Down Payment Assistance Programs

Finding the Best Home Renovation Loan Program

By

Home revocations are expensive. Fortunately, there are programs available today that make them more affordable. Tapping into your home’s equity, you can invest the funds right back into your home with one of the many home renovation loans available today.

Get Matched with a Lender, Click Here.

Keep reading to learn which program may be best for you.

The Home Equity Loan (Line of Credit)

Most people think of a home equity loan or line of credit for home renovations. This is probably the simplest loan program since it’s a second lien on the property. You can typically borrow up to 85% of the home’s current value with either loan option.

The home equity loan is a fixed second loan that provides you with a lump sum of funds to make the renovations. Upon receiving the loan, you start making principal and interest payments right away on the full amount. Most home equity loans have a term of 20 years and a fixed interest rate. You receive the funds once and that’s it. The home equity loan is good for projects that have a set budget and you will only need one time.

The home equity line of credit is a revolving loan. It works like a credit card. You get a credit limit to spend and access to it. You don’t have to draw any funds out right away. If you do draw funds out, you pay interest only on those funds. You can choose to make principal payments on top of the interest, but it’s not required. If you do pay the principal back, you can reuse the funds for up to 10 years.

After the 10-year draw period ends, you must make principal and interest payments for the next 20 years. You cannot withdraw any funds once the draw period ends. The HELOC is good for borrowers that don’t have a fixed budget in mind for the home renovations or that will need repeated access to the funds.

Refinance Your First Mortgage

You can also wrap all of your needs into one loan with the cash-out refinance. If you don’t have a great interest rate on your first loan right now, taking a cash-out refinance can simplify things. You borrow as much as you need to pay off your existing mortgage, plus any cash you need for home renovations. You can typically borrow up to 80% of the home’s value with a cash-out refinance, if you qualify.

Click to See the Latest Mortgage Rates.

Cash out refinances work like the home equity loan. You receive your equity in one lump sum. You can do what you wish with the funds. You’ll pay principal and interest payments on the amount borrowed right away. The interest rate on a cash-out refinance may be a little higher due to the risk the lender takes, so make sure you pay careful attention to the mortgage payment amount.

Take Out a Rehab Loan

There are several rehab loans that you can take out to renovate your home too:

  • FHA 203K – This government loan has flexible guidelines like the standard FHA loan. It provides you with funds to refinance your existing loan plus the cost of home renovations on your primary residence. You can borrow up to 110% of the home’s after-improved value for home renovations. You’ll need a 3.5% down payment and minimum 580 credit score. You can opt for the Streamline FHA 203K that allows up to $35,000 in renovations with no structural changes or the full FHA 203K with stricter requirements, but that doesn’t have a limit on the dollar amount or type of renovations.
  • HomeStyle Loan – The Fannie Mae HomeStyle Loan is the conventional version of the rehab loan. You’ll need a slightly higher credit score of 620 and at least a 3% down payment. Conventional loans have slightly stricter underwriting guidelines, but the HomeStyle Loan allows you to renovate your primary, investment, or second home. You can borrow up to $484,350 with the renovations taking up no more than 75% of the after-repaired home value.

The best home rehab loan for you depends on your circumstances. Do you like your current first mortgage? If you’d rather leave it untouched, you’ll need to take out a home equity loan or HELOC. If you aren’t attached to your first mortgage and don’t mind refinancing it, any of the rehab loans or the cash-out refinance can be a good option. Think about your qualifying factors and if you need the FHA loan for its flexible guidelines. If you qualify for conventional financing, your best bet is to try the cash-out refinance or Fannie Mae HomeStyle loan.

Click Here to Get Matched With a Lender.

Understanding Discount Points

By

When you take out a mortgage, you have to lock in your interest rate. It’s a big decision as it affects your mortgage payment and the total cost of your loan. In the process, your lender may offer you the option to pay discount points. Before you jump at the chance, you should understand what they are and how they affect your loan.

Looking for Current Mortgage Interest Rates? Click Here.

What are Discount Points?

A discount point is a fee you pay upfront (at the closing) to lower your interest rate. You may hear lenders say that you are ‘buying down your interest rate.’ You can consider it prepaid interest. Rather than the lender charging you a higher interest rate, they charge you a fee upfront. You pay the interest ahead of time in order to get the lower interest rate.

