A 20 Percent Down Payment: Is This Really Necessary?

A 20 Percent Down Payment: Is This Really Necessary?Purchasing a home is a major decision, and it could be the most expensive financial transaction somebody ever makes. Therefore, it is important to get this right. One of the biggest hurdles for a new homeowner is coming up with enough money for the down payment. A lot of people believe they require 20 percent down to purchase a home. Saving this amount of money can be overwhelming, and some people are wondering, is this really necessary? There are several key points to keep in mind. 

Putting 20 Percent Down Is Not Really Necessary

When taking a look at the prices of homes, putting 20 percent down can seem like a pipe dream for most people. Fortunately, putting this amount of money down is not actually necessary. It is possible for people to qualify for a loan with significantly smaller amounts of money. For example, there are some lenders who might be willing to provide a loan to a first-time homebuyer for as low as 3.5 percent. Even though this is still a lot of money, it is not nearly as much as 20 percent down. Potential homeowners need to do their homework and work with down payment assistance programs to make this process easier. 

Why Do People Put 20 Percent Down?

So, where does the idea of putting 20 percent down actually come from? Many homeowners decide to put 20 percent down because they would like to avoid something called private mortgage insurance, or PMI. This is an insurance policy that potential homeowners may be required to purchase on behalf of the lender to protect the lender in the event of a default. When homeowners reach 20 percent equity in their homes, they can ask for PMI to be canceled. Because most homeowners do not want this additional expense, they may feel compelled to put 20 percent down. 

Find The Right Home Loan

Potential homeowners should not feel like their dreams are derailed simply because they need to put 20 percent down. It is possible to qualify for a home loan with significantly lower down payment percentages, but every homeowner has to assess his or her options. That way, they can make the best financial decision for their individual situation.

 

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What is an FHA Streamline Refinance?

What is an FHA Streamline Refinance?FHA borrowers have an exceptional program available to them called the FHA streamline refinance. It’s a simple way to get a lower mortgage payment and/or lower rate, but it’s not for everyone.

Read this guide to learn all about FHA streamline refinance and how it works.

What is an FHA Streamline Refinance?

The FHA streamline refinance allows FHA borrowers to skip most underwriting tasks including income and credit verification. It’s a simplified way to get a lower rate or change your loan’s term to get a more predictable payment.

Who is Eligible?

To be eligible for the FHA streamline refinance, you must be a current FHA borrower with a current loan. To qualify, you must meet these requirements:

  • Have an on-time payment history of at least 12 months
  • You must have owned the home for at least 210 days (6 mortgage payments)
  • Show you benefit from the refinance

The on-time payment history shows lenders you can afford a higher mortgage payment with a higher rate and/or riskier terms. Since the streamline refinance should lower your payment or improve your term, it should be even easier to afford the loan.

You must prove there is a net tangible benefit to refinancing. This could mean a lower payment, lower interest rate, or refinancing from an ARM to a fixed-rate term. It must make sense for you to refinance to qualify.

How Does it Work?

If you use the non-credit qualifying version of the FHA streamline refinance, you may not have to verify your credit score or credit history. Some lenders may check it though, so always make sure your credit is in good standing.

If you aren’t sure, pull your credit reports and see if there is any negative credit history you should fix before applying. Look specifically for any late mortgage payments, late consumer payments (credit cards, personal loans, etc.), or overextended credit (using up over 30% of your credit lines).

Most lenders don’t verify your income or employment and you won’t need a new appraisal. Lenders use the value from your original appraisal to determine your LTV and eligibility for the loan.

Most FHA streamline refinance loans close much faster than a traditional refinance because of the smaller documentation and verification requirements.

FHA Mortgage Insurance Refunds

Another great aspect of the FHA streamline refinance is the FHA upfront MIP refund. You’re eligible for the refund from 6 months after taking out your FHA loan up until 36 months. You’ll earn a prorated refund each month.

For example:

  • Month 6 – 70% refund
  • Month 12 – 58% refund
  • Month 18 – 46% refund
  • Month 24 – 34% refund
  • Month 36 – 10% refund

This refund directly lowers the amount of upfront MIP you owe at the closing, lowering your closing costs.

Final Thoughts

The FHA streamline refinance is great for current FHA borrowers who want to take advantage of today’s low rates or better terms. It’s a simple program that most borrowers qualify for as long as they have an on-time payment history and can show they benefit from the refinance.

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After Closing On A New Home: The Top Tasks To Complete

After Closing On A New Home: The Top Tasks To CompleteClosing on a new home is exciting and many people view their closing date as the finish line; however, even after closing a new home, there is still a lot that has to happen. What do new homeowners need to do after closing on a new home?

