credit score because they use a manual underwriting process. They have a full range of online options available to you. You can apply online, as well as get rate quotes and upload all of your needed documents. Their services are not available in all states. They only require to have 3 percent down with a minimum credit score of 620.

Fairway Independent Mortgage

Fairway Independent mortgage logoIf you are interested in an FHA loan when you shop for a mortgage loan, Fairway Independent Mortgage may be the best lender for you. They offer a large variety of loan options. Not only can you apply for a mortgage with them online, but you can apply with their mobile app. They claim their loan application can be completed in 10 minutes. Their website is a full-service site complete with online help and FAQs. They do require you to have 3 percent down. They do not post their interest rates online, so you have to fill out the application for more details.

Citibank

CitibankCitibank is a great choice for a mortgage because they are a large scale mortgage that provides you with a wide range of products, including fixed and adjustable-rate mortgages. They are available in all states. They look at other credit data items to determine if they want to approve you for a mortgage. Citibank allows for low down payments and offers special discounts if you are already a Citibank customer. You cannot fill out your application online and they do charge application fees.

Bank of America

Bank of America logoBank of America has unique down payment and closing cost programs that can provide assistance to you. They look at alternate data elements to determine your creditworthiness. You are able to complete the entire application online. They will accept a minimum down payment of 3 percent. They do, however, charge a hefty application fee, which can fall into the $1,200 range. Bank of America is not known for their great customer service. They have a fairly high amount of complaints.

PNC

PNC bank logoPNC Mortgage is part of PNC Bank, which is a well-established bank. They do have some online capabilities, but you cannot fill out the entire application online. They offer over 2,000 branches, but they are not in every state. PNC has a large number of online tools available to you to help you estimate your payments and track the status of your application. They do look at credit data that many traditional lenders do not determine your creditworthiness. They will consider rent payments and other nontraditional data elements.

SoFi

SoFi, which stands for Social Finance, is a digital finance company that gives you an entire catalog of products, from investment accounts, cash management, and mortgages. You have the ability to fill out the entire mortgage application online. They do not require private mortgage insurance, but they want you to have at least 10 percent down. They are willing to work with borrowers that are self-employed. If you are already a customer, you can qualify for a $500 discount on the mortgage fees. They do not offer mortgages for government loans, like FHA, or even VA. They are not available in all states. Once you have a loan with SoFi, you are considered a member, which has perks such as access to special events and financial planning.

What Is A Mortgage?

You cannot begin to shop for a mortgage loan if you do not understand what a mortgage really is. I want to take a few minutes to give you some much-needed information about the basics of a mortgage. A mortgage is what you need when you want money to purchase a home. A mortgage loan and as with any loan, you pay back the money over time by making regular monthly payments.

As with all loans, the lender adds a fee to the loan, called interest, for allowing you to borrow money from them. There is a major difference between a mortgage and other loans because, with a mortgage, you are using your house or property as collateral. That means that if you stop paying on your mortgage, the lender has the right to take your house. You do not own the house completely until you pay the mortgage in full.

What Happens During The Mortgage Process?

Regardless of what type of loan you want and where you shop, the process for a mortgage loan is usually the same. One of the first steps you should take is to check your credit. This way you will know your credit score and have an idea of the type of mortgage for which you might qualify.

Once you have determined your credit score, then you can look for the right lender for your needs. This is when you should shop mortgage lenders. You may also want to consider getting pre-approved for your financing. This shows realtors that you are serious about buying a house and the amount of a mortgage for which you should qualify. This does not replace the mortgage process, this is just a letter stating that you qualify for a certain amount. Once you have taken those steps, you should begin to look for a house.

Since you have a pre-approval amount, you know what your price range is for a house. This helps you refine your search for the houses you can actually afford. This keeps you from going outside of your price range. Once you have picked out the house you want, you can make an offer. Before you make an offer or even start looking at houses, you might want to consider finding a good real estate agent. A good agent can help you determine what a good starting price might be based on the market and the area. Once your offer is accepted, the real mortgage paperwork begins. You have to fill out the application and provide all the documentation.

Income and financial information, such as pay stubs, W2s, and bank statements, are going to be needed. After all this information is collected, it goes to an underwriter who studies all the documents and the value and price of the house.

Where Can I Find A Mortgage?

When you want to shop for a mortgage loan, the key is to actually shop around for a mortgage. There are many lending options available to you when you are looking for a mortgage. You should find out as much as you can about potential mortgages. You do not have to take the first offer you find and you should wait until you have the right mortgage for you. Keep in mind this mortgage will take anywhere from 15 to 30 years to pay off, so it will be with you for a long time.

You can shop for a mortgage loan online, which would give you a large amount of money. A quick internet search will help you find all the mortgage information you need. You want to determine the amount of money you want to borrow and how much money you have to put down. Then, you want to understand the interest rate for your mortgage and what that means for your monthly payments. Also, you want to know about any fees you may have to pay. In the end, you want to understand different types of mortgages and all of the fine print.

Finding the right lender for your situation is extremely important. You can get help from Loanry. If you leave the required information in the form below, we will get you offers from reputable lenders, and from there all you need to do is compare them and apply. Start here:


What Do I Need To Know About A Down Payment?

Before you shop for a mortgage loan, you should consider how much money you have for a down payment. A down payment is the amount of money you are putting up for the house that comes from you. You are not borrowing this money from a lender. A down payment impacts how much money you have to borrow from a lender and have to pay back. I mentioned earlier that lenders want you to have 20 percent down.

If you want to purchase a $300,000 house, 20 percent of that amount is $60,000. That is how much you would have to put down from your account. The percentage goes up or down based on the total cost of your house. The larger your down payment is then the lower interest rate you might get from the lender.

If you cannot put down 20 percent, a lender wants you to have private mortgage insurance (PMI). PMI is insurance just as the name states and it gives the lender a stronger sense of security that they will not lose the money they are letting you borrow. You have to pay for the insurance so it will add to the cost of your monthly mortgage payments. It is possible for you to find lenders that will allow you to borrow money even if you do not have 20 percent to put down.

Should I Be Pre-Approved?

Before you shop for a mortgage loan, you want to consider getting pre-approved. Keep in mind, a pre-approval is different from a pre-qualification.

A pre-approval is when the bank approves you for a set amount of money for your mortgage. The lender gives you a letter stating how much you are approved. It gives real estate agents and sellers an idea of how much you can afford. When you get pre-approved for a loan, the lender does a hard hit to your credit. It also shows that you are serious about purchasing a home. This shows sellers how much you can afford to pay for a house. If they have your offer with a pre-approval and another potential buyer with an offer that is not pre-approved, the seller may pick your offer over another.

A pre-qualification is a rough idea of how much money for which you may qualify. This is not a guarantee of how much you will get from a lender, but it is an idea of how much you can get. This type of qualification is only a soft hit to your credit. It is not a deep look into your finances. It is free to be pre-qualified for a mortgage.

Conclusion

This article contains a lot of information, including the best lenders to shop for a mortgage loan. There is a lot of information available to you and you should learn as much of it as you can. When you want to purchase a house, it is your responsibility to be well informed. When all is said and done, you are going to be responsible for making the mortgage payments and maintaining your house. You want to make sure that you can afford to do both of those things by first making sure you know all your mortgage options. Second, you need to make sure that you can afford to pay the mortgage once you have agreed to do so.

A mortgage is a binding contract and you are legally responsible for making the agreed-upon payment amounts on time. You should do all that you can to ensure you are able to do so. If you do not think you can afford a mortgage than it is probably not the right one for you.

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.

Everything You Want to Know About Reverse Mortgages

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

What Is A Reverse Mortgage?

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

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

Are Reverse Mortgages Scams?

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

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

What Are The Advantages To A Reverse Mortgage?

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

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

What Are The Disadvantages To A Reverse Mortgage?

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

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

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

What Are Other Types Of Mortgages?

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

Fixed Rate Mortgage

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

Adjustable Rate Mortgage

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

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

Interest Only Mortgage

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

Your Guide to Understanding the Different Types of Mortgages

How Do I Go About Getting A Mortgage?

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

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

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What Is A Mortgage Broker?

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

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

Mortgage Broker Fees

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

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

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

Important Mortgage Terminology

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

Some terms of which you should be aware are:

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

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

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

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

What Factors Impact My Mortgage Payment?

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

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

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

Does My Credit Make A Difference?

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

What If I Have Bad Credit?

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

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

Credit Terminology

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

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

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

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

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

Conclusion

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

The Ultimate First Time Home Buying Guide

If you are in the market to buy a new home, whether it’s your first time or you have forgotten about some of the details, this home buying guide can help you prepare for the journey ahead.

What Is a First Time Homebuyer?