How Much do Discount Points Lower your Rate?

The question everyone wants to know is how much they will save. This does vary by lender. In general, lenders lower your interest rate by 0.25% for every point you pay. One point equals one percent of the loan amount. If you borrow $200,000, one point equals $2,000 and is paid at the closing.

Again, the exact amount varies by lender. Always ask the details about the discount points. Ask to see both interest rates – the rate without points and the rate with points so that you can make an informed decision. Some lenders may offer the option to pay a full point, half a point, or even one and a half points. Every situation is different.

What do Points do For You?

If you pay discount points, it lowers your interest rate for the life of the loan. As long as you keep the same loan, you keep that rate. You don’t have to pay any fees in the future, either. It’s a one-time fee. Lenders charge it to collect the interest they otherwise would have earned on your loan over its lifetime. The lender comes out the same in the end – it’s you that sees the difference.

Is it Worth it?

This is what you should really focus on – is it worth it to pay points? Looking at it from the surface, who wouldn’t want to lower their interest rate, right? But sometimes it doesn’t make sense to do so.

You should figure out your break-even point. This is the point that you pay back the money paid for the points and start reaping the savings of the lower interest rate. Here’s how it works.

Figure out how much you’ll save on your monthly payment by paying the discount points. Let’s say the difference in payments is $100. Next, determine the exact cost of the points. Let’s say the points cost you $2,000. It would take you 20 months to pay back the money paid for the points:

$2,000/$100 = 20 months

This is your break-even point or the point that you start reaping the savings of the new, lower payment. Use that break-even point to decide if paying the points is worth it.

Click to See the Latest Mortgage Rates.

Think about how long you’ll be in the home. Let’s say you plan to move in three or four years. It may not make sense to pay the fee upfront just to save $100 for a few months or even two years. If you know that this is your ‘forever’ home and you don’t plan to refinance in the near future, paying the points makes sense. You’ll save $1,200 per year on the interest. Add that up over 10 or 20 years and you’ll save a lot of money.

If you aren’t sure of your plans, you may want to skip the discount points, or keep them as low as possible. For example, maybe you split the difference with the lender. Rather than paying a full point, you pay a half of a point and lower your interest rate slightly. This way you still save money and it’s not the end of the world if you end up moving or refinancing in the near future.

Of course, before you pay points, assess your financial situation. Will it hurt you to pay those points upfront? If you need the money for your down payment, closing costs, or just to get into the home comfortably, don’t pay it. You can use the money now and pay the loan down as you can. You can always make extra principal payments toward your loan in the future, which ultimately decreases the total amount of interest that you pay over the life of the loan.

Whether or not you pay discount points is a personal decision. Compare all of your options not just from one lender, but several. This way you can choose the loan that makes the financial sense now and well into the future. Remember, buying a house is one of the largest investments you’ll make in a lifetime.

Click Here to Get Matched With a Lender.

How to Correct Mistakes on Your Credit Report

By

Have you checked your credit report lately? If not, you should. Did you know that more than 40 million Americans have mistakes on their credit report? Many people don’t even know it because they don’t check their credit regularly.

Looking for Current Mortgage Interest Rates? Click Here.

First, we’ll discuss how to check your credit report and then help you learn how to fix any mistakes you find.

How to Check Your Credit

Did you know that you have access to a free copy of your credit report annually? In fact, you have access to three credit reports per year – one from each credit bureau. Trans Union, Equifax, and Experian each have their own credit report for you. If you visit www.annualcreditreport.com, you can get access to your free report every year.

We suggest that you pull one report every few months throughout the year. This way you spread out how often you check your credit report. This gives you a better chance of catching errors early on and fixing your credit score before it gets too damaged.

Fixing Errors

Now that you have your credit reports, go over them with a fine-toothed comb. Look at every line. Do the trade lines belong to you? Are the balances right? Is the payment history correct? Do you notice anything that is incorrect?

Don’t forget to look at all the data. This includes personal information, public records, and all financial information. Anything that is incorrect should be fixed.

You’ll need to file a dispute with the credit bureau. Make sure you contact the bureau that has the incorrect information. Sometimes it’s just one bureau and other times it’s all three. If the mistake was on the part of the credit bureau, chances are that only one will have the mistake. If the creditor made the reporting mistake, though, it’s worth checking all three credit reports for the inaccurate information.