Mark The Date Of The First Payment

Every homeowner needs to know the first date of the new mortgage payment. They need to get their bank account set up for an automatic draft, or they need to send a physical check by that time. Keep in mind that the first payment might include a partial payment from the prior month as well.

Understand That The Loan Servicer Might Change

Anyone who is sending a physical check needs to be aware that the loan servicer might change. Many banks sell their loans to another entity, which means physical checks might need to go to a new address. 

Watch For Potential Scams In The Mail

Many new homeowners receive a lot of junk mail and deceptive advertisements from scam artists. Anyone who has questions about the information they receive in the mail might want to talk to their real estate agent or lawyer to see what is real or what is fake. Sometimes, people try to sell homeowners on policies they already have, such as home insurance or mortgage insurance.

Make Sure Property Taxes And Homeowners Insurance Are Set-Up

Homeowners also need to make sure their property tax payments and homeowners’ insurance are set up. Often, the lender will escrow these payments, saving homeowners a significant amount of stress. This also means that homeowners need to make sure the lender is taking enough money every month to cover home insurance and property tax bills at the end of the year.

Look Past The Closing Date

These are a few of the most important tasks all new homeowners need to complete after closing on a new home. That way, nothing important gets overlooked, and homeowners are not surprised by anything they receive in the mail. Talk to a real estate or mortgage professional to learn more.

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The Timeline: Prequalifying To Closing

The Timeline: Prequalifying To ClosingEven though purchasing a new home can be exciting, it can also be stressful. There are a lot of tasks that need to be completed between qualifying for a mortgage and receiving the necessary funds. Therefore, potential homeowners need to understand the timeline so they make sure they are on track to meet their closing dates. What are a few examples of important milestones that have to be accomplished? 

Make An Offer On A Home

After getting pre-qualified for a mortgage, the next step is to make an offer on the right house. An offer on a home has a lot of information. This includes the offer price, the size of the down payment, the name of the closing agent, a targeted closing date, and any closing costs that the buyer wants the seller to pay. If the offer is accepted, it is time to move on to the next step. 

Review The Disclosures On The Mortgage

After having an accepted offer, buyers need to get a mortgage locked in. Important components of a mortgage include the interest rate, the monthly payment, the closing costs, and any prepayment items. A lot of this can be negotiated with the lender, and this mortgage needs to be approved prior to closing. 

Complete The Home Inspection And Appraisal

Buyers will also need to conduct a home inspection and appraisal. In many situations, the lender will set up the appraisal; however, homebuyers need to work with a real estate agent to get a home inspection set up. That way, if there are any major repairs, they can be addressed. 

Renegotiate If Necessary

Based on the appraisal and the inspection, potential home buyers might want to renegotiate the price of the house. Even though it will not necessarily change, homebuyers might want to ask the seller to cover additional repairs that were discovered on the inspection. 

Close On The Home

Finally, after all of this is done, it is time to close on the home. The lender will be responsible for wiring the funds to an attorney, who will disburse the funds to all appropriate parties. From start to finish, this process usually takes about a month.

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The Top Benefits Of Having Mortgage Debt

The Top Benefits Of Having Mortgage DebtThe vast majority of people need to take out a loan to purchase a home. While there are many forms of debt that people would rather avoid, some types of debt can actually be a positive. This includes mortgage debt. What are a few of the top benefits of having mortgage debt?

Access To Extra Liquidity

One of the biggest benefits of having mortgage debt is that homeowners will have access to more liquid cash. If someone spends all of their money buying a house in cash, they might not have anything left over to cover other expenses. Examples include deaths in the family, medical bills, and repairs on cars and the house itself. Many people like to have access to extra liquid cash, and they are willing to take out a mortgage to do it.

The Payments Do Not Change

It is entirely possible that someone’s income will go up during the life of the mortgage. Even if someone’s income goes up, the size of the mortgage payments will not change. The payments might stay the same size for 30 years, which could make the house more affordable. The same cannot be said of rent payments, which usually go up every time the contract is renewed. 

Access To Tax Deductions

Homeowners have access to a significant tax deduction. This comes in the form of mortgage interest. Even though it is important for everyone to meet with a trained tax professional to go over their taxes, the interest attached to a mortgage is usually tax-deductible. This can be a significant tax advantage for homeowners.

A Better Credit Score

It is critical for all homeowners to make sure they make their mortgage payments on time. In doing so, the homeowner’s credit score will go up. People might not think that their credit scores matter much after taking out a home loan, but this could make a difference when applying for car loans or future home loans. Therefore, having a long track record of on-time mortgage payments can make a major difference.