When planning a first time home buying guide, it helps to define who a first-time homebuyer is. It makes sense that a first-time homebuyer refers to someone who hasn’t purchased a home before. The definition can actually be broader than that. Those who can’t scrape together enough of a down payment can be eligible for assistance through different first-time homebuyer loan programs and grants. In order to qualify for many of the programs, prospective homebuyers must not have owned a home for at least the last three years. You don’t need to be a complete novice in order to qualify as a first-time homebuyer and to utilize a first time home buying guide.

Should You Buy a Home?

If you are researching a home buying guide then you are likely ready to move forward in the home buying process. There are some signs that show you are ready for homeownership.

Your Credit Score Has Improved

Some renters may be locked out of homeownership because of their credit score and not being able to qualify for a residential mortgage. A low credit score is a common reason why many renters can’t make the jump to owning a home. Too much debt and a history of late payments can hurt your score. If you have worked on your credit score then it may be time to start looking for a home. The better your credit score, the better the loan terms and interest rates will be.

You Are Good at Managing Debt

One thing lenders look for when screening applicants is the debt-to-income ratio. If you previously had a higher ratio and have since paid off some of your high balances then you may be in a better place to get a mortgage. This also gives you some more wiggle room in your budget so you can build up an emergency fund for any home repairs.

You Have Money Set Aside for the Extra Costs of Owning a Home

When renting, if there is an issue with the property then you don’t have to worry about paying for it since it’s the landlord’s responsibility. You also don’t have to pay for homeowners insurance or property taxes. However, when you own a home then all the costs are your responsibility. If you have set some money aside then you may have enough extra money to handle these additional expenses that come with homeownership. If you are putting everything you have into the down payment then you don’t have any money for potential repairs or improvements you need to make.

You Can Afford the Down Payment and Closing Costs

A first-time buyer won’t have the proceeds from the sale of another home to help fund the down payment on a new one. This is one of the main reasons why it’s hard to buy your first home. The down payment will depend on the house mortgage you get for your home.

You Are Ready to Settle Down

There are a lot of upfront costs associated with buying a home so it’s best to stay for a few years so you can recover those costs. If you plan on moving in a few years then homeownership may not be right for you.

Step by Step First Time Home Buying Guide

No matter if it’s your first time or your fifth time buying a home, there are some steps to take in following a home buying guide.

Assess Your Personal Finances

The first step in a home buying guide is by looking at your finances. You don’t want to just start looking at listings and open houses without first looking at your personal finances. The smart approach is to check your credit score and reports, look at your budget, and figure out your ability to make a down payment and save for closing costs. There may also need to be an earnest money deposit for you to consider. Some states require a deposit of 10% of the purchase price, while other states allow just a few hundred dollars.

Start organizing your paperwork in order to show lenders your financial stability. This means gathering bank statements, federal tax returns, pay stubs, W-2 forms, and a list of assets and debts. Lenders will check your credit report and verify your income. During this time when you are looking at your finances, you can see if you are eligible for first-time homebuyer programs and grants that could help with closing costs or a down payment. Start to become familiar with different mortgage types and down payment requirements. You don’t want to base decisions on emotion so you need to do your research during this stage.

Get Mortgage Quotes

You want to get mortgage quotes from at least three different lenders so you can compare terms and interest rates. Ideally, you want the lowest interest rate because the less money you spend on your mortgage then the more money you have in your budget for repairs and maintenance that come with homeownership. There will be different loan programs that have different requirements. If you are having trouble getting a mortgage, even with different requirements, you may need to spend time working on finances before you can move forward with a home purchase.

Get Preapproved For a Mortgage

Once you have gotten quotes from some lenders it’s time to get preapproved. When you are preapproved, this puts you in a stronger position to make an offer on the home. The preapproval letter will tell you how much you are qualified to borrow, the loan program you are using, and the expected down payment you will make. The final approval will take place after an underwriter verifies the information you give and there are conditions that are met. Preapproval letters help you in a competitive market and will help sellers take you more seriously.

Find a Good Real Estate Agent

Real estate agents can help tremendously with the home buying process. Agents who work in a particular market know the area and can give you insight into the neighborhoods and school districts. When you are ready to start looking at homes, interview agents and hire one once you find the right fit. You can consider a buyer’s agent who will not only help you find the right home but also negotiate the best offer and recommend professionals whose interests align with yours. Listing agents will usually represent the seller and the main goal for this agent is to get the best purchase price on the home. The buyer’s agent will help from the buyer’s perspective so it’s best to work with someone who represents your own interests.

Start Shopping for the Home

This is where the fun part begins. Have a list of top requirements that you can give to your agent so you aren’t wasting your time looking at homes that won’t meet your needs. When you begin to view homes, take photos and notes since it can be hard to remember all the unique features when you start to look at several properties. In addition to looking at the home itself, you also want to look at the neighborhood. See how traffic flows and get a sense of the character. Talk to neighbors and check crime statistics in the neighborhood.

For a home you are considering, see if you can get a copy of any homeowners association documents so you know what the rules are and if this will work for you. Doing as much research and due diligence as you can ahead of time will help you avoid any mistakes in the process. If you buy a home without researching the schools and later find out they aren’t the best, you will be disappointed. Never purchase a home without seeing it first.

Make an Offer

Once you find the home you love it’s time to make an offer. This can be an exciting time but it’s also a nail-biting part of the process. Your agent should run an analysis of other comparable listings that have recently sold in order to help you make an offer that is competitive. Your offer will include the offer price, deadline for the seller to respond, and any contingencies you want to request. Contingencies, such as those for the home inspection, financing, and appraisal, give you the ability to walk away from the deal without any penalty if certain conditions are met.

Negotiate Closing Costs

Within days of applying for a mortgage, you will get a loan estimate that details the loan terms, along with estimated closing costs. Some closing costs are negotiable. For example, your lender may charge underwriting fees or an origination fee that is discounted or waived if you ask. The seller may also pick up some of the costs. You may be able to get the closing costs rolled into your mortgage but then you will usually pay a higher interest rate. It’s important to understand there is some wiggle room to negotiate on certain services.

Get a Home Inspection

An inspection only takes about three hours and can range in cost but it’s important. Home inspectors will usually check the home’s roof, physical structure, and heating, plumbing, and electrical systems. However, an inspector usually won’t look for mold or lead paint. Your real estate agent can recommend a good inspector or you can find one on your own with a little research.

It’s always good to put a contingency clause in place that will allow you to cancel the deal without any penalty if the home inspection uncovers major problems and the seller won’t address them. You and your agent should be present during the inspection so you can ask questions. Even if a typical home inspection won’t cover it, you can also have someone inspect for mold if you are concerned about it. You can ask the seller to purchase a one-year home warranty at closing. This can be reassuring for first time buyers with a tight budget.

Get Insurance and Finalize Your Move-In Details

Homeowner’s insurance will be required by your lender and is necessary to help protect your big investment. Premiums can vary so, just like with lenders, you want to get quotes from multiple prospective companies. Figure out your needs and make sure that you get enough coverage for you to rebuild your home if it’s damaged or destroyed. If your home is located in a flood zone, you will need to get flood insurance as well. As you start to prepare for move-in day, contact local utilities to arrange for a new service for your move-in date. You can also start to hire movers and start the packing process. There are a lot of upfront costs when it comes to buying a home and there could even be some unpredictable ones after move-in day. It’s a good idea to have an emergency fund for any surprise repairs or maintenance.

Time for Closing

You will have to get updated financial paperwork and paystubs before you close to prove your employment status hasn’t changed and you can make your mortgage payments. Within 24 hours of closing, buyers will do a final walkthrough of the property to make sure repairs, if the seller was responsible for them, were made and the home is vacant. At closing, you will sign a lot of paperwork to finalize the loan and transfer ownership. You will be required to wire funds or bring a cashier’s check for the down payment and must also have your identification.

Your lender and real estate agent will walk you through the process and it’s okay to take your time as you review documents. You are committing to the largest financial transaction you will likely make in your life Three days before closing, you will get a form that outlines the fees and the loan. Compare it to your initial loan estimate to make sure you aren’t being charged unexpected fees and that your personal information is correct.

Your Guide to Understanding the Mortgage Process

Benefits of Owning a Home

A home buying guide can only help you so much if you don’t realize the potential benefits of owning a home.

Owning a home is an investment. Unlike many purchases that decrease in value, homes appreciate over time. Even though local markets have different factors, the national median home price goes up each year. Every time you pay your mortgage, the debt amount goes down and the value of your home continues to rise.

With homeownership, you can take advantage of tax benefits. The biggest tax benefit is the option to deduct interest payments from your income tax return. This is especially important at the start of the mortgage when a lot of the monthly payment is applied to your interest.

