Posts

Understanding The Differences Between Conforming Loans And Jumbo Loans

Understanding The Differences Between Conforming Loans And Jumbo LoansPotential homeowners need to understand the different types of loans available. This is a major financial decision, and it is important to evaluate the benefits and drawbacks of each option. The majority of home loans fall into two categories. The first is called a conforming loan and the second is called a jumbo loan. There are a few significant differences between them.

How Is The Size Of A Home Loan Determined?

First, it is important to understand how the size of a home loan is determined. Homebuyers usually need to put money down before they will be granted a home loan. First-time homeowners may be able to qualify for a home loan with only 3.5 percent down, but most people will be asked to put 20 percent down. Otherwise, they could be asked to purchase private mortgage insurance. The remaining balance of the sale is the size of the loan financed by the lender. 

What Is A Conforming Loan?

A conforming loan is any loan that is beneath the federally set limit. Typically, a conforming loan comes with a lower interest rate than a jumbo loan. Therefore, home buyers who have a proposed loan amount at or near the federal limit, or those who have flexibility in the size of the down payment, are better off securing a conforming loan so they can save money. 

What Is A Jumbo Loan?

A jumbo loan is any loan that is above the federally set limit. While a jumbo loan can still allow homeowners to secure a house, it usually comes with higher interest rates. Before taking out a jumbo loan, potential homebuyers need to talk to the loan officer about their other options. There might be ways to avoid taking out a jumbo loan. 

Work With A Professional Loan Officer

Anyone interested in taking out a home loan has to work with a professional loan officer who can explain the different options available. In addition to deciding on a fixed-rate versus an adjustable-rate mortgage, applicants need to figure out if they qualify for a conforming loan or a jumbo loan. The differences between these two loans can equate to thousands of dollars over the life of the loan. 

 

/by

An Overview Of Mortgage Points

An Overview Of Mortgage PointsThere is a lot of terminologies involved in the mortgage application process, and one common term people come across is a mortgage point. What exactly is a mortgage point, and how might impact the price of the loan?

What Is A Point?

Points represent fees due at signing. Some lenders charge points while others do not. In some cases, applicants are given the option to pay points in exchange for a rate reduction. A single point is the equivalent of one percent of the loan’s value. If the home loan is $200,000, then a single point is $2,000.

Origination Points And Discount Points

There are two common types of mortgage points. The first is called an origination point. The second is called a discount point. An origination point is charged to cover the cost of creating the loan. Typically, origination points are directly tied to the compensation the loan officer receives for writing the loan. The other type of point, the discount point, is used to reduce the interest rate of the loan itself. While each lender has its own standards, one discount point paid usually translates to an interest rate reduction of 0.25 percent for a fixed-rate loan or 0.375 percent for an adjustable-rate loan.

Is One Point Better Than Another?

Applicants might save money on taxes if they pay discount points instead of origination points. Discount points could be claimed as a tax deduction on Schedule A, but it is important for any homeowner looking to save money on taxes to speak to a tax professional for clarification. Sadly, origination points are not deductible. Most lenders give homeowners options regarding discount points, so homeowners need to think carefully about whether it is in their best interests to claim discount points.

Should Homeowners Take Discount Point Offers?

Some homeowners might wonder whether it is better to keep the cash and pay no points or take discount points to buy down the rate. This is a personal decision, and homeowners need to think about the best way to use their money. It might be better for some homeowners to pay discount points in exchange for a lower interest rate. It could be better for other homeowners to keep their cash and use it pay off other loans.

/by

Do You Need Mortgage Insurance Even If It’s Not Required By Your Lender? Let’s Take A Look

Do You Need Mortgage Insurance Even if It's Not Required by Your Lender? Let's Take a LookFinding a proper mortgage loan and understanding the processing procedures behind the loan is the basis of good research. The down payment on a mortgage loan is typically significant when dealing with mortgage insurance.

Most loan applications with less than 20% down payment are required to include mortgage insurance with the loan. However, mortgage insurance may still be required even if it’s not typically required by your lender.

Underwriting Requirements

Most home mortgage applications undergo a strict set of standards for approval. These standards are known as underwriting and make up the bulk of time spent on a mortgage application. Unique situations in employment or credit history may require an additional down payment percentage to avoid PMI or private mortgage insurance.

Most underwriting requirements require adequate information on the borrower’s credit and employment history for complete application. Self-employed individuals or those with alternative forms of credit may need a few additional hoops to jump through when dealing with mortgage insurance requirements.

Lender-paid Mortgage Insurance

Lender-paid mortgage insurance is a popular option with potential homeowners that seek to avoid the cost of a PMI or FHA-backed insurance on a home loan. Most lenders incorporate payment of private mortgage insurance in exchange for a slightly higher interest rate.

This is one example of the points system on a mortgage application that eliminates the cost of PMI. The increase in interest rate may or may not warrant the need for a lender-paid mortgage insurance arrangement.

What’s Involved With Risk Assessment?

Strict lending requirements and banking policy now limit the number of mortgages with zero down payment options. Conventional mortgages and FHA both require private mortgage insurance if it is less than 20% down payment. However, FHA loans can be more flexible with the initial down payment requirements with adequate credit. FHA mortgage costs are now for the life of the loan. Lenders will look at mortgage insurance as risk protection.

The risk protection process may or may not require mortgage insurance in your home loan. For example, VA and USDA loans do not usually require mortgage insurance if the borrower’s credit and employment history are adequate.

Conventional loans have a reduction in risk once there is at least 20% equity in the home compared to the principal of the mortgage. Don’t hesitate to contact your trusted mortgage professional about potentially dropping mortgage insurance in the future to reduce overall loan costs.

/by

The Top Ways To Use Home Equity

The Top Ways To Use Home EquityEquity is a powerful tool. As homeowners pay off the mortgage, the amount of equity in the house grows. As the house appreciates in value, homeowners accrue even more equity. Then, homeowners can tap into this equity for a variety of purposes. What are a few of the ways homeowners might be able to use this equity? 

Purchase A New House

One of the top ways homeowners can use the equity in their existing home is to purchase a house that better suits their needs. Even though homeowners may find a house that is right for them now, it might not be right for them 10 years from now. For example, homeowners may have children, meaning they need more bedrooms. In this case, homeowners can leverage the equity in their house to purchase a bigger home. 

Complete A Renovation Project

Homeowners can also use the equity in their home to complete a renovation project. If homeowners have a significant amount of equity in the home, they might be able to refinance their house, tapping into the equity to complete the project. For example, homeowners might want to renovate the kitchen. Or, they may want to add a gym or a home theater. They might even want to complete an addition. Instead of having to save up the cash to do so, homeowners might be able to tap into their equity to do this.

Launch A New Business

Some homeowners might decide to use the equity in their homes to launch a new business. Getting a new business off the ground can be expensive, and the cost of taking out loans can be daunting. Instead of having to take out a loan, homeowners can use the equity in their existing house to launch that business. 

Fund Higher Education

The cost of higher education can also be expensive. Even though parents might save up to send their kids to college, the cost of education is growing quickly. Instead of having to take out a student loan, consider tapping into the equity in the house to pay for that college education. Homeowners may want to work with a financial advisor that can help them make the right decision for themselves and their children. 

 

/by

How Long To Save Mortgage Documents

How Long To Save Mortgage DocumentsPurchasing a house involves a tremendous amount of paperwork. There is even more paperwork involved if the buyer goes through a lender. With so much paperwork, some homeowners might be wondering how long they have to keep all of these documents. Ideally, homeowners should keep these documents for the life of the loan, but there are a few other points to consider. 

What Documents Come With The Home?

Even though the exact documents that come with the home can vary depending on the type of purchase, there are a few common pieces of paper. The deed is one of the most important documents that come with the house. It indicates that the homeowner actually owns the home. The promissory note is also important. This is the mortgage contract, and it states that the homeowner agrees to repay the debt with the interest agreed upon. A purchase agreement is signed by the buyer and seller. It includes the price of the house, the closing date, and other details. Title insurance is also important because it protects the homeowner from issues with the title to the house. 

Which Documents Must Be Saved?

Ideally, all of these documents should be saved; however, the deed to the house is the most important thing. It is critical because it signifies the homeowner owns his or her house. It is also a smart idea to keep the inspection report or the closing disclosure, as this highlights any potential issues with the home. The homeowner may need to go back to those documents later to see what issues might need to be addressed. 

Why Keep These Documents?

Homeowners need to save these documents because they can be helpful if issues arise with the house. For example, these documents might be necessary for tax season, as there are a lot of deductions that could stem from the purchase of a house. It is important to work with a tax professional on these issues. Furthermore, these documents are helpful if a legal or insurance question arises. Homeowners might need these documents to address any concerns. These documents can also be helpful when homeowners decide to sell the house down the road. It is prudent to store these documents in a safe or a safety deposit box at the bank. 

 

/by

Housing Needs May Change Following Retirement

Life has changed for a lot of people during the past few years. Some people reached retirement age while other people decided to retire early due to other reasons. As the baby boomer generation reaches retirement age, millions more people are going to retire during the next few years. As a result, they might be thinking about moving to make some of their dreams come true. At the same time, retirement might change what people need in a home. What are some of the most important factors retirees need to consider when looking for a home? 

Moving Closer To Loved Ones

Location remains one of the most important factors when looking for a new home; however, retirees no longer need to live close to work if they are no longer fully employed. Therefore, it might be time to look for a home closer to loved ones. Retirees can use the equity in their current house, along with its appreciated value, to power a move closer to loved ones. 

A Smaller Home

While not all retirees want to downsize, a lot of retirees decide to purchase a smaller home. With the kids out of the house, it might be easier to take care of a smaller home. Retirees should consider the maintenance required before purchasing it. Furthermore, some retirees may not want to purchase a house with stairs in it because stairs may become more difficult as they get older. 

A House Meant For Retirees

Finally, those retiring might be looking for a house meant for retirees. For example, they might be looking for a home in a retirement community. Or, they might be looking for a house where the light switches, sinks, and toilets are a bit lower, making them easier for older people to access. Retirees might also be looking for homes with seats in the shower, grab bars next to the tub, and other features designed for elderly individuals.

Work With A Real Estate Professional

Retirement is a goal for many people, and retiring might mean that housing needs change. Anyone looking to move should work with a real estate professional who can help them navigate the real estate market and find the right house to meet their needs. 

 

/by

Housing Needs May Change Following Retirement

Life has changed for a lot of people during the past few years. Some people reached retirement age while other people decided to retire early due to other reasons. As the baby boomer generation reaches retirement age, millions more people are going to retire during the next few years. As a result, they might be thinking about moving to make some of their dreams come true. At the same time, retirement might change what people need in a home. What are some of the most important factors retirees need to consider when looking for a home? 

Moving Closer To Loved Ones

Location remains one of the most important factors when looking for a new home; however, retirees no longer need to live close to work if they are no longer fully employed. Therefore, it might be time to look for a home closer to loved ones. Retirees can use the equity in their current house, along with its appreciated value, to power a move closer to loved ones. 

A Smaller Home

While not all retirees want to downsize, a lot of retirees decide to purchase a smaller home. With the kids out of the house, it might be easier to take care of a smaller home. Retirees should consider the maintenance required before purchasing it. Furthermore, some retirees may not want to purchase a house with stairs in it because stairs may become more difficult as they get older. 

A House Meant For Retirees

Finally, those retiring might be looking for a house meant for retirees. For example, they might be looking for a home in a retirement community. Or, they might be looking for a house where the light switches, sinks, and toilets are a bit lower, making them easier for older people to access. Retirees might also be looking for homes with seats in the shower, grab bars next to the tub, and other features designed for elderly individuals.

Work With A Real Estate Professional

Retirement is a goal for many people, and retiring might mean that housing needs change. Anyone looking to move should work with a real estate professional who can help them navigate the real estate market and find the right house to meet their needs. 

 

/by

An Overview Of A Deed Of Reconveyance

An Overview Of A Deed Of ReconveyanceWhen someone purchases a house, they might have to take out a loan. Because a house is expensive, most people end up with a mortgage. Some people decide to go with a 15-year mortgage while other people decide to go with a 30-year mortgage. Eventually, after all these years, someone might receive a deed of reconveyance. What does this mean, and how does it work? 

Homeowners Own The House, But With a Lien

After purchasing a house, homeowners legally own the house, even if they have financing tied to a mortgage. Even if someone purchases a home with only 3.5 percent down, they own that house, but there might be a mortgage lien to it. What this means is that the mortgage has to be paid off when the house is sold. Or, the lender has to agree to a short sale. Once the loan is paid off, that mortgage lien is removed. To remove the lien, the lender will issue something called a deed of reconveyance.

How Does This Deed Work?

Laws can vary from state to state, most jurisdictions require the lender to submit a deed of reconveyance to the borrower within 30 or 60 days of the mortgage being paid off. In some cases, the lender will send the notice directly to the homeowner. Then, the homeowner has to contact the county to record it. Homeowners might be required to work with the county to get the deed of reconveyance recorded. Otherwise, they could face a penalty. 

What Happens When Selling a Home?

If the mortgage has not yet been paid off and the home is sold, the proceeds from the buyer need to be used to pay off the mortgage. Then, the seller collects the money left over. Once the mortgage is paid off at closing, the title company usually handles the deed of reconveyance. 

It is important for homeowners to have a deed of reconveyance if they pay off the mortgage before they sell the house. Sometimes, if the home is owned by the homeowner outright, it can make for an easier sale. This is another reason why homeowners should work with a real estate agent when they go to sell their homes. 

 

/by

Qualifying For A Mortgage Credit Certificate

Qualifying For A Mortgage Credit CertificatePurchasing a house can be expensive, but there are measures in place to make it easier, particularly for people buying a home for the first time. One option is a mortgage credit certificate. What is the certificate, and how does it work?

A Mortgage Certificate Is A Tax Credit

A mortgage credit certificate, usually shortened to MCC, is a credit issued to first-time homebuyers by the local or state government. This certificate allows first-time homeowners to claim a federal tax credit for mortgage interest paid on the loan, with a limit of up to $2,000. When someone takes out a mortgage, the majority of the payments go toward interest. This credit certificate allows homeowners to recover some of the interest paid in the form of a tax credit.

Who Qualifies For This Credit?

Not every homeowner will qualify for this certificate. Usually, this is a certificate reserved for low-income people purchasing a home for the first time. Or, these credits are limited to people who purchase a house in a certain area. Usually, these programs are run by the states. Every state has a slightly different income limit for people purchasing a home. Everyone needs to check the local rules and regulations set by their states.

Is The Certificate Different From A Tax Deduction?

Yes, the mortgage credit certificate is different from a tax deduction. A tax credit is directly applied to the amount of money someone owes in taxes. In contrast, a tax deduction is a deduction from someone’s gross taxable income. A tax credit is better for tax purposes than a tax deduction. It is possible for someone to be awarded a mortgage credit certificate and deduct the interest paid on the mortgage from their taxes. Anyone who has questions about how deductions and credits work should work with a tax professional. 

Do Not Leave Money On The Table

It is true that purchasing a house for the first time can be a challenge; however, there are financial measures in place to make this process easier. Anyone who is buying a home for the first time should take a look at the state qualifications for the mortgage credit certificate program. This could help people save money on their taxes.

 

/by

What Is A High Enough Credit Score For A Mortgage?

What Is A High Enough Credit Score For A Mortgage?There are many people who are interested in purchasing a home for the first time. Even though many first-time homeowners are interested in the sticker price of a home, it is just as important to consider credit scores. Anyone who requires financing to purchase a home will have to go through a credit check. What credit score is considered high enough for a home loan? What do people have to do if they want to increase their credit scores?

What Credit Bureaus Do Lenders Use?

First, a credit score is a reflection of someone’s overall financial health. A lender wants to make sure someone has the ability to pay back a mortgage before they give that person a home loan. The higher someone’s credit score is, the more likely the lender believes he or she will have that loan repaid. 

In general, there are three major credit bureaus. They include Experian, TransUnion, and Equifax. Most lenders are going to run something called a triple merge (or a trimerge) when they check someone’s credit. This means the lender is going to check someone’s credit score with all three major credit bureaus before deciding if someone should receive a home loan. All three major credit bureaus calculate credit scores using the Fair Isaac Corporation, or FICO, numbers, but they calculate credit scores slightly differently. 

What Is Considered A Solid Credit Score?

Every lender has a slightly different metric, but a credit score less than 580 is considered poor. In contrast, a credit score over 800 is considered excellent. The maximum credit score someone can have is 850. If a loan is given to someone with a score under 620, this is considered a “subprime” loan. It is possible for people to qualify for a home loan with a low credit score, but they may be facing a higher interest rate.

Those who are interested in raising their credit score should pay all of their bills on time. It is also important for individuals to pay down as much of their debt as possible before applying for a home loan. This could help them increase their credit scores and get approved for a loan with a solid interest rate. 

 

/by