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8 Hidden Costs: Home Buyers' Guide to Unexpected Expenses

First time home buyers are often surprised when they learn about all of the expenses that are associated with purchasing and owning a home. After all, the purchase price and the down payment alone are just the tip of the iceberg.

Forming a solid understanding of what expenses you can expect and an estimated cost of the entire housing process can help you stay ahead financially. Becoming familiar with these expenses may also help you better understand how much money you can spend.

Plus, when you know what you can realistically afford, you can secure a loan that doesn’t become a financial burden for you later on. If you’re a first time homebuyer and you want to improve your understanding of home-related expenses, then this article is for you!

1. Closing Costs

The closing costs of a home are often considered to be hidden costs because they are more expensive than most first-home homebuyers realize. Securing a mortgage isn’t as simple as walking into a bank or lending office, paying your down payment for the loan, and closing on the house all at once.

Instead, there are numerous closing costs associated with securing the loan, and these fees add up quickly. Some of the closing costs that you can prepare for include:

Legal fees: When purchasing a home, you should consider working with a lawyer. After all, your house will likely be the most expensive purchase you make in your life, and lawyers ensure that everything is carried out pursuant to the terms in the contract of sale. Like other service providers, lawyers charge money for their services, and their fees can range anywhere from a few hundred dollars to a few thousand dollars.
Taxes and insurance for your escrow account: You may need to deposit enough money into escrow for the purpose of paying your taxes and your insurance provider. The amount required to be in your escrow account will differ from lender to lender, but typically, the lender will require three to twelve months of payments in escrow.
Application fees: Most lenders will charge an application fee (ZeroMortgage does not). Although this fee isn’t too expensive, especially compared to other house-related fees, the application fee is still something worth noting.
Recording fee: The county’s clerk will need to have a record of the deed and mortgage and in order for this to happen, a recording fee is often required by the clerk’s office at closing.

Generally speaking, closing costs are somewhere between 2% and 5% of the total purchase price of the home. In other words, if the home is $300,000, you can expect to pay anywhere from $6,000 to $15,000 in closing costs alone.

We wrote a whole blog just about fees and closing costs, read it here.

2. Maintenance & Repairs

Unfortunately, there is no way to predict how much maintenance or how many repairs a home will need, nor is it easy to figure out what those repairs may cost. Fixing a small leak in the shower will not be nearly as expensive as replacing the roof or upgrading an entire electrical system.

Despite the uncertainty of potential repairs or renovations in your home, it’s best to assume that there will be repairs that you’ll need to make. Even though you cannot know for certain how much repairs or maintenance will cost, assuming there will be maintenance costs will make sure you are prepared for them when they arise.

Common maintenance costs include:

Servicing the boiler or furnace annually
Servicing the hot water heater
Servicing the central air conditioning unit

Before closing on a home, it’s wise to ask the existing owners for service records of these items. You’ll want to be sure that everything has been properly maintained over the years prior to your ownership. If many years have passed and the systems weren’t cared for, you can request that the existing owner pay for the replacement or maintenance of all systems before you purchase the home.

Having cash reserves for these expenses can help you avoid debt or poor financial decisions down the road. For instance, if you make sure to keep a few thousand dollars saved in the bank for unexpected house costs only, you can avoid having to put repairs on a credit card or take out a loan for the repairs. Although parting ways with cash is never exciting, it can save you a great deal of interest expenses in the future

Read about 8 budget-friendly DIY projects you can try today.

3. Upkeep

We discussed maintenance expenses associated with owning a home, but did you know there is also an upkeep expense? There’s a difference between maintenance costs and upkeep expenses.

Maintenance and repairs refer to the changes you must make to the home. For example, if there is a leak in the shower, you need to adjust the situation and either perform maintenance on the shower or replace the shower head altogether.

Similarly, if your roof has a leak that needs to be addressed or your hot water heater breaks, then those issues fall into the categories of maintenance and repairs. You have to fix these issues in order for your home to be a safe place to live.