Depending on the mortgage you choose, you can help stabilize your housing costs. If you have a fixed-rate mortgage then you have the same payment for your entire term, while rental payments for nearby properties can continue to rise.

You get more control over your living space. Renting usually doesn’t allow you to have a lot of options when it comes to personalizing your living space. With homeownership, you can make improvements to your home. Home improvements can actually lead to increased home value, both in your daily home life and financially. With the power of equity, you get the extra finances you need to reinvest in your home when cash funds aren’t an option.

Different Types of Mortgages

Part of following a home buying guide is figuring out different types of mortgages you can get.

Conforming Loan: The conforming mortgage loan is what many people think of when they think of a home loan. This type of loan is a good choice for homebuyers who have a good credit score and can save for a down payment of at least 10%. Conforming loans can come with fixed rates, where your interest rate never goes up or down and you pay the same amount every month. It can also be available with an adjustable rate, where the interest rate changes based on the market.

FHA Loan: FHA loans are a popular choice with first-time buyers because they require a smaller down payment and have more flexibility when it comes to underwriting. Those with below-average credit can also get approved.

VA Loans: VA loans can be useful to those in the military. They are available to veterans and active members of the U.S. military. The rates usually beat all other common loan types.

USDA Loan: These loans are for those who are in rural areas and these loans don’t require large cash down payment.

Avoiding Homebuyer Mistakes with a Home Buying Guide

Even if you are following a home buying guide, it can be easy to make some mistakes. Make sure to avoid them so the process goes smoothly.

Talking to Only One Lender

This is a big mistake and can leave thousands of dollars on the table. The more you shop around, the better position you are in to compare to make sure you are getting a good deal and the lowest possible rate. When it comes to where to shop for a mortgage, there are plenty of options. You can choose to go to your bank, the local credit union, or even use an online lender.

If you want to look into the best online lenders, you can fill out the form below and Loanry will match you with lenders who may be willing to give you a loan based on the information you provide. Start here:


Buying More Home than You Can Afford

It can be easy to fall in love with a home that can stretch your budget. Overextending yourself is not a good idea. When you buy a home that exceeds your budget, it will put you at risk of losing your home if you reach tough financial times. There will be less wiggle room in your budget for expenses or other bills.

Moving Too Quickly

Buying a home can be a complex process and there are a lot of steps in the home buying guide. A big mistake you can make is not planning far enough ahead for the purchase. Rushing the process can mean you don’t have enough saved for a down payment and closing costs and you are aren’t addressing issues on your credit report.

Draining Your Savings

Spending all your savings on the down payment and closing costs can be an issue. While it may be nice to put down 20% so you can avoid mortgage insurance, you want to have savings left for needed repairs or an emergency fund. Paying mortgage insurance may not be ideal but if you deplete your savings to make a bigger down payment, it’s riskier.

Not Paying Attention to the Neighborhood

If you are fixating on the home, you could wind up in a neighborhood you don’t like. Selecting the right neighborhood is important for your family and life. Be sure to discuss with your real estate agent about school ratings and crime stats. Visit the neighborhood at different times to get a sense of neighbor interactions, traffic, and the overall vibe.

Making a Decision Based on Emotion

Buying a home can be a big milestone. It can be easy to get attached and make an emotional decision. Remember that you are making probably the largest investment of your life. Emotional decisions can lead to overpaying for a home or stretching your budget.

Not Sticking to Your Budget

It’s best to look at properties that cost less than the amount for which you were preapproved. Even though you may technically be able to afford your preapproval amount, that’s the ceiling and it won’t account for other monthly problems or expenses. Shopping with a firm budget in mind can help when it comes to making an offer. When you find a home you love, it’s tempting to make a high-priced offer thinking that it will help you win but sticking to your budget can ensure you avoid a mortgage payment that is hard to afford.

Getting Your Down Payment

Your down payment is a big part of a home buying guide. It’s the cash you pay upfront to get a home loan.

Many people believe that you need a 20% down payment. While there are benefits to having a 20% down payment and lenders do like to see this, this is not the only way to buy a home. A 20% down payment has some benefits, such as putting more equity into your home right off the bat and a lower monthly payment, but there is also a caveat. The down payment is not the only upfront money you have to worry about. The closing costs can be a huge chunk as well.

There are some other low down payment alternatives for you to consider. Different mortgages have lower rates and it’s possible to buy a home with as little as 3% down.

You will need to decide the right down payment for you. It may sound like an easier decision to just go with a lower option but a lower down payment can make you a bigger risk in the eyes of a lender. This is why mortgages with lower down payment requirements are backed by the government. Instead of requiring mortgage insurance, some of the options will include a funding fee or an upfront guarantee fee. Whatever it is called, a fee is a fee. If you are considered a higher risk then you will likely pay a higher interest rate for the life of the loan, in addition to these other fees.

Calculating Your Mortgage Payment

It’s easy to calculate your mortgage payment if it just includes principal and interest. For this, you can use a bare-bones calculator. However, this is rarely the case. There are a lot of costs that can be built into your monthly mortgage payment. There are some key components that could play a role when you are calculating your monthly payment.

Principal

This would be the home’s purchase price minus any down payment. It the amount you are borrowing for the home.

Interest

This is what the lender charges to loan you the money for the home. Interest rates are expressed as a percentage.

Property Taxes

This is the annual tax assessed by state and local government authorities on your land and home. Property taxes may sometimes be separate from your mortgage payment or added in.

Mortgage Insurance

If the down payment is less than 20% then you may be required to have mortgage insurance. This insurance protects the lender in case you default on the mortgage. Once the equity in your home reaches the 20% threshold then the insurance is cancelled, unless you have an FHA loan.

Homeowners Association Fee

If your home is part of an HOA then a fee is paid to the organization that helps with property improvements, upkeep, and shared amenities. This can also be separated from your mortgage payment occasionally.

Final Thoughts

If you are a first-time homebuyer, it’s important to follow the steps in a home buying guide. Even if you have bought a home before but it has been a while, a home buying guide can help you plan ahead so you are ready for the process. There are many benefits of buying a home and some signs that mean you could be ready for homeownership. Consider different mortgage options available to you, especially if your credit score isn’t the best. You also want to avoid common mistakes that can happen during the home buying process so you are taking advantage of the lowest rates available.

How to Do a Cash Out Refinance to Consolidate Debts

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

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

What is a Cash Out Refinance?

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

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

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

Will That Not Just Add Debt?

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

A Cash out Refinance to Get Out of Debt

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

 

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

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

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

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

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

7 Careful Steps To Consolidate Debt Without Tripping

 Why Would I Want to Do That?

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

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What is Your “Why”?

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

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

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

Is It In Line with Your Beliefs and Values?

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

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

Benefits of a Cash Out Refinance to Consolidate Debts

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

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

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Risks of a Cash Out Refinance to Consolidate Debts

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

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

Still Not Sure?

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

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

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

How to Do a Cash Out Refinance?

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

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

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How to Shop for a Mortgage

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

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


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

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

Conclusion

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

Mortgage Broker Fees Explained: Home Loans 101

Shopping around for a house mortgage is an important step of the process. However, many people don’t have time to contact different lenders and look at all the little details so they choose to go with a mortgage broker instead. Before you decide to go with a mortgage broker, you should understand how mortgage broker fees work so you can make sure it’s the right decision for you.

What Does a Mortgage Broker Do?

When you go to the bank to get a loan, the bank offers you only the loans they carry. Since it’s only one institution, the loan options can be limited and may not suit your needs.

If you go to a mortgage broker, he or she can have a variety of loan options from various lenders. It’s the mortgage broker’s job to find the best mortgage rate tailored to you and this is why they charge mortgage broker fees. For example, if you need to get a house but can’t afford more than 5% down payment then your mortgage broker should approach lenders that have those terms.

How Do Mortgage Broker Fees Work?

Unlike a loan offer, a mortgage broker doesn’t work for a bank. Brokers are independent and must have a license. They will charge a fee for their service, which can be paid by you as the borrower or the lender. The fee will usually be a small percentage of the loan, which varies between 1% and 2%. If you are paying these fees, the dollar amount can be paid upfront or added into the loan. Mortgage brokers will need to disclose fees upfront and only charge what is disclosed. Every fee should be itemized and the mortgage broker will need to tell you exactly why each fee is being charged. Fee costs will vary depending on the number and size of the loans.

The Dodd-Frank Act put in new regulations on how mortgage brokers get paid and how the fees work. Prior to this, lenders could compensate brokers if the brokers could get their clients to agree to high interest rate loans and then sign off on the fees. There were few laws in place in order to protect clients. As a result of this, there is more protection for clients. Now mortgage brokers can’t charge hidden fees, can’t tie the pay to your loans’ interest rate, can’t get paid for steering you in the direction of an affiliated business, and can’t be paid by both you and the lender. Unless you pay the cost upfront, mortgage brokers will generally not receive payment unless there is a closed deal.