Take Advantage Of Mortgage Debt

These are a few of the top benefits of having mortgage debt. All homeowners need to leverage these benefits for their financial gain down the road.

 

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A Mortgage Pre-Approval Letter: How Long Does It Last?

A Mortgage Pre-Approval Letter: How Long Does It Last?Buyers need to make sure they are competitive when they make an offer on a house. One of the ways to do that is to get a pre-approval letter. What does this mean, and how long does it last?

What Is Mortgage Pre-Approval?

Prior to working with a real estate agent to find the perfect house, it is important to get a pre-approval letter from a lender. Some agents might even ask a buyer to do this before they start looking. The lender will take a look at someone’s income and run their credit to see how large of a loan someone can qualify for. Getting a pre-approval letter is important because it gives someone a budget with which to work. It also gives the buyer more credibility with the seller if they make an offer on the house. That way, the seller does not have to worry about the deal falling through if the buyer cannot get financing.

How Long Will A Pre-Approval Letter Last?

In a competitive market, a buyer might not be able to find a house right away. Therefore, it is critical to be knowledgeable of the timeframe of the pre-approval letter. In most situations, a pre-approval letter will last for 90 days; however, all buyers need to read the fine print to see how long the letter will last. Some of them only last for 30 days. If the letter has expired, it is relatively easy to reach out to the lender and get a new one. If nothing has changed in the buyer’s financial situation, then getting a new pre-approval letter should not be an issue.

Are Pre-Approval And Pre-Qualification The Same Thing?

These are not the same things. A pre-qualification check is less stringent than a pre-approval letter. Getting pre-qualified simply means that the buyer has exchanged verbal information with a lender, so this is not as strong. Buyers need to make sure they obtain a pre-approval letter for financing to present themselves as competitive in a challenging market. A pre-qualification check does not require a credit check and income verification. Even though the process takes longer, it is always better for a buyer to get pre-approved instead.

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An Overview Of the Digital Mortgage Process

An Overview Of the Digital Mortgage ProcessChanges are being made to the mortgage application process every year. With access to online-only lenders and a decentralized financial system, more doors are open to potential home buyers than ever before. For example, there are many institutions that are making it easier to apply for mortgages by allowing applicants to do so online. That way, buyers do not have to fill out any paperwork, and lenders can stay away from any inequalities or discriminatory methods. What are the benefits of a digital mortgage? 

They Are Easier To Access

One major benefit of a digital mortgage is that they are easier to access. Now, buyers are not necessarily tied to a single geographic location. Furthermore, they do not have to worry about setting up an appointment at a physical location. They might not have to take time off work, and they do not have to worry about commuting back and forth. There are also numerous online tools available, allowing buyers to review what the market is doing. That way, they understand what they need to do to be competitive for the best rates possible.

They Have Lower Rejection Rates

Furthermore, digital mortgages tend to have lower rejection rates. Even though face-to-face lending still has its place, there are a lot of people who are unhappy with their local bank or credit union. They might be buried that their bank is not going to approve them for a home loan, particularly if there are issues related to bias. The digital mortgage process eliminates any potential biases, leading to lower rejection rates. This makes it easier for someone to apply for financing directly and purchase a home. 

The Process Is Faster

Finally, another major benefit of applying for a digital mortgage is that the process is easier. Even though income statements and credit checks are still required, a computer algorithm can automate this process. Therefore, potential homebuyers can expedite the process, making sure they get approved as quickly as possible. This makes it easier for buyers to present themselves as competitive, and they can get to the closing table more quickly. This is important for reducing the chances of a potential home sale falling through. 

 

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Borrowers With Student Loans Might Have An Easier Time Qualifying For An FHA Loan

Borrowers With Student Loans Might Have An Easier Time Qualifying For An FHA LoanIn the past, a lot of potential borrowers were declined for FHA loans due to the presence of student loans. Now, the Biden Administration along with the FHA has eased a lot of their regulations surrounding student loans, making it easier for borrowers with student loans to qualify for a home loan. The FHA required that FHA mortgage companies calculated the monthly student loan payment as one percent of their outstanding loan balance if the loans were not fully amortized; however, this is now changing.

The One Percent Rule Is Not Always Accurate

Even though the one percent payment rule has been in place for a long time, it is not always the most accurate way of evaluating the size of a borrower’s potential loan payments. For example, a lot of students are on income-adjusted repayment plans, meaning they are not necessarily paying as much as one percent of the outstanding balance every month. This means that some borrowers were getting declined even though they may have had enough money to pay back the mortgage. With numerous borrowers owing more than $100,000 in loans, many applicants for homes were turned down. 