Click to See the Latest Mortgage Rates.

You can file the dispute online, via phone, or regular mail. Each bureau has its own requirements, but in general, you must:

  • Provide the information about the dispute. Tell the credit bureau in detail why you think the information is incorrect. Are numbers transposed? Does the trade line not belong to you? Is the payment history incorrect? Give as much detail as possible so that the credit bureau is able to change it effectively.
  • Provide information about the dispute to the creditor. You should also let the creditor know about the incorrect information. Provide the creditor with the same information you gave the credit bureau including the reason why you think the information is incorrect.
  • Provide as much proof as possible. The credit bureau and creditors may or may not take your request seriously if you don’t have proof. Gather as much paperwork as you can to prove your point and supply copies to the credit bureau and creditor.
  • Ask for a specific action. Think about what you want out of your dispute. Do you want the information deleted? Do you just need the data corrected? Be specific with your request so the outcome is the one you desire.

Credit bureaus typically have 30 days to investigate your request. The issue may not get resolved in 30 days, but the credit bureau must start the investigation within that time. The exact time that it takes depends on the willingness of the creditor. If they drag their feet, it may take longer. That’s why it’s important to stay in contact with the creditor too.

How to Handle a Dispute That Doesn’t go Your Way

Your dispute may or may not go your way, there’s no surefire way to tell. If the creditor denies your dispute, you can request that the credit bureau put a copy of the dispute on file. They can also add a statement to the trade line stating that you dispute the tradeline and the reason.

Future creditors will see the dispute and decide how to handle it. Some may ask you questions about it. Others may just look over the tradeline, especially if it has negative information reporting. The exact circumstances of the situation will determine the outcome.

The most important thing you can do is stay on top of your credit information. You’ll need a good credit report to get new loans, get insurance, rent a home, buy a home, and even sometimes get a job. Be vigilant in checking your credit report and requesting changes if there are any errors. It’s worth the time and effort it takes to fix the errors on your report.

Click Here to Get Matched With a Lender.

How Does Mortgage Insurance Work?

By

Many loans today require mortgage insurance including conventional, FHA, and USDA loans. You can only avoid mortgage insurance if you put down at least 20% on a conventional loan. All FHA and USDA loans carry mortgage insurance regardless of the amount of your down payment. Knowing how it works and what to expect can help you prepare for a mortgage.

Compare Offers from Several Mortgage Lenders.

What is Mortgage Insurance?

If you have to pay mortgage insurance, know that it’s coverage for the lender, not you. You pay the premiums, but the protection covers the lender should you stop making your payments. Government-backed loans require the insurance in order for the FHA and USDA to guarantee the loan. The FHA and USDA don’t write or fund loans – instead, they guarantee them for the lender. This is how lenders are able to give loans with flexible guidelines, like credit scores as low as 580 or debt ratios as high as 41%.

Conventional loans require PMI or Private Mortgage Insurance if you put less than 20% down on the home. Without 20% down, you pose a higher risk of default. In order for lenders to write the loan, they want the protection of Private Mortgage Insurance. If you stop making payments, the lender will receive reimbursement from the insurance company.

How Government-Backed Mortgage Insurance Works

If you use FHA or USDA financing, you actually pay mortgage insurance twice. The first time is at the closing. You’ll see it called the upfront funding fee or upfront mortgage insurance. This money goes straight to the FHA or USDA. The FHA charges 1.75% of the loan amount upfront and the USDA charges 1% of the loan amount. You can pay the fee in cash at the closing or wrap it into your loan amount.

The FHA and USDA also charge annual mortgage insurance. The name is deceiving, though, since you pay it monthly. The lender pays the premium to the insurance company on your behalf once a year, but you pay 1/12th of the premium each month with your mortgage payment.

Government-backed mortgage insurance lasts for the duration of the loan. If you take out a 30-year loan and you keep the loan for the entire term, you pay mortgage insurance the entire time. The only thing that differs is the amount of the premium that you pay. FHA loans, for example, charge 0.85% of the outstanding premium each year. The lender calculates your premium based on your average outstanding balance each year, as you pay the balance mortgage balance down, your premium decreases.

Looking for Current Mortgage Interest Rates? Click Here.