Lender Paid Compensation

With a lender paid fee, a broker will connect a homebuyer to a mortgage lender and then the lender will pay the broker. Brokers can receive different compensation from different lenders. For a homebuyer, this structure can work out because they don’t have to pay for the broker when the deal is closed. However, you will still cover the commission indirectly, usually by paying a higher interest rate.

A drawback to this payment structure is that brokers can be biased by the compensation given by different lenders. A responsible broker should be offering the most affordable option, regardless of the commission they are getting paid. Unfortunately, not all brokers can be so honest and if the broker is going to prioritize their own profit then the homebuyer can end up paying a lot more than what is needed.

Borrower Paid Compensation

When a mortgage broker users a borrower paid fee schedule, the homebuyer pays for the broker’s services when they close on the loan. This payment will come in the form of an origination fee. The fee will vary based on your state of residence, your broker, the complexity and size of the loan, the housing market, fee caps, and more. Borrower compensation also isn’t always in the form of origination fees and can just be another miscellaneous fee. Even if the borrower is paying this fee, it’s still advantageous to borrowers since it will remove the broker’s temptation to choose a more expensive lender who gives them higher compensation. The broker is more motivated to choose an affordable lender since they will be paid the same.

Which Mortgage Broker Fee Structure Is Right for You?

Regardless of the compensation structure, you will end up paying the broker’s fees in one way or another. The right fee structure for you will depend on whether you want to make the payment over the course of the loan or upfront. If you are able to have the money upfront then a borrower paid compensation option can be your best bet. This way you can avoid inflating your loan payments. You also won’t have to worry about whether or not the recommendations were just influenced by the broker’s desire for higher compensation.

Fee schedules can vary by different brokers. If you want to get a good deal, you will have to comparison shop. Be sure to look at the whole picture, including other lender fees and the interest rate for the best overall value. Brokers will not usually have a salary or any base pay. Brokers get paid by commission. If you see a broker advertising a no-cost loan, this should make you suspicious. Ask how a broker is being compensated if they aren’t disclosing that information to you.

Do You Need a Mortgage Broker?

Since there are mortgage broker fees, you may be wondering if you actually need the services of a mortgage broker. There are pros and cons to using their services but it’s helpful to know that mortgages can be complicated and it can be difficult to actually crunch all the numbers yourself.

Pros of Working with a Mortgage Broker

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Brokers will give you all of your options. Many homebuyers just choose a loan from the bank where they already have a checking account but it helps to know all your loan options from a variety of lenders. Shopping around is the key to finding the best deal and a broker can deliver a more ideal loan than one bank ever could. Brokers are able to save you time. While it’s possible to compare all your options on your own, it can be time-consuming.

Brokers can handle all the negotiations with the lenders and many have relationships with certain banks that allow you to speed up the process. If you are in a rush then using a broker can help. Brokers will give you specialized attention and factor in your specific characteristics to match your application to the best lender for your circumstances. This can be helpful if you are an abnormal candidate but it can also help even if you do have good credit.

Cons of Working with a Mortgage Broker

No matter where you get the loan from, there will be fees. These can be in the form of appraisal fees, origination fees, and application fees. Some mortgage brokers can get some of the fees waived. However, brokers still charge their own mortgage broker fees. Mortgage broker fees are usually paid by you but in some cases can be paid by the lender. Whether it is added to the loan or paid upfront, it can still be a chunk of change. You need to know what your mortgage broker is charging you and weigh it against the benefits. Mortgage brokers are independent from banks but they can still have biases. Some brokers can have a long history of dealing with a certain lender and favor them. In some cases, the lender may pay the mortgage broker fee, which sounds great unless the loan has undesirable terms.

Different Mortgage Broker Fees

Mortgage brokers may have different ways of naming their fees. Here are some that you may find.

Loan Origination Fees

Some brokers will add their fees to the origination fees by the lender. If this is the case, you want to ask for a breakdown. Loan origination fees will be a percentage of the loan.

Yield Spread Premium

This is a fee that lenders pay brokers for getting the client to agree on an interest that is higher than the going market rate. If you are going to choose this deal with your broker then check to see if the interest rate is competitive. If the broker is not charging you this fee then someone is paying this fee.

Upfront Fees

This fee will usually be charged if a borrower is looking for a jumbo loan. They are typically charged as a flat fee for setting up the loan. If the broker isn’t charging this fee then check to make sure the broker isn’t getting a yield spread premium from the lender.

Administration Fees

In some cases, a mortgage broker will add administrative fees to the standard fee. If you see these fees on your agreement, ask to have them be waived. Unless you are at high risk due to your credit profile, you can usually negotiate your way out of these types of fees.

How Do You Find a Mortgage Broker?

Mortgage broker fees are important but it should only be one factor when you are shopping for a broker.

The best way to find a broker is by asking relatives and friends for referrals and make sure they have actually used the mortgage broker. Learn what you can about the services, communication style, and approach to clients to make sure it’s the right fit for you. You can also ask your real estate agent. Some real estate companies do have an in-house mortgage broker as part of their service but you don’t need to be obligated to go with that individual or company.

There are some different questions you can ask. Ask how the application process works. One of the main reasons for using a broker is to make the home buying process easier. The best mortgage brokers can provide information on the application process, such as a comprehensive list of documents you need to complete an application. The broker should take into account your personal circumstances and ask questions about your situation so they can find the best solution. Find out how long the entire process will take. You want to know what to expect and if the broker can guarantee on-time closings. Check the track record of the broker. Does he or she have a good reputation? How long has he or she been in business? Read reviews and ask for references.

Mistakes You Should Avoid When Buying a House

There are a lot of mortgage tips out there but there are some mistakes you should avoid when getting a mortgage, whether you are a first-time buyer or looking to refinance.

Not Getting Pre-Approved

Not shopping for a mortgage until you have already found your dream home can be a big mistake since you can be too late. Many sellers require a pre-approval notice be given with an offer and the process can take days or even weeks. It’s best to apply for pre-approval before you look at any available properties. When you do this extra step to prepare your finances, you are ready to submit an offer quickly when you find the perfect home.

Borrowing Your Max Amount

The pre-approval can help you figure out how much you can afford to spend. Many buyers believe that the amount on their pre-approval letter means that is the amount they can spend. Instead, it’s better to think of the loan amounts as a range. You may have the ability to borrow that much but you don’t necessarily want to go that far. It’s best to do some budgeting on your own. Look at your income and expenses in order to figure out how much you would be comfortable putting toward a mortgage each month. Use that number and play around with a mortgage calculator until you land on the price of how much home you should really be buying.

Overestimating Abilities

Buyers may be willing to take on remodeling and repairs in order to get a lower sale price. The repairs may require more money, time, and skills than buyers have. If you are looking at a fixer-upper property that will need a lot of care, make sure that you are honest about your abilities. Do you have previous remodeling experiences? Can you afford professional help? What will happen if there are unforeseen expenses and problems?

Not Reading the Fine Print

You should be reading everything you are signing in full. This is easier said than done so it’s easy to skip a section. This mistake can cost you a lot. When you are negotiating an offer, you need to know exactly what you are agreeing to before you sign. The mortgage broker fees are just one of the things you need to understand when getting a mortgage.

Not Getting an Inspection

Inspections are there for the buyer’s benefit and skipping inspections may not give you more bargaining power. If you choose to waive any inspections then you agree to take financial responsibility for any repairs that can come up, even if the problems pre-date your ownership. Weigh your options carefully if you decide to not get an inspection.

Forgetting about the Closing Costs

Budgeting to get a home isn’t just about what you can afford as the monthly mortgage payment and down payment. You also need to consider closing costs. Closings costs are paid at settlement and include the fees needed for the transaction. The exact amount you will pay at closing will depend on your property but it usually between 2% and 5% of the purchase price.

What Is the Mortgage Process?

Where to shop for a mortgage and understanding mortgage broker fees are just two parts of the mortgage process.

Finding a Lender

The first step is to find a lender. This is where you may want to work with a mortgage broker and you need to understand mortgage broker fees. Finding the right mortgage and mortgage provider is essential if you want to have a positive home buying experience. Be sure to shop your options first.

In this step, Loanry can help you. Allow us to present you with mortgage loan options. Put your information down below and see if you qualify for a loan with any of the lenders:


Getting pre-approved and starting to look for a home

The second step is getting pre-approved. This will make it easier to move quickly on a home you want and can give you an idea of how much home you can afford.

The next step is the fun part where you get to look at homes. Have a list to help you keep focused on your must-haves so you don’t get overwhelmed.