New Guidelines Are Being Put In Place

Under the new guidelines, lenders can use a buyer’s actual monthly payment in terms of debt calculations even if that payment is less than one percent of the total balance of the loan. If the income-adjusted repayment plan means the borrower is not currently paying anything, then the lender will apply 0.5 percent of the outstanding loan balance every month instead of one percent.

A Boost To Borrowers With Student Loans

This change is significant because it alters the way lenders are calculating the debt-to-income ratio. If student loans are no longer making up a large portion of a borrower’s monthly debt payments in the calculation, they might have an easier time qualifying for a first-time home loan. Anyone with student loans who is interested in taking out an FHA loan should talk to a loan officer who is familiar with the updated guidelines. Even applicants who were denied in the past might have a chance to qualify for a home loan under the new rules. 

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Getting Your Mortgage Application Approved As A Self-Employed, First-Time Homebuyer

Getting Your Mortgage Application Approved As A Self-Employed, First-Time HomebuyerA significant number of people are self-employed, which means they might be relying on this income to apply for a mortgage. It is true that people who are self-employed may face additional challenges when trying to get approved for a home loan when compared to someone with traditional W2 income, these are obstacles that can be overcome. With the right qualifications and documentation, even first-time homebuyers who are self-employed should be able to qualify for the home loan they need.

Lenders Assess Someone’s Ability To Repay The Loan

First, lenders are trying to make sure the person will repay the loan. Lenders believe that someone with W2 income has a stable job and a guaranteed salary, which means they are more likely to repay the loan; however, someone who is self-employed has other ways of demonstrating that he or she can repay the loan. Self-employed individuals can use tax returns, payroll receipts, and records from financial institutions that serve as documentation of the applicant’s income or assets. This means standard W2 forms and pay stubs might no longer be necessary.

Navigating Eligibility Requirements

Next, self-employed individuals need to meet the eligibility requirements. This includes two years of self-employment, a reliable income, a strong credit score with a clean credit report, cash for a down payment, and a low debt to income ratio. It is possible for a first-time homebuyer to get a loan for less than five percent down; however, closing costs can be significant. Realistically, first-time homebuyers should plan on spending close to five percent of the home’s value to get approved for a first-time home loan.

Understanding Mortgage Options

Finally, self-employed first-time homebuyers should be aware that there are multiple loan options available. For example, there are FHA and VA loans for those who qualify. USDA loans and jumbo loans might also be an option. There are bank statement mortgages and conventional options available as well. Self-employed individuals might have to visit several of these programs to see which ones work the best. The programs vary in terms of their down payment, minimum credit score, and credit history requirements. It is prudent to work with a professional loan officer who has experience helping self-employed, first-time homebuyers get approved.

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Reviewing The Basement Options For Homeowners: What To Know

Reviewing The Basement Options For Homeowners: What To KnowEven though not every home has a basement, those that do usually fall into one of three categories. The most common examples of basements include poured concrete, masonry block basement, and precast panels. What do homeowners need to know about the different types of basement construction? 

Concrete Basements

Concrete basements are the most common examples. There are several advantages of going with a concrete basement. First, concrete basement walls are resilient. They can resist possible cave-ins, standing up to natural pressure created by wind, water, and soil. Furthermore, concrete basements are also fire-resistant while creating joint-free basements that can increase property values.

Even though concrete basements are water-resistant, hydrostatic pressure can allow water to permeate over time, creating mold and mildew issues. Homeowners need to keep a close eye on the humidity of a concrete basement to make sure this is not happening in their homes.

Block Masonry Basements

Another popular type of basement is called a block masonry basement. This structure is created with cinder block or masonry units that are connected to one another. Ultimately, this creates a waterproof structure. This is a highly resilient, cost-effective construction option that is much easier to install. Therefore, homeowners can save money on labor and materials. The walls are also more durable if they are reinforced using a steel rebar. 

Precast Panel Basements

Finally, homeowners may also encounter a precast panel basement. These usually involve concrete panels that are molded in a different location before being transported to the construction site using a crane. Typically, these walls are strong and resilient. They do provide waterproof qualities, but if the joists have been neglected, they can develop moisture penetration issues. These panels also have to be treated with boric acid to prevent pest infestations. 

Options For Basements: Homeowners Should Work With A Professional

Ultimately, there are plenty of options available when homeowners are looking to construct the basement. Examples include full basements, partial basements, walkout basement, and crawl spaces. Homeowners need to work with a construction professional who has experience building basements. Each option has its individual benefits and drawbacks, so homeowners need to inquire about permits and environmental factors that might make one type of basement superior to another. 

 

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