How Conventional Loan Mortgage Insurance Works

Conventional loans have Private Mortgage Insurance because they aren’t backed by a government entity. The PMI comes from several different companies – each lender typically has a company they prefer to use. Each insurance company has different pricing too.

You only pay PMI if you put less than 20% down on a home, though. The amount you pay remains the same for the term you must carry it. This is where PMI differs from government-backed mortgage insurance, though. You only pay PMI until you owe less than 80% of the home’s original value. You can determine when this will occur by looking at your PMI Disclosure or amortization table.

Once you owe less than 80% of the home’s value, you can request PMI cancelation in writing. The lender will evaluate your situation and decide at that point if you qualify to cancel the insurance. Lenders look at:

  • Your payment history – Do you make your payments on time?
  • Your current housing history – Are you current on your payments?
  • The home’s current value – Did the home’s price remain stable or appreciate?

If you make your payments on time and are current on your payments, most lenders will allow cancellation of your PMI.

If you don’t cancel the PMI once you hit the 80% point, the lender must cancel it once you owe less than 78% of the home’s original value – it’s the law.

The lender reserves the right to not cancel the insurance if your home’s value decreased or you are behind on your payments. Remember, the insurance protects the lender should you default on your loan. They take a big risk when letting the insurance go.

Getting Rid of Mortgage Insurance

Whether you have a government-backed loan or a conventional loan, there’s one way to get rid of mortgage insurance once and for all – refinance. Of course, you need all of the right pieces to fall into place.

If you have a government-backed loan and you owe less than 80% of the home’s value, you can refinance into a conventional loan. If you have a conventional loan, but have paid the balance down significantly or the home appreciated a lot, you may refinance the loan, order a new appraisal and get rid of the PMI.

Mortgage insurance seems like a nuisance, but it helps you get the financing you need. With an insurance policy in place, lenders are more likely to give you the financing you need, even if you have a high LTV or even a low credit score.

Looking for Current Mortgage Interest Rates? Click Here.

What Does Seller Assist Mean?

By

If you don’t have enough money for a down payment on a home, you may wonder about the seller’s ability to help. While the seller can help with many different costs regarding your home purchase, the down payment is not one of them. If a seller were to help you with the down payment, it could be considered an inducement to purchase – or in other words, a bribe.

Looking for Current Mortgage Interest Rates? Click Here.

What’s an Inducement to Purchase?

If you are hemming and hawing about whether you want to buy a home or not, the seller could sway you by telling you he will help with the down payment. That could convince you to buy the home, even if it wasn’t your original intent. If you meet with financial difficulty down the road, you could blame it on the seller and the fact that he ‘bribed you’ to buy the home.

Other Ways Sellers Can Help

Luckily, there are other ways that sellers can help you with your loan. If you can’t get a down payment, consider the VA or USDA loan program. If you are a veteran, you can use the VA loan program, if you buy a home in a rural area and are a low to moderate-income family, you can use the USDA program. If neither of those options work, the FHA loan requires just 3.5% down on the home.

Once you figure out your loan program, you can have the seller help you with the closing costs. This is called seller concessions. This is money the seller gives you to help you cover the closing costs. Most loan programs allow the seller to contribute up to 6% of the sales price of the home. This is separate from the down payment, though. The seller can help you cover any lender fees as well as third-party fees. Keep in mind, though, the money the seller gives you is really money you are borrowing from the bank to buy the home. The seller increases the price of the home accordingly, which means you borrow the money to cover the closing costs.

Click to See the Latest Mortgage Rates.

Here’s an example:

You agree to buy a home for $150,000. Before you sign the contract, you decide to ask the seller to help you with the closing costs. The total closing costs are $8,000. The seller agrees to pay them, but you have to increase the sales price to $158,000. As long as the home appraises for at least $158,000, you should be okay. This means that your monthly payment is now a little higher and you pay interest on the $8,000 that the seller will give you at the closing. The seller walks away with the same amount of money whether he helped you with the closing costs or not.

Who Can Help You With the Down Payment?

What if you truly cannot come up with the down payment? Who can help you? While it’s not the seller – anyone that isn’t involved in the transaction, such as the real estate agent, can help you. Typically, this means family members. They can give you gift money, but this gift money is different than the gifts you receive on your birthday.

Lenders need to trace the origination of the gift money. In other words, they need to make sure that it’s not a loan somewhere down the road. They will need a gift letter from the donor, stating that the money is a gift, the purpose of the gift, and that it doesn’t need to be repaid. The donor must include your name and the address the money is meant to help purchase. The donor must then sign and date the letter.

The donor will also have to provide proof of the funds’ origination. Typically, lenders require only 2 months of bank statements to show that the donor has possession of the money. If there are any large deposits that don’t coincide with the donor’s income, the lender may need further proof of the funds’ origination to make sure there isn’t a loan hidden down the line somewhere.

The bottom line is that the seller can help you, but not with the down payment. If you need help with your down payment, you’ll need either a no down payment loan program, such as the VA or USDA loan, or you’ll need to receive the funds as a gift from a family member.

Click Here to Get Matched With a Lender.

Can Closing Costs be Financed?

By

Closing costs can cost as much as 5% of your loan amount. If you have a $200,000 loan, that’s another $10,000 you must come up with to close the loan. What if you don’t have it? Can closing costs be rolled into a mortgage?

Compare Offers from Several Mortgage Lenders.

It depends. If you are purchasing a home, you may have a tougher time rolling your closing costs into the loan. If you are refinancing your mortgage, you may be able to roll the closing costs into the loan if you have room in the home’s equity.

Does it make sense to do so though?

What’s Your Home’s Value?

The determining factor regarding whether you can roll your closing costs into your loan is the appraised value. Next is the purchase price or the current balance on your existing mortgage, depending if you are purchasing or refinancing.

You can’t borrow more than the home’s value. In most cases, you can’t borrow more than a specific percentage of the home’s value. For example, FHA loans allow you to borrow up to 96.5% of the home’s value and conventional loans allow up to a 95% LTV. If you only put down the minimum down payment, you won’t have room to roll closing costs into your loan on a purchase – this is typical.

If you refinance your loan, though, you may have room. Let’s say your home is worth $300,000 and your existing loan has a balance of $250,000. If you don’t have the cash to pay the closing costs upfront, you may be eligible to roll them into your loan amount since your LTV would only be 83%.

How Long Will You be in the Home?

The next thing to consider is how long you’ll be in the home. Is this your forever home? If so, you may not want to roll the closing costs into your loan for one reason – interest. If you increase your loan amount to cover the closing costs, you pay more interest on the loan itself. If you stretch this out over a 30-year term, you could be paying thousands more than what the closing costs actually cost at the closing.

If you won’t be in the home for the long-term, rolling the closing costs into your loan may not be a bad idea. Let’s say you plan to stay in the home for five years. That means you’ll pay just a small portion of the closing costs, plus the interest on the loan for 60 months. You’ll still have cash in your pocket from the money you didn’t put out upfront for the closing costs and you won’t pay thousands of dollars in interest.

Click to See the Latest Mortgage Rates.

What are Your Other Options?

If you decide that paying thousands of dollars in interest isn’t worth it or you don’t qualify to roll the closing costs into your loan, you have a few other options.

First, you can ask the lender for a ‘no closing cost loan.’ While the name suggests that there aren’t any closing costs, the lender actually pays them for you. No, they don’t do this out of the goodness of their own heart, though. They increase your interest rate in exchange for the lack of closing costs. Typically, it costs you an extra 0.5% in your interest rate to get the lender to cover your closing costs.

You can also ask the seller for assistance. Sellers are able to contribute between 3% and 9% of the purchase price of the home to help you with closing costs. FHA and USDA loans allow up to 6% and conventional loans allow between 3% and 9% depending on the amount of your down payment. Just like wrapping the closing costs into your loan, sellers typically increase the price of the home in order to make enough profit while helping you with the closing costs. It can be a viable alternative when a lender won’t allow you to wrap the costs into your loan, though.

The answer to ‘can closing costs be rolled into a mortgage’ is that you must look at the big picture first. If you are buying a home, your better option may be seller-paid closing costs as there may be more room for opportunity there. The largest factor standing between you and help with your closing costs is the value of the home, though. If there isn’t enough value to inflate your loan amount, then you’ll have to resort to paying the costs yourself or asking friends/relatives for gift money to help you with the costs.

Click Here to Get Matched With a Lender.

Buying an Old House? Pay Close Attention to these Issues

By

Buying a house can be exciting and complicated at the same time, but buying an old house can be even more complicated. Before you dive into that rare find, make sure to consider the following factors.

Looking for Current Mortgage Interest Rates? Click Here.

It May be Built With Hazardous Materials

Older homes were built with older materials, many of which are hazardous. Asbestos and lead paint are the two most common hazardous materials found in older homes.

Asbestos was commonly used in insulation and fireproofing material and lead paint was commonly used in all homes prior to 1978. It’s important to pay for an inspection that will determine if either of these issues exists.

Lead paint is toxic, especially for children. Experts also believe that asbestos causes lung cancer and other serious respiratory issues. Give careful consideration to the purchase of an older home that has either of these issues. If you do still want to buy the home, you’ll need either issue cared for by a professional that knows how to effectively fix the issue without putting anyone’s health at risk.

There May be Mold or Mildew Growth

Cracks, leaks, and faulty building materials all lead to water dripping into a home. If not caught and if the environment is just right, mold and mildew can grow in the home. They are most common in basements and attics where it’s dark and moist, but mold and mildew can grow anywhere including inside windows, in bathrooms, and anywhere else in the home that water leaks.

If the mold and mildew growth is excessive, it’s best to hire professionals to remove it. Trying to remove it yourself could be time-consuming and risky for your health. The professionals know how to protect themselves as well as everything else in the home to avoid spreading the mold spores.

Click to See the Latest Mortgage Rates.

The Roof May be Historic

It’s common to check the integrity of a roof when you buy a home, but you may be dealing with a different problem when buying an old home. Roofing on some homes has a historic grade. This means you may have to get approval before restoring it and you may have to use certain materials according to the guidelines.

There May be Electrical Issues

Electrical systems in old homes are often as old as the home. This means they probably won’t meet today’s fire code and could pose a serious hazard. Before you assume the home has proper wiring and can handle the electrical needs that you have, make sure to have it inspected.

While having the home rewired can be an expensive investment, consider it an investment in your safety. Faulty wiring can be a serious fire hazard, which can put your home and your own lives at risk.

The HVAC Systems May be Inefficient

If the HVAC systems are as old as the home, chances are they either aren’t working or aren’t efficient. Most older homes didn’t have air conditioning, so pay attention to that important detail. While the home probably has a furnace, there’s no guarantee that it’s in good working condition or that it too isn’t a fire hazard. Having the inspector thoroughly inspect the HVAC systems can help you ensure your safety.

You May Not be Able to Make Major Renovations

If the home is in a historic district, you may be limited on the changes you can make to it. Even if the home isn’t in a historic district, there may still be limitations from the building and planning department of your city. Knowing ahead of time what you can and cannot do can help you make the right decision.

Buying an old home comes with its own issues. While you should always pay for an inspection when buying a home, you want to find an inspector that is experienced in dealing with old homes. This way you know he or she inspects every nook and cranny of the home and gives you a thorough report in order for you to make a decision.

Click Here to Get Matched With a Lender.

Buying a Condo with FHA Financing

By

FHA loans and condos are often the two things first-time homebuyers want. But do they go hand-in-hand? Even if you aren’t a first-time homebuyer, can you buy a condo with FHA financing?

Compare Offers from Several Mortgage Lenders.

The short answer is ‘yes,’ you can buy a condo with FHA financing. The longer answer is that you can buy a condo with an FHA loan, but you have to follow the strict requirements set by the FHA. Any loan program has stricter requirements when it comes to condos because they are ‘riskier’ than a single-family home.

Keep reading to learn what you need to secure FHA financing on a condo.

The Condo Must Have FHA Approval

Perhaps the largest hurdle to jump when buying a condo is getting FHA approval. This goes beyond what the lender will allow. The FHA must say that it’s okay for FHA borrowers to use FHA financing to buy a condo in that development.

Here’s what it takes for the FHA to approve a condo development:

  • No more than 25% of the units in the development may be for commercial purposes
  • One person (investor) cannot own more than 10% of the units
  • A majority (85%) of homeowners in the development must be on time with their HOA dues
  • At least half of the units must be primary residences
  • The FHA must approve the association’s budget and financial status
  • The association must not be involved in any litigation or have any pending litigation against them
  • The development must have adequate property insurance

These are the FHA requirements in a nutshell. They look at each development on a case-by-case basis. Because when you buy a condo you buy more than your own unit, you buy into shared property with the other owners, the FHA needs to make sure the association has things under control. They need to know that one person doesn’t own a majority of the units or that the units aren’t mostly rented out or used as condotels.

The Easiest Way to Buy a Condo With FHA Financing

Do you want the easiest way to purchase a condo if you are an FHA borrower? Find a development that the FHA already approved. There are plenty of them throughout the United States. This way you cut down on the red tape and the time it takes to get to the closing.

HUD offers a list of FHA-approved condos on their website. You can make your search as narrow or as broad as you like. For example, you can search by ‘all states,’ but you can probably narrow your search down to at least the state you want to live, or even as narrow as a specific county. If you found a particular development you are interested in already, you can also search by condo name.

Your real estate agent can also be a valuable resource when helping you find an FHA-approved condo. Use a realtor that is familiar with using FHA financing on a condo for the best results. Real estate agents have early access to MLS listings, which the realtor can tell if the development has FHA approval or not.

Buying an Unapproved Condo

If you happen to fall in love with a condo that doesn’t have FHA approval yet, you are in for a longer ride. The development must get FHA approval in order for you to move forward with your financing. Keep in mind that the association isn’t obligated to request FHA approval – it’s up to the directors if they want to go through the approval process or not.

Click to See the Latest Mortgage Rates.

The condo development’s status will determine how long the process will take. If you happen to find a development that was once FHA approved, but has since let the approval expire (they have to keep renewing their approval), you may get by with a streamlined approval process if the approval expired within the last six months.

If the development’s approval expired more than six months ago or they never had approval, they must go through the process from scratch. This means proving all of the factors we stated above plus resolving any other issues that come up during the approval process. It can take as long as 4 – 6 weeks to get FHA approval.

Securing FHA Financing for Your Condo

The good news is, though, that the qualifications to get FHA financing for a condo are the same as if you were buying a single-family property. You need a 580 credit score, 31% maximum housing ratio, 41% maximum total debt ratio, and a 3.5% down payment.

Some lenders may require a few compensating factors to make up for the risk of default that a condo poses, but that’s not always the case. Lenders have to follow the FHA rules and then can add their own requirements on top of that – they call it a lender overlay. If you come across a lender that is especially tough on borrowers buying a condo, keep shopping around with other FHA lenders to find one that doesn’t have the overlays.

Buying a condo with FHA financing is not impossible, but it definitely requires a little more work. Finding a condo development that the FHA already approved is certainly the easiest way to go about it, but you can always request approval to see how the process goes for you.

Click Here to Get Matched With a Lender.

Should you Refinance to Remove Mortgage Insurance?

By

If you put less than 20% down on your home when you bought it, you probably pay Private Mortgage Insurance as a part of your mortgage payment. If you took an FHA loan, no matter how much money you put down, you must pay mortgage insurance each month.

Looking for Current Mortgage Interest Rates? Click Here.

You may wonder if it makes sense to refinance your loan to get out of the PMI if you have the chance. In some cases, it may make sense, but certain factors have to fall into place. Keep reading to learn if it’s right for you.

What Will it Cost?

Your first consideration should be the cost. You can’t refinance for free. So what will it cost? Do you have the money available to pay the closing costs or will you wrap the costs into your loan? This will make a difference in what you should do.

If you have the money to pay upfront, you can keep your mortgage payment down and enjoy the PMI free loan, assuming you have at least 20% equity in the home. If you wrap the costs into your loan, you increase the principal balance of your loan. This makes your payment higher. While you still might avoid PMI, you just made your loan balance higher, which means it will take longer to own the home free and clear.

What’s Your Break-Even Point?

Putting the cost aside for a second, it’s time to figure out your break-even point. It’s not enough to assume that you’ll save because you won’t pay PMI anymore. You need to know when you will start realizing those savings. This goes back to the closing costs. How long will it take you to pay back the closing costs based on the savings you’ll earn?

Here’s a quick formula that you can use:

Total closing costs/Monthly savings on new loan = Months to break even

Just how long is a ‘good amount of time’ depends on your circumstances. Typically, a break-even point of three years or less is feasible. But, that’s only if you are going to stay in it longer than three years. Let’s say that your break-even point is 3 years and you are going to move in 4 years. Does it make sense to fork over the money for closing costs just to save a little money over the course of one year? It probably doesn’t make sense.

On the other hand, if you plan to stay in the home for the foreseeable future and it will only take 3 years to pay off the closing costs, then it may make sense to do so. You have to know that break-even point as well as your plans to figure out what’s right for you.

Click to See the Latest Mortgage Rates.

Can You Get the PMI AutomaticallyRemoved?

If you have a conventional loan, you should know about a little rule that conventional loans have. You are able to request that the lender remove your PMI once you owe less than 80% of the home’s value. This could be the home’s original value or the current value, if it increased. You may have to pay for an appraisal to prove the higher value of your home, but that costs peanuts compared to a full-blown refinance.

If you know that you owe less than 80% of the home’s value, you can request removal of the PMI in writing. The lender will then evaluate the situation to determine if you do in fact ow less than 80% of the home’s value.

Here’s another fun fact, though. If you don’t request that the lender remove the PMI when you owe less than 80% of the home’s value, the lender has to remove it once you owe 78% of the home’s value. It’s an automatic removal. You don’t have to request the removal in writing or prove anything. The lender must remove it on their own.

If you are close to this point, it may not make sense to pay to refinance since you can get the PMI removed free of charge. If you are happy with your current loan’s term and interest rate, it may be better to just leave the loan alone and let the PMI fall off on its own.

As you can see, every borrower has a different situation. It’s up to you to figure out which option works the best. Weigh the pros and cons of each situation to help you decide which option will leave you with the best results.

Click Here to Get Matched With a Lender.

Pros and Cons of a Small Down Payment on a House

By

Did you know that you don’t have to put 20% down on a home to get financing? Today many programs allow down payments as low as 3% and there are even programs that don’t require a down payment at all.

Looking for Current Mortgage Interest Rates? Click Here.

While this sounds ideal, it may not be the best for everyone. Keep reading to learn the pros and cons of making a small down payment on a home.

The Benefits of a Small Down Payment

First, we’ll start with the benefits of a small down payment.

  • You’ll have money in reserves. It’s always a good idea to have money in an emergency fund when you own a home. What if something breaks as soon as you move in or you realize that you need to buy a specific appliance? If you don’t have the funds, it can put you in a dire financial situation right away. Instead, you can have the money sitting in your savings account for that rainy day.
  • Makes it easier to buy a home – If you can find a loan program, such as the FHA or even a conventional loan that requires a low down payment, you may be able to buy a home sooner than you thought. If you are forced to wait until you have a 20% down payment, on the other hand, it can take longer.
  • You increase your rate of return – When you put less down on the home, but your home appreciates, you are able to earn a higher rate of return. The more money you put into the home, the less you make in equity; you are just making back what you put into the home.

Click to See the Latest Mortgage Rates.

The Downsides of a Small Down Payment

Of course, there are downsides to a small down payment.

  • You’ll have little equity – If you ever want to access the home’s equity to make improvements to the home or even pay for another large expense, you won’t’ have any for quite a while. Gaining equity in the home with a small down payment can take many years.
  • You’ll pay mortgage insurance – Whether you opt for a conventional loan or a government-backed loan, you will pay mortgage insurance on the loan. If you take an FHA or USDA loan, you will pay mortgage insurance for the life of the loan. Conventional loans only require it until you owe less than 80% of the home’s value.
  • You’ll pay a higher interest rate and have a higher payment – The less money you put down on a home upfront, the more your payment will cost you. Lenders typically charge higher interest rates because of the higher risk of default. Your payment will then be higher but even with the same interest rate, your payment will be higher because of the higher amount of your principal balance.
  • It’s tougher to win the bid on the home – If you are trying to buy a home in a competitive market, sellers may favor the buyers that put more money down on the home. A higher down payment often means an easier time getting financing, which is what the seller wants as they don’t want to lose the offer that they accept.

It’s a Personal Decision

Each situation is different when it comes to making a down payment. Sometimes a large down payment is good, especially if you will stay in the home for the long-term and you have reserves set aside on top of the down payment. If you aren’t sure about your longevity in the home or you worry about your financing future, though, making the smaller down payment may be the better option.

You have to weight the pros and cons of each side. It helps if you talk to a few lenders and even your tax advisor to see which option will suit you the most in the long run. It’s not an easy decision to make and it’s not a decision you should rush into. Instead, take your time and decide which option is right for you.

Click Here to Get Matched With a Lender.