Making an Offer

Once you have found a home you want, you then will need to make an offer. The right real estate agent is important. Offers aren’t just about the asking price. You may have the seller agree to leave the washer or dryer and other appliances instead of a lower asking price.

Applying for the mortgage

Next, you will be doing all the paperwork. If they accept your offer, you need to complete the application and submit documentation about your financial history and income. An underwriter, whose job it is to verify everything needed for the loan, then evaluates these documents. The lender requirements will need to be met and there are also government guidelines that need to be followed. During this whole process, you could be asked questions about your financial past. Be sure to answer as completely and honestly as possible, even though it is a tedious process.

Closing

Then you will come to the closing. The good news is you are almost done with all the paperwork and then the last stage involves legal details and small print. You will need to pay attention to everything that is happening during the closing process and all the documents that you are signing.

Your Guide to Understanding the Mortgage Process

Conclusion

A mortgage broker can help you when it comes to where to shop for a mortgage and finding the best deal for your situation. Brokers do have mortgage broker fees that you will need to understand when it comes to getting the deal. Some of the time the lender pays mortgage broker fees and other times borrower pays these fees. There are advantages and disadvantages of working with a mortgage broker that you will want to weigh out. You also want to make sure you are getting a broker that will give you the best deal and really help you with your application process. Whether or not you work with a broker, be sure to avoid some home buying mistakes and know the mortgage process in order to make sure it all goes smoothly.

Subprime Mortgage Loans For Bad Credit Borrowers

Buying a house does not have to wait for you to earn perfect credit. It also does not have to wait for you to save all the money to buy it outright. You can still obtain bad credit mortgage loans. The financial communities refer to this as a Subprime Mortgage Loan.

Subprime Mortgage Loan For a Low Credit Score

Subprime mortgage loan refers to a loan extended to a borrower with a higher risk than those referred to in the financial term “prime” which refers to the lowest risk borrowers.

A prime borrower provides a low risk because she has a high credit score, a low debt load, and a healthy income. These factors indicate the prime borrower can easily cover the monthly loan payments. A subprime borrower has characteristics such as a lower credit score, a higher debt load and may have a lower income.

A glut of subprime mortgage loans to bad credit borrowers contributed to the mortgage crisis of the mid-2000s. These higher-risk borrowers did default on their loans, creating fiscal issues throughout the finance industry.

This did not stop the finance industry from extending subprime mortgage loans to subprime borrowers, but it did make it tougher to obtain. Even with bad credit or no credit, you can still get a loan for a home, an automobile, a motorcycle, a medical need, education, or another reason. It will simply take more planning and additional time.

A subprime borrower has characteristics such as a lower credit score, a higher debt load and may have a lower income.

Subprime Mortgage Loans and Credit Scores

Two situations apply to those considered subprime borrowers. They either have no credit established yet or they have poor credit.

No Credit

A person who has never borrowed money before has no credit. Quite simply, borrowing money is the only way to build credit. That may not seem fair, but it is typically easy to fix. It is a common situation for high school graduates and college students. The simple fix to establish credit is to take out a small loan or a store or major credit card. Once you charge a small amount, quickly re-pay it within the time provided. Make every payment early or on time. You may only qualify for higher interest rate credit cards, but this will change once you establish credit and develop a credit score. To develop credit, you have to start small with a credit card. Once you establish credit you can move on to the larger items like a home loan.

Poor Credit

A person with poor credit has experienced problems with repaying debt in the past or they have too many loans with not enough available credit, also known as their debt to loan ratio. Another reason is that their income seems insufficient to cover the loans they have outstanding.

Your credit score, also called a FICO score, summarizes all this information into a single three digit number. Any score 640 and above ranks as prime. Any score below 640 ranks as subprime.

Mortgage Loan Basics Spelled Out: Lending 101

That leaves a lot of room since credit scores start at 300. While 640 might sound pretty impressive, they can go all the way up to 900. The perfect score, 900, is pretty tough to obtain, but scores in the 500s to 700s are pretty commonplace.

The credit reporting agencies look at a lot when determining your score. While each credit reporting agency uses a different algorithm, weighting one criteria a little more or less than another, they all look at the same data. They consider the data points:

  • when and how often you made late payments,
  • cases of non-payment,
  • current debt amount,
  • kinds of credit accounts you have,
  • length of your credit history,
  • how many inquiries have been made on your credit report,
  • your overall history of applying for credit,
  • any bad credit behavior, such as evictions or writing bad checks.

How Does Subprime Status Affect Interest Rates?

You’ve probably heard TV commercials talking about the “prime rate” and “subprime rates.” These terms refer to the interest rate the mortgage loan offers. Getting a loan at the prime rate means you got a loan at the lowest rate possible. A subprime rate is a higher interest rate offered to those with poorer credit.

Smart Money Tip!

Since a subprime mortgage loan has a higher interest rate, the monthly payments for it cost the borrower more. This makes it even more important for people to shop around for the right loan with the best interest rate available to them. Taking out a subprime mortgage loan can require the borrower to pay out a significant portion of monthly income in repayment.

Compounding the Problem

This compounds the problem of a poor debt-to-income ratio. Typically, people who already have a poor debt-to-income ratio must take out subprime mortgage loans which have less than desirable terms. This means they are further overextending themselves and spending the majority of their income on monthly payments. This gives them little to no ability to absorb an unexpected expense or reduction or loss of income during the repayment of the subprime mortgage loans.

Costs Associated with Subprime Loans

It is not just the interest rates that cost more on subprime mortgage loans. These loans cost more to take out as a risk reduction measure by financial institutions. The fees for applying for a subprime mortgage loan and for processing it cost more. These loans also commonly include prepayment penalties which means even if you do get ahead and manage to make larger payments, you get penalized for it.

Everyone Takes on Risk

Taking out a subprime mortgage loan does not just mean risk for the bank. It means more risk for the borrower, too. The lender charges more interest and fees since its less likely it will get repaid. For the borrower, the loan proves more risky since it cost more at a time when the borrower is already stretched thin.

Subprime Mortgage Loans: Not Just for Mortgages

A small warning: the subprime crisis that peaked in 2008 will make it tougher to find a mortgage if you have less than ideal credit. It proves much easier to obtain subprime mortgage loans for automobiles, credit cards, education and personal loans. That’s because since the crisis occurred, the government strengthened consumer protection laws. Although it is harder to find them, some pre-crisis loans still exist.

Mortgage Loans
(See Mortgage Rates)

How to Improve Your Loan Chances

Make it easier to whittle down your lender choices by using Loanry.com. This loan mall turns the once arduous process of applying for loans into a process more like picking up a new pair of shoes at the mall. However, keep in mind that they are not lenders, they just do their best to help you find a lender who might fit your needs.

Using Loanry: A Quick How To

Start your mortgage loan shopping at Loanry. Here’s how.

  1. You visit Loanry.
  2. You choose the loan type you need at the top of the screen.
  3. Complete the short form with your basic information.
  4. Loanry through a database of financial institutions.
  5. Loanry either helps you find a lender after completing a form or you can use money tools to click on ads with minimal input.
  6. You complete the lender’s long application on the lender’s site.
  7. Each lender responds to you directly.

Loanry helps you determine which lenders may be suited as the lender only responds to consumers they feel could work for their loan type. That cuts down on the research you have to do. It may even save you the application fee to banks or financial lenders for which you would not have qualified. While Loanry cannot and does not guarantee you will get a loan from these lenders, it does make looking for an appropriate lender quicker.

It also reduces the number of pings to your credit report. These hard hits, or information requests, occur each time you apply for credit. Each one lowers your credit score just a little. If you apply for many credit cards and loans, you will reduce your score, even if you did not take any out or were refused for each one.

Loanry is not a lender. It never loans money. It just makes the process of finding a loan a little easier. It also offers numerous financial educational articles like this one, so you can learn how to manage your credit better, for free.

Here’s a form you can fill out if you want us to start connecting you with lenders right away:


Try a Different Kind of Legitimate Lender

While you shop around for a mortgage loan with a still decent subprime interest rate, look into the new types of legitimate loan opportunities. While a traditional bank or credit union might refuse you, you could score a loan with a peer-to-peer lending service. Online lenders may also prove more amenable to loaning to you. Fully research any lending institution before you apply or submit your social security number. If you do use a non-traditional lender, have a financial and legal expert such as a CPA review the paperwork before you sign the application. This increases in importance if you are a first time home buyer.

Request a Meeting with the Lender

Although many financial institutions offer online applications, they still maintain local branches of their organization. If this is the case, request a loan meeting. Often, you can improve your chances of a “yes” from the bank or credit union by meeting in person with them. Your presentation and demeanor go a long way toward getting them to agree to a loan. So does the information you take with you.