Upkeep, on the other hand, refers to the tasks that you technically don’t have to do but you’ll find yourself doing anyway. For instance, every spring or summer, you might notice that you’re spending a few hundred dollars at Home Depot or Lowe’s buying flowers, shrubs, or mulch bags to keep your property nice. And you may need to buy a variety of tools to make that possible!

Remember that one of the greatest benefits of owning a home is the fact you can do anything you want to do. If you have the desire to change the paint color, add a vanity, or plant a garden, no one can hold you back. However, all of these desires will come at a cost

4. Home Inspections

The cost of home inspections typically range from $300 to $1,000. However, this is money well spent. Home inspectors exist to identify problems in the home before you make your purchase. Make sure you are working with a reputable home inspector who has a positive rating and years of experience.

They will inspect the foundation, siding, roof, and windows of your home. Plus, they will ensure that all of the toilets flush properly. They’ll also prevent unwanted situations like leaks, gutters, or poor-quality hardwood floors and carpets. In the best case scenario, there will be no issues with the home, but they might find something worth negotiating with the seller, which will save you money overall.

If you’re not a roofer, you may have never picked up on the roof being in such bad condition. That’s why hiring a professional is a wise idea. They can pick up on issues that you might not recognize on your own so that a year down the road, you don’t end up having to deal with an unexpected expense to fix the roof.

5. Private Mortgage Insurance

Before going over this expense, we should take a closer look at the definition of private mortgage insurance. So, what is private mortgage insurance? Simply put, this is a type of insurance that you may have to pay to your mortgage provider.

It serves as a protective measure for the lender in case you end up defaulting on your loan. It’s important to recognize that private mortgage insurance does not protect you. Instead, it protects your lender.

However, private mortgage insurance might be avoidable, but it depends on the type of loan that you secure and how much money you put down. For example, if you’re financing your home via an FHA mortgage and you put down less than 20% in the form of a down payment, you’ll be required to pay private mortgage insurance no matter what.

Generally speaking, a PMI often costs somewhere around 1% or 2% of your initial loan value. Depending on the mortgage you’re looking to secure, your PMI payments will come to an end once you reach a point of having 20% equity. Nonetheless, this insurance is a pricey addition to the already-costly home buying process.

6. Utilities

Utilities are an expense that renters are already familiar with, making utilities something that is not only pertinent to homeowners. However, when you take the time to factor in how much money you can comfortably spend per month on a mortgage, be sure to factor in the utility expenses as well.

With that said, homeowners look at utilities through a different lens than renters. For instance, if the home does not have great insulation in the attic, homeowners can reinsulate the attic to retain more heat in the winter and more cool air in the summer. This can cause utility expenses to drop, but it requires money upfront because it costs money to properly insulate your home.

7. Property Taxes

Property taxes refer to the money you are required to put towards your town, your city, or your county. This money pays to maintain the town, including the upkeep of roads, the public school system, community centers, and town employees. Depending on where you live, property taxes can be either expensive or affordable. This is known as the town's mill rate.

Property tax is often rolled into your monthly mortgage. Either that or you’ll have to pay the town once or twice per year. If property taxes are not already a part of your mortgage, make sure you set money aside each month so that you are not hit with unexpected expenses throughout the year.

8. Survey and Appraisal Fees

Many lenders will require that you have your land surveyed and your property appraised. In most cases, survey and appraisal fees will typically cost you a few hundred dollars.

Simply put, the survey provides the lender with a clear understanding of where the property lines begin and end. An appraisal is used to calculate the value of the home.

The appraised value of a home does not always align with what the property is being sold for. As an example, if a home is appraised for $350,000 yet being sold by the seller for $325,000, then the buyer is in luck.

Alternatively, let’s imagine a situation where a house is appraised for $325,000 and the seller is looking to sell the home for $25,000 more, resulting in a selling price of $350,000. In this situation, the bank may not provide lending for $350,000.