The Paperwork

The Mortgage Loan Process

Your credit score and credit report do not show everything. They only show your repayment of credit cards and loans. It does not reflect your monthly bills, rent or private loans that do not get reported to organizations like Experian, Equifax and TransUnion. It may not list your employer or salary.

Take with you to the meeting, your pay stubs proving you have regular employment and that your employer pays you a steady amount on a regular time cycle, such as weekly or monthly.

Take with you a proof of your savings accounts, Certificate of Deposits, stocks, bonds and/or retirement fund. This shows the financial institution that you can continue payments if your employer reduces your hours or terminates your employment.

Traditionally, subprime borrowers did not have these other resources. Now, however, many people have overextended their lines of credit, but retained their company IRA or still maintain a stock portfolio.
Present this documentation to the financial lender to strengthen your application. You can also take in proof of your timely payment of monthly bills to utilities, your phone company and your landlord. These items show that you pay on time and in full.

Improve Your Credit

The first step to a higher credit score is to check your credit reports. You can do this for free. Check each of the three major credit reporting agencies.

Check each report for errors or inconsistencies. Some agencies have more information than others because they include aspects the others do not in their report. For example, Experian offers individuals the ability to include their utility payments and cell phone payments in the calculation of their score. You must turn this feature on by signing up for it though.

Address any errors or inconsistencies. Report incorrect information to the credit reporting agency. Include proof of payment. If the report shows missed payments, but you actually made the payments, show this. Also, provide dated materials that refute late payments. Correcting these mistakes can result in quick increases in your credit score.

Pay your bills on time. It sounds simple, but it proves quickly effective. Just six months of paying your bills on time can raise your credit score.

One way to do this more easily is to consolidate your loans. You can turn five loans and credit cards into a single due date each month and a single payment. These also result in lower payments.

Increase Your Income

If you have been at your job for a while, request a raise. You’ll need to have been with the company for a decent length of time and produce high-quality work.

You can also obtain a part-time job. Work at it for a few months before applying for the loan. This gives you a few pay stubs to take in with you when you interview. You can either use the money to pay off existing credit lines to reduce your debt-to-loan ratio which raises your credit score or you can save it in a bank account to show that you have means to pay the loan payments for a few months if you lose either job.

You can also start freelancing as a personal assistant, blogger, Lyft or Uber driver or some other pursuit. While you will not have pay stubs, you will be able to build a savings account that lenders can consider as potential repayment monies.

How do you know if you need to bring in more income to take out a loan? Look at your current budget. If adding the mortgage loan to your existing credit and loans, will require more than 30 percent of your monthly income to repay, you need to do one of three things:

  1. pay off existing debts before acquiring the mortgage,
  2. borrow less money on the mortgage,
  3. get an additional job or freelance to add to your income.

Use a Cosigner on the Loan

Okay, so it hearkens back to when you were a teenager buying your first car, but you can still use a consigner. It’s not cheating if it gets you the mortgage and you know you can make all the payments, you simply need the credit worthiness boost. For those without good credit, with no credit or who have not had sufficient income for a long enough time to qualify for a prime loan, a cosigner can make all the difference.
The cosigner refers to a person who applies for the loan with you, essentially providing their awesome credit score to help get the loan. They accept absolute responsibility for loan re-payment if you cannot repay it. This transfers the majority of the risk from the lender to your cosigner.

Put Up Collateral

You can put up collateral for a loan. This provides a guarantee to the bank that you will pay back the loan. Collateral refers to a tangible asset that the bank could claim, then sell, to cover the amount of your loan. Examples include a boat, houseboat, vehicle, land or stocks and bonds.

Watch Out for Rip Off Loans

Let’s just say it straight out – don’t take a loan you can not afford. Use a loan calculator online to determine what loan amount, interest rate, and term length you can afford. Do not exceed that. It is much better to wait, improve your credit score, and obtain a reasonable loan.
Although it sounds a bit like TV, avoid going to a loan shark. They really exist and if that becomes your sole option, you need to wait to improve your credit score, so you can obtain a loan from a standard lender.
Read the Loanry blog to learn about legal interest rates, common rates and how the length of repayment times affects you.

Subprime Mortgage Loans In Depth

There are many costly mistakes that can occur when buying a home. Financial lenders use “risk-based pricing” when determining mortgage terms and rates. A subprime interest rate will be higher than the prime rate, but your credit score decides how much higher, combined with the types of delinquencies on your credit report and the down payment amount.

Subprime mortgage loans typically include a balloon payment penalty or a pre-payment penalty. Sometimes, they include both.

The term pre-payment penalty refers to a charge to the homebuyer for an early loan pay off. If you pay it before the “end of term” you reduce the amount of interest the bank receives. Whether this occurred because you wanted to refinance, you sold the home or you wanted to simply pay if off because you had the money, the bank wants its interest for extending the risk to loan you the money.

The term balloon payment refers to a lump sum payment the borrower must make to the bank after a specified time period has expired, typically about five years. If you cannot make the balloon payment, you must do one of the following:

  • refinance the home,
  • sell the home,
  • lose the home.

Bad Credit Mortgage Alternatives

You do have other alternatives to taking out a subprime mortgage loan due to poor credit. These options also work well for those who can only manage a small down payment.

Federal Housing Administration (FHA) Loans

The FHA offers loans to people with scores below 620. You can obtain an FHA loan with a three percent down-payment.

Veterans Administration (VA) Loans

Obtaining a VA loan can help you afford a mortgage. These very low-cost loans can require no down payment.

2/28 Adjustable Rate Mortgage (ARM) Loan

This type of subprime mortgage loan offers a two-year teaser rate. After the two year period, it adjusts annually. The 2/28 ARM provides a low rate for the first two years, but thereafter goes through a sharp interest rate increase. Many buyers refinance at the two year point. The interest rate increase can cause a significantly higher monthly payment.

Bad Credit Loans

Sometimes, you have no other alternative than to take out a bad credit loan. These will have a subprime interest rate and they can go up to 25 percent which can seem like you put a house on a credit card.
How do you know when a bad credit loan is the only mortgage for which you can qualify?
Let’s say that your credit score sits on the borderline of good credit. The following things will decide whether you will need to apply for a bad credit mortgage loan:

  • bankruptcy during the last 24 months,
  • a foreclosure or loan charge-off during the past 24 months,
  • more than one delinquency of 30 days on an existing mortgage during the past 12 months,
  • one delinquency of 60 days on an existing mortgage during the past 12 months,
  • your debt to income ratio is more than 50 percent,
  • you were late with your rent.

Buying Your Home as a Married Couple

Here’s the deal. Just because you got married does not mean you have to do everything together. The same is true of taking out a mortgage loan. While you might think you have to put both names on the loan application and on the mortgage itself, you do not. This is great news for couples who have partners with divergent credit scores.

In fact, you can land a lower interest rate if only the borrower who has the higher credit score applies for the loan. Rather than applying as joint borrowers, save yourself money. While this means they will only consider the income of the applicant, you will know that you have two incomes and can pay the monthly costs. The loan officer must base the interest rate on the lower of the two FICO scores. The amount you save by applying with one borrower, instead of jointly, can add up to thousands of dollars annually.

Final Thoughts

This really only amounts to the tip of the iceberg of obtaining a subprime mortgage loan. You have a lot of research to do on your own, but you made a great choice getting started on Loanry.com. That’s where to shop for a mortgage. We want you to find just the right loan for you. We also want you to know what you’re getting into when you apply for a loan or sign the loan papers.

You can still obtain a mortgage with a lower credit score. If a FHA or VA loan won’t work for you, you may have to resort to a bad credit loan, also known as a subprime mortgage loan.

Mortgage Loan Statistical Overview: By the Numbers

Most of us want at least THREE things from home-buying experience.
First, we want to FEEL GOOD about it. We want to believe we’ve settled on the right house, negotiated a good price, and locked in a decent interest rate with the right lender. Second, we want to UNDERSTAND IT, at least enough that we can talk about it with others without feeling in over our heads. And third, we want it to BE DONE.

It’s fun shopping for homes for the first 3 or 4 (or for some of you, the first 8 or 10), then it starts to get confusing. Maybe even tedious. None of them are perfect. One has enough room, but it’s in an iffy location. Another one has exactly the look we’d hoped for and it’s a decent neighborhood, but the price is, well… a bit higher than we’d hoped.

Not to mention your friends or colleagues

That’s before you even mention to friends or colleagues that you’re shopping for a home (or thinking about refinancing our existing mortgage). Suddenly, everyone’s an expert on interest rates and real estate slang. They start talking about origination points and ask whether you’re locking in a fixed rate or rolling the dice with an ARM. And of course at least one guy at the office wants to project what the Fed will or won’t do next week so you should hurry up, or wait longer, or look into this completely different sort of financing you’ve never even heard of, and what’s your credit score, by the way?

Honestly, you were hoping more of them would ask you about that nifty deck along the back that you’d like to refinish. At least you’d know what you were talking about then.

I can’t answer all your mortgage questions that are going to come up for you. But I certainly can help by giving you a lot of well documented research and walk you through the numbers related to home purchase loans, refinancing and other types of mortgages. A few basic mortgage loan statistics can help you find your bearings and maybe feel equipped to ask the right questions and make better decisions along the way.

What Is a Mortgage?

Before we talk specific mortgage loan statistics, let’s start with some foundational stuff. What do we mean when we’re talking about mortgages?

Mortgage Loan Basics Spelled Out: Lending 101

At its most basic, a mortgage is the loan you take out to buy your house. The home you’re purchasing is generally used as collateral, meaning that if you fall behind on your repayments, the lending institution has the right to take your house. They don’t really want it, you understand – they’d rather you make the payments – but it’s their leverage to make sure that happens.

Lower that Principal…

Your mortgage payments have two primary elements – the principal and the interest.

The principal is the part that goes to the actual purchase price of the house. The interest is the extra you pay the lending institution for the loan. Your mortgage also usually contains payments towards taxes which come due annually. This part of your payment goes into a separate account until taxes are determined each year. That’s your “escrow account.” Sometimes insurance payments or other related costs are rolled in as well.

What’s The Big Deal With Interest Rates?

Interest rates are one of the most discussed, and even debated, mortgage loan statistics. At times, it may seem like overkill – and maybe it is. The thing is, the difference of a percentage point or two on that credit card in your wallet and that same point or two on a mortgage simply do NOT compare.

Let’s Look at an Example

Assume you owe $5,000 on your credit card and have an interest rate of 17%. You’re pretty determined to pay it off in 24 months, so you buckle down and do some math. To hit your goal, you’ll need to pay at least $256/month. At the end of 24 months, when your balance is $0, you’ll have paid $895 in interest.

Let’s lower that interest rate just 2%. Same $5,000 on your credit card, same 24-month target. At 15% APR, your payments now drop to $251 and at the end of 24 months you’ll have paid $786 in interest. That’s a difference of $5/month and about $109 over the course of two years. That ain’t nothing, but you’re unlikely to lose any sleep over it either way.

Let’s drop that APR one more time to 13%. Now your payments are $238 and you’ll pay a total of $734 in interest. $238 is nearly $20/month less than $256. Depending on how closely you pay attention to such things, that may or may not rock your world. It’s noticeable, but probably not critical.

What About Mortgage Interest Rates?

Now let’s talk interest rates on a mortgage instead. You find a modest little house, just big enough for the family, with that promising deck out back that needs a little work but has plenty of potential. We’ll use round numbers and say you offer $140,000, which the seller accepts. You pay $10,000 down and secure a fixed interest rate of 5% (somewhere around fair to shopping for a mortgage with good credit) on the balance with a standard 30-year loan. (We’re ignoring insurance, taxes, etc., to keep things simple.)


Credit Score Impact on Payment


At 5%, your monthly payment will be around $698/month – not bad! That means each calendar year you’re paying around $8,375 for your home.  When you make your final payment in the summer of 2049, you’ll have paid a little over $121,000 in interest for a total of around $261,000 for your home (nearly twice the purchase price). Fair enough, and quite doable.

Let’s Keep the Same Numbers Across the Board Except For That Interest Rate

We won’t go so crazy as to drop it 2% right off; let’s try a half-a-percentage point. $130,000 for 30 years at 4.5%. Before you look, how close do you think the numbers will be? Come on, take a guess – and be honest!

Your new monthly payment is about $658/month. That’s a $40/month difference. That’s enough for a nice dinner or two (depending on whether “nice” for you means “they bring you a menu and use cloth napkins!” or “I’ll super-size that and add a turnover!”). Each calendar year you’d be paying $7,904, a difference of $471. In my world, kids, $471 is enough to cover a car payments so we can drive to that nice dinner (with menus and cloth napkins). Your total interest over the life of the loan will be just over $107,000, a roughly $14,000 difference, or about half-a-car. The total you’ll have paid for your house after 30 years will be around $237,000.

Let’s Drop it One More Half-a-percentage Point, Just For Kicks

Rates change, right? Sometimes unexpectedly. That same cute house at 4% means monthly payments of $621/month, or $7448/year. We’re down $77/month and $927/year with a single percentage point drop. That’s a house payment-and-a-half each year. Total interest over the life of the loan is now down to $93,430 and you’ll have paid $223,430 for the house – about $37,500 less than at 5%.

I know that’s a lot of numbers to throw at you, but I thought it might give us some context. I’m not going to suggest that you freak completely out over a fraction of a percentage point here or there, but wanted to help us better understand those who do.

What Are Mortgage Interest Rates These Days?

Now you’re talking serious mortgage loan statistics. Appreciating rates in 2019 means looking briefly at those same rates historically. Rather than give you a long table full of numbers, let me offer a general sampling from recent decades and discuss general trends. It’s easy enough to look up the details if you’re so inclined and of course your credit is a factor for the rates you’ll pay.

According to Freddie Mac, the average annual interest rate on a 30-year fixed mortgage in 1979 was 11.2%. It rose the next few years, temporarily peaking in 1981 at just under 17%, gradually declining after that but not slipping below 10% until 1991. Keep in mind that these are annual averages – it doesn’t mean that everyone who bought a home received this rate, or that it was the same in March as it was in November. Still, these averages are useful anchors for recognizing clear trends in mortgage loan statistics.

After the 1981 Speak

So, after that spike in 1981 and a very slight reduction in 1982, interest rates for most of the 1980s hovered in the low teens and dropped to a shade over 10% in the final few years of the decade. As we moved through the 1990s, rates swung back and forth in the 7% to 9% range, with the high being 9.25% in 1991 and the low at 6.94% in 1998.

Source: Value Penguin

In Our 21st Century

For the first decade of the 21st century, interest rates continued to lower overall, dropping below 7% and at times slightly under 6%. The housing bubble burst (aka “the subprime mortgage crisis”) which began in 2006 is an important and fascinating topic (discussed quite effectively by The Balance here and here, in this article on Investopedia, and broken down into an impressive timeline by Wikipedia of all places), but you’d never know it just from looking at average mortgage interest rates. That’s one example of why mortgage loan statistics must be considered as a whole; you can’t always count on a single figure to tell you what’s going on.

Mortgage interest rates continued their gradual descent until hitting 4.69% in 2010, 4.45% in 2011, and – goodness golly gracious! – 3.66% in 2012. Rates have been hovering in the upper 3’s and lower 4’s ever since.

What Are Mortgage Interest Rates Going To Do Next?

There’s much discussion currently about what to expect from interest rates going forward. As I type this, it’s seems bound to 4% with elastic – stretching a bit above for a day or two, then a bit below, but snapping back with great regularity. Here’s the thing though – economics are complicated. Economists in general are far better at explaining why certain things have happened than they are predicting what’s coming next. That’s not a dis on the profession – it’s just the nature of the field.

It Does Matter!

Why does that matter for you as you debate whether or not to refinance your house mortgage or try to figure out where to shop for a mortgage? Because yes, it matters what the average rate is today, and what it might be tomorrow, or next week. It matters what the Fed may or may not do, or what the President may or may not Tweet which could dramatically impact the housing market for better or worse on a given day.

But while you should stay aware and try to educate yourself, as you’re doing right now, you can’t control those things. What you CAN control is what you do for your situation. The biggest question isn’t “What’s the average mortgage interest rate?” or any other detail of mortgage loan statistics. The biggest question is “What kind of mortgage interest rate can I get right now for me in my circumstances?” Which part of these mortgage loan statistics will help me make a better decision about my stuff?

It’s Not Just About Interest Rates – A Brief History of Home Prices

As I’m sure you recall from above, interest rates aren’t the only primary factor in mortgage loan statistics. It shouldn’t be a shock to discover that the price of your home is a major determinant of how much you’ll pay on your residential mortgage.

As with interest rates above, I’m going to try to do more than throw some tables at you, although there are some interesting graphs and such out there if you’re so inclined. Instead, let’s step back and talk big picture home prices – which of course are one of the two biggest factors in any mortgage loan statistics. Here’s one from this source that shows the steady increase in the average sales price of houses in the United States from the early 60’s to current day:

US Average Home Sales Price

According to figures from another source the National Association of Realtors, average home prices starting in the late 1960’s rose more or less steadily all the way through 2004.

Fifty years ago, in 1969, the average price paid for a home was $21,300. By 1974, it had risen to $32,000.

In 1979, the average home cost $55,700. By 1984, $72,400. By 1989, it was $89,500.

See a Pattern?

In 1994, the median price for a home purchase was $107,200. You’d think five years later as we were all worried about Y2K bringing about the end of civilization that perhaps housing prices would slow, but such was not the case. By the end of 1999, the average home sale was around $133,300.

The rise continued through 2004 when the average hit $185,200. It appeared it would never stop. That appearance, was, arguably, a big part of the problem. You probably remember the so-called “housing bubble burst” around 2006 (if for no other reason than I mentioned it only moments ago). While the trauma of those years wasn’t reflected in average interest rates, it absolutely dominated housing prices.

Prices began plummeting in 2007 and continued for several years. Again, we’re not talking every house in every market at every price point – but on the whole, it was bad. Bad for sellers, and not even that great for buyers, since you can generally only live in one home at a time and a plunging market is a horrible time for “flipping.”

Have Home Prices Recovered Or Not?

Since 2010, average housing prices have risen in fits and starts, peaking (so far) in 2017 at a little over $330,000. But it’s been messy. And, honestly, even before the crash, the numbers weren’t as clear as they at first seem.

Obviously inflation is a major factor. 1969 dollars simply weren’t the same as 2019 dollars. For sales prior to 2000, adjusting for inflation ruins that nice smooth climb I just described, and instead gives us a nice wave back and forth between approximately $150,000 and $175,000 in 2019 dollars. There’s still a gradual overall rise in housing prices, but it makes more sense – like everything else, prices fluctuated, but not radically. Instead, the growth happens in a more traditional “pendulum” pattern.

US Housing Prices

Even this more gradual rise in mortgage loan statistics is tricky to pin down, however, because the average home size was changing over that same time period. If we figure housing prices by the square foot, it’s not clear they rose in any consistent pattern – not to mention how quickly this complicates the numbers. Plus, if you watch any of those “Love It or List It or Flip It or Screw It” shows on cable, you know that housing prices in, say, Houston, have almost no relation to housing in and around Tulsa. The average size, design, age, and price of a home in San Francisco is inconceivable to the average resident of Tucson.

Remember what I said above about learning from mortgage loan statistics, but not feeling compelled to live by them? This is one more reason why. It’s good to know what’s going on; it’s risky at best to make major decisions based on what’s going to happen next.

Starting in the late 1990s and early 2000s, the rise in housing prices was unmistakable, in real dollars or adjusting for inflation. So is the plummet which began in 2006 and the partial recovery which has been stopping, starting, and generally jerking all over the place since around 2012.

OK, I Give Up. Do I Even Want To Buy (Or Refinance)?

The good news is that all of this other stuff is background. It’s “Previously, on Mortgage Loan Statistics…” It’s presented to inform you, not to dictate your next step. The bad news, I’m afraid, is the same – there are no clear right or wrong answers on this one.

If you’re considering refinancing, there’s no substitute for looking at your options. You’ve probably figured out that I’m a big fan of Investopedia by now (no affiliation), so you might check out their thoughts on this one as well.

If you do decide to buy, you should keep in mind that, while a mortgage has many things in common with any other sort of loan, there are unique features of which you must be aware. First, there are two major steps in the process – pre-approval before you select the home you wish to buy, and final approval once you’ve made an offer on a specific home at a specific price which has been accepted. In fact, it probably wouldn’t hurt for us to step back and do a quick overview of the process from start to finish. You know, just to make sure we’re on the same page.

1.    Find the Right Lender and Get Pre-Approved. (That’s right, FIRST.)

Before you start meeting real estate agents or attending open house events. Also, before you check rates on moving companies or do-it-yourself trailers and trucks. Before you do the paperwork to change school districts. Besides, many real estate agents won’t even start showing you homes until this part is done. Did I mention you should do it FIRST?

As you’re shopping for a mortgage lender and your pre-approval, keep in mind that not all lenders are the same. There’s no law saying a lender has to offer everyone the same terms, same interest rates, or same level of service. You’ll also find they move at very different speeds. Traditional lenders can take weeks or months even to get you pre-approved, while alternative lenders – including those you primarily deal with online – tend to move more quickly. They want your business, and they want you to still be telling your friends and co-workers in six months and three years and ten years how happy you were and are with them. That’s how they stay competitive with your local brick-and-mortar bank down the street.

But I digress…

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2.    Shop for the Right Home

I’m not going to tell you what that means for you in your situation. I will remind you that you don’t have to use the full amount of your pre-approval. It’s not unheard of for lenders to offer you an maximum that looks pretty good on paper, but isn’t practical once your real life kicks back in and you’re making real payments each month. As with anything else, just because you CAN spend up to a certain limit doesn’t mean you MUST. It doesn’t even mean you SHOULD.

3.    Make an Offer. Negotiate as Necessary

This is a large part of why you work with that real estate agent. Hopefully he or she is helping you find just the right home in just the right location, but their real value comes when it’s time to talk numbers. A good realtor can give you a good idea of what’s happening in your market right then – are people buying homes well-under asking price, or is there a bidding war going by the end of the first day on the market for almost anything available? Should you ask for concessions other than price (that washer and dryer look like they’d be hard to move up from the basement and you don’t have either just yet, so maybe…)?

Your realtor is unlikely to tell you exactly what to offer or ask, nor should they. But if they know their job, they know the market and what’s reasonable. They’ll also help you find the gumption to pass on anything not meeting your wants and/or needs.

Sometimes the best thing you can do is walk away and look some more next weekend. The first step towards securing the best mortgage you can is to make sure it’s on the right house. A great interest rate on a place you overpaid for or don’t really like that much is a consolation prize, not a bargain.

4.    The Real Paperwork Begins

Once you’ve made an offer that has been accepted and any other details with the seller have been worked out, it’s time to go back to that lender you hopefully love and do the most paperwork you’ve probably ever done in your life. Just keep reminding yourself that you’re getting that deck in the back that you really wanted, and that your wife likes the mudroom.

The Mortgage Loan Process

If you want to know more about this part of the process, we talked about it in greater detail not so long ago. If you still have questions, feel free to shop mortgage loans here and we’ll see if we can hook you up with a lender that may be able to help you out.

A Very Wise Conclusion

Because you’ve read this far, however, I’ll offer a few bits of wisdom and insight suggested by these particular mortgage loan statistics. Obviously, I think they’re worth considering or I wouldn’t bother – but what you do with them is up to you. That’s the thing about big decisions, whether you’re buying a house, getting married, having kids, changing jobs, moving out of state, or whatever… we gather information and make the best call we can. After that, all we can do is make the best of what comes and not blame ourselves for not always predicting the future perfectly.

Wisdom #1: The value of your home on paper is secondary to the value of your home as the place where you and your family live.

Once you’ve committed to a mortgage, the goal is to pay it on time every month and take care of your new home. Watching for signs our home has gone up or down in value really only impacts our property taxes unless we plan on selling, so don’t get too hung up on paper value if you’re not planning on turning your home into paper money. Go refinish that deck in the back instead – not to raise the resale value, but because you want to sit out there and feel good about it.

Wisdom #2: Keep in mind that when mortgage interest rates are low, housing prices tend to remain high.

Like everything else in mortgage loan statistics, this varies from market to market and even month to month, but it makes sense. Most of us base what we can afford on monthly payments, and we’re more likely to take on larger debt if the interest rate is good, keeping those payments under control (see above). Basic supply and demand, then, says if we’ll pay more for housing, housing prices will go up.

Wisdom #3: Talk it through with a trusted friend.

Don’t ask them what to do. Tell them you need help. Most people love to be needed, especially when it doesn’t cost them money or involve lifting anything. Talk through your thinking process with them and let them ask questions or make observations – “reflective listening,” as it were. This is about you clarifying your thinking; not them injecting theirs.

Mortgage Loans
(See Mortgage Rates)

Wisdom #4: You don’t know what’s available to you until you ask or apply.

Mortgage loan statistics may be enlightening, but they’re not specific to you. Look into mortgage options, and don’t try just one place; that’s almost recklessly irresponsible. Talk to your local bank or credit union. Explore alternative lenders and their track records. And remember that it’s the 21st century – there are online lenders who want to earn your business. They don’t stay in business if you don’t like their terms or the level of their service. While you’re scrambling to win over the hearts and minds of the local mega-bank, online lenders are working to win over you.

Personally, I like that dynamic much better. That is, in fact, why we do this. No fees, no gotchas – just connections.

Wisdom #5: Learn from the wrinkles, but don’t get bogged down in them.

When you’re done, move forward. Don’t second-guess yourself all day long. It’s rare that there’s not SOMETHING we wish we could redo with the benefit of hindsight. That doesn’t mean we did badly, just that in the rearview mirror every little wrinkle seems so much more obvious.

And now that THAT’S done, maybe you should get started on refinishing that deck. Compared to this, it will probably seem like a breeze.