So, if the buyer was dead set on owning this home, then that $25,000 difference would need to come from their own pocket and they must pay that difference or get the seller to lower their asking price. Nonetheless, these survey and appraisal fees are often considered to be unexpected expenses because first-time homebuyers have never needed to consider them in the past.

What to Expect When Buying a House in 2022

A lot has changed as a result of COVID-19, and the housing market is part of that change. If you’re buying a house in 2022, do yourself a favor by keeping these advantages and disadvantages in mind.

Current Market Advantages for Home Buyers

Some of the market advantages for homebuyers include the following:

Interest rates are low! The money that you’ll pay in interest over the course of the loan is substantial. Generally speaking, the lower the rate, the better!
Sellers are looking to sell quickly, which can make the transactions and overall process move much faster.

Current Market Disadvantages for Home Buyers

There are also disadvantages worth considering, some of which include:

With a surplus of people leaving cities in search of the suburbs, supply is limited and demand is high. This is forcing home prices to rise at a rapid rate.
The rapid home price surge has caused many homes to fail to appraise out, meaning the seller is looking to get more for the home than it was originally appraised for. This presents challenges when it comes to financing which creates a lot of uncertainty for interested homebuyers.
Due to the high demand of people looking to purchase a home, underwriting is much stricter. Banks reserve the right to deny lending, and banks are also much more selective with who they will issue a loan to.

A Pre-approval Letter is Crucial

A pre-approval lender is absolutely critical in today’s market, and differs from pre-qualification. A pre-approval letter informs you of how much money a lender is willing to offer you in the form of a mortgage loan.

With a pre-approval letter, you and your realtor can then look at homes that fit within your pre-approved budget. Considering how busy real estate agents are at the moment, they are often not working with people if they are not pre-approved, so a pre-approval letter is highly recommended.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

A Lot to Consider

Despite the various unexpected expenses that you need to consider when buying and owning a house, home ownership is still a major part of the American dream, and for good reason. Having a place to call your own where you can establish roots is such a gratifying accomplishment!

If you plan on purchasing a home, make sure you consider all of the unexpected expenses that we’ve discussed above. This will help you be more prepared for homeownership, which will make homeownership that much more enjoyable and fulfilling!

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Down Payment Assistance Programs for First Time Home Buyers

One of the biggest challenges of purchasing a home is saving up enough money for the down payment. Despite popular belief, there are many down payment assistance options available to the first time home buyer that can help reduce the burden of saving up a large down payment. Down payment assistance, also known as DPA, exists throughout the United States, although the fine details vary by location. If you’re looking to purchase a home, but you’re struggling to meet that down payment requirement, read on! You may learn how to put your goal within reaching distance.

Understanding Down Payments

First and foremost, what is a down payment? When buying a home, a down payment is the amount of money put towards its sale price. Down payments are typically treated as a percentage of the purchase price. So, depending on how much you put down, you can reduce your borrowing amount and have lower monthly payments. Additionally, any required down payment amount is typically determined by the type of mortgage you choose.

How Much Should Your Home Down Payment Be?

After knowing what minimum down payment is necessary to secure the contract and financing, you may want to consider making a higher down payment. Putting down a higher down payment may help reduce your monthly payment and secure an accepted offer on a property, however you must consider if you can afford to make a higher down payment or if it would be better to hold onto those extra funds.

Making a low down payment will increase your monthly payment and can elevate your debt to income levels.

The right down payment is 100% dependent on your financial situation and goals.

Average Down Payment On A House

First time home buyers typically put down roughly 6% of the home value. On a $300,000 home, that’s $18,000. However, there are loan options out there that allow you to put down as little as 3.5%, such as an FHA loan. Keep in mind, the percentage of down payment could be impacted by what the lender is requiring and/or what the seller would accept with the offer.

What is Down Payment Assistance?

As the name suggests, down payment assistance assists first time home buyers in making a down payment on a property. There are numerous down payment assistance options available to first time home buyers.

Who qualifies for down payment assistance?

Despite down payment assistance programs being offered throughout the country, all first time home buyers do not qualify for such assistance. There are various definitions of who qualifies for such assistance and each program may have it’s own unique requirements.

How big of a down payment grant can you get?

Just as there is no one size fits all to how much you should put down on a home, there is not a one size fits all to how much of a down payment grant you can get. Depending on your state, county, or zip code, you may be eligible for more, or less, grant money.

Why are there different programs and different rules?

If you are exploring the down payment assistance programs in greater detail, the first thing that may stand out to you is the number of different programs and rules that exist. Why are there so many options?

The simplest way to explain all the variables is to first recognize there is not a singular government agency that oversees the down payment assistance program. States get involved, but oftentimes, such assistance programs are made on the town level.

Government bodies of specific towns may want to incentivize people to move to their town or city. Such incentives include down payment assistance options. The government is willing to offer down payment assistance as they realize the more people that move to the town, the more economic activity will trickle down, and the long term benefit will be tremendous.

Types of Down Payment Assistance

There are many different types of down payment assistance options. These options include:

Grants

Grants are the most sought after down payment assistance option on the market, and for good reason. Grants are essentially free money, the homeowner never needs to repay the money they receive from a down payment assistance grant.

Forgivable Down Payment Assistance

A forgivable mortgage is a type of second mortgage that the homeowner does not need to pay back as long as the homeowner stays in the home for an agreed upon number of years. Lenders will typically forgive these loans after 5 years, but there are of course options on the market that require a much longer forgiveness period.

Deferred-Payment Loans

Some people also qualify for a deferred-payment option on their second mortgage. These mortgages will not need to be repaid until/if the homeowner moves, sells, or refinances their original loan.

Low Interest Bearing Assistance

There are low-interest loans available for first time home buyers to help you cover the cost of the down payment. Once your initial mortgage is finalized, a lender may offer a second, low-interest, mortgage that covers your down payment expense. You can keep the money you were planning on putting down in the bank and you can chip away at paying back this low interest loan over the next few years.

Matched Savings Programs

A matched savings program is when an individual deposits money into a specific savings program, and the institution, bank, government agency, or community agency, matches what was deposited. This money can only be used for the down payment of a house, but it’s a way to reach your down payment requirement or goal in a quicker fashion.

How to Find Down Payment Assistance Programs

Where do you even begin finding down payment assistance programs? The easiest way to find a down payment assistance program in your area is to talk to a local mortgage broker or real estate agency. Generally speaking, these professionals are well educated with what programs exist in their market.

You can also do your own research online. If you’re moving to a specific area, research online and see if the town or county offers any down payment assistance options. You can also call the City Hall of each specific town you’re interested in moving to and see if they are aware of any programs.

Here are some down payment assistance programs to consider:

1. Chenoa Fund

The Chenoa Fund is available throughout the country except New York. This is an affordable housing fund that provides up to 3.5% of down payment assistance for those that qualify.

2. Community Seconds

Community Seconds is approved by Fannie Mae. This assistance program allows qualified homebuyers to use money from the state and local government to assist with their down payment. Contacting your local HUD office is a great way to learn more about this program.

3. HUD (Housing and Urban Development) Programs

The US Department of Housing and Urban Development, also known as HUD, helps make home ownership possible for millions of Americans. The FHA loan is an example of a HUD program.

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FHA vs. Conventional Loans - What Are The Differences?

FHA and conventional loans are the two most popular loan options available to nearly every buyer. While it’s commonly expected that the FHA loan is for first time homeowners and that conventional options are reserved for experienced buyers with more capital, both loans have viable benefits for any type of buyer.

What Is A FHA Loan?

An FHA loan is insured by the Federal Housing Authority, which backs mortgage lenders to incentivize accessible loan options. This loan option is accessible to buyers with lower credit scores and offers down payments as low as 3.5%. Since it is a government-backed loan, the FHA loan has strict requirements about property type and condition and can only be used for a primary residence.

What Is A Conventional Loan?

A conventional loan is not backed by a government agency like the FHA. Instead, it’s offered by lenders who each set down payment and interest rate requirements based on national guidelines. A conventional loan provides more flexibility for borrowers with good credit scores or cash for more significant down payments and requires less additional fees like mortgage insurance. Conventional loans can be used for many different property types, like vacation homes or multi-families.

Comparing FHA & Conventional Loans

FHA and conventional loans have their own benefits and drawbacks. Each option has different requirements when it comes to loan limits, down payments, and borrower credit score. Choosing the best option for you depends on your financial situation and history.

Minimum Credit Score

FHA loans are great options for buyers with lower credit scores. With a credit score of 580 or higher, borrowers will only need to pay down 3.5% of the home price (which means that a home price of $225,000 would require a down payment of $7,875 before closing costs). Borrowers with credit scores as low as 500 can still qualify with a higher down payment of around 10%.

Conventional loans are best for borrowers with higher credit scores: most lenders look for a minimum score of 620. The better your credit, the lower your down payment, which is excellent news for borrowers who don’t have much in savings but have an excellent credit history.

Mortgage Insurance

Both the FHA and conventional loans require a form of mortgage insurance, but the requirements and fees differ with each option.

An FHA loan requires borrowers to pay a mortgage insurance premium (or MIP) for the duration of the loan. MIP rates fall between .45 – 1.05% annually, and a one-time upfront premium of 1.75% is required as well.

Conventional loans offer more flexible options when it comes to mortgage insurance. When homeowners make a down payment lower than 20%, mortgage insurance (PMI) requires the form of monthly payments without an upfront premium. Once the homeowner pays down 20% of their home value, the PMI lifts and is no longer required, lowering the monthly payment.

Loan Limits

Each loan type has its own limit on the amount of money that can be borrowed. The Federal Housing Finance Industry regulates conventional loan limits. Moreover, these limits can fluctuate a little each year, running at $548,250 for 2021. FHA loan limits vary based on the median home prices in each area. If you’re buying in a cheap area, the loan can be as low as $356,352. In more expensive areas, loans can reach $822,375.

Interest Rates

A lot of things can influence your interest rates. These things can be a combination of personal factors, including your credit history, debt-to-income ratio (DTI), and your down payment. Conventional loan rates depend on these factors more heavily than the FHA loan.

While this enables FHA loans to offer lower interest rates, borrowers with excellent credit, DTI, and higher down payment amounts might get a competitive rate with a conventional loan.

Down Payment

A low down payment is most often associated with the FHA loan, however, both loan options provide low down payment opportunities depending on a borrower’s circumstances.

As mentioned earlier, the FHA loan offers a low down payment option of 3.5%. If you have a low credit score, lenders might ask for more money down. Borrowers can finance with a conventional loan at 3%, but only with excellent credit history and a low DTI ratio. If you want to avoid mortgage insurance, you’ll have to pay 20% down with a conventional loan.

Reasons To Go With an FHA Loan

The FHA loan is generally the more accessible option for a mortgage. It allows borrowers with a lower credit score and savings the opportunity of a lower interest rate. The FHA loan also takes into consideration the area where you live, allowing you to borrow based on the market value of the neighborhood.

A FHA loan is a great option for those with a low credit score. It’s also great for when your debt-to-income ratio does not meet conventional loan requirements.

Reasons To Go With a Conventional Loan

Conventional loans bring more flexibility; and allow you to put more money down to avoid monthly PMI payments. If you have substantial credit and can put down more cash, a conventional loan may be ideal. This is because a conventional loan will keep your monthly payments low and doesn’t always require a high down payment. It can also be applied to different types of properties, like a vacation home or an investment property.

Conventional and FHA Loan Options

Choosing between a conventional and FHA loan depends largely on your financial situation. Both options appeal to different desires that each borrower has. If you need to put less money down and want a low interest rate, the FHA loan is for you. On the other hand, if you have good credit and you’re looking for more flexibility in your loan terms, a conventional loan may be the better option.

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How to Choose the Best Mortgage Lender

One of the most important steps to buying a home is deciding on a mortgage loan and deciding on a loan involves settling on a good mortgage lender. Because a mortgage loan will probably be part of your finances for years to come, it’s crucial to find a quality lender who not only offers you a good rate but helps you through the process as well

Read our beginners' guide to mortgages here.

How to Find the Best Mortgage Lender

There’s more to a lender than the loan amount and interest rate that they’re willing to offer you. Here are some other things to consider:

Find a Reliable Mortgage Lender With Good Reviews

You’ll be working with your lender a lot throughout the home-buying process. Check out a lender’s reviews online to see what their other customers have to say. Do they answer questions promptly and pick up the phone when you need them? You’ll want to work with someone who is on your side and is willing to discuss your concerns and breakdown the fine print throughout the process.

Ask Your Agent About Finding the Best Mortgage Lender

Your real estate agent has probably seen the best and worst of what your area has to offer. Ask them if they have any lenders that they recommend or know of any to avoid.

Consider the Location of the Mortgage Lender

You don’t have to choose a lender who operates right out of the town you’re considering moving to, but location can have a big influence on your communication. It can be hard to reach a lender in a different time zone, and end-of-day deadlines that occur throughout the closing process may prove difficult if one party’s 5 PM is another’s mid-afternoon

We wrote a whole blog on how to speed up the closing process, read it here.

4 Steps to Choosing the Best Mortgage Lender

When choosing a mortgage lender, it’s important that a lot of preparation, research, and consideration is put in place. Be prepared for the preapproval process, have a good idea of what to anticipate, and prepare your finances. Here are some steps to take when starting on your search for the best mortgage lender:

Step 1: Prepare Your Finances

Before you start looking around for a lender, it’s ideal to make sure you have your finances in order. This can include figuring out how much house you can afford to improve your credit score, if necessary.

Your credit score is one of the best ways to show lenders that you will be able to make monthly mortgage payments on time. A solid score shows that you have paid off your past debts and that the amount of credit that you use is consistent and relatively low.

Additionally, lenders will likely look at big aspects of your finances to calculate what you qualify for, like your salary, debt, and how much you have in savings. However, they may not consider the smaller costs that add up each month or year, like paying for utilities or transportation. With that being said, it can be worth doing your future self a favor by adding up your monthly expenses and calculating how much you can afford to pay monthly towards your mortgage. Once you’ve done that, you’ll likely feel more confident about finding the right mortgage lender for you.

Step 2. Research Lender Options

As a borrower, there are a lot of lender options for you to choose from. Lenders can range from your local banks to online mortgage lenders. If you’ve done any research to find the type of mortgage that you might use, it's best to take notes on the many options that are available.

To help you wade through the local lenders, online mortgage companies, and banks that offer mortgage opportunities, let’s take a look at the different types of lenders.

Direct Lenders

Direct lenders are banks, independent lenders, and online companies that provide mortgages to customers. They cover the entire process, from pre-approval to closing.

Direct lenders are great to work with because they oversee the entire process, and you can ask questions about any step of the application or about the terms and fees. However, it’s important to take a close look at what those fees entail and to get quotes from several different lenders before moving forward with one. Each direct lender approaches fees and costs differently, and you might have to read the fine print to compare how those costs break down over time.

Mortgage Brokers

Mortgage brokers act as a kind of third party between borrowers and lenders and work to find loan options that best match a borrower’s needs. Mortgage brokers charge a fee of the overall loan (typically between 1 and 2 percent) to either the borrower or the lender.

Because mortgage brokers don’t set the loan terms themselves, they can be great independent experts who can help lead you through the lending process without being incentivized to sell you on one specific loan option.

Unsure if you even want to work with a mortgage broker? We wrote a whole blog about what you need to know before working with one. Read it here!

Correspondent Lenders

Correspondent lenders will process your application and provide initial funding of your loan but will then sell the loan to other companies to make a small profit. The profit made from this sale allows the correspondent lender to offer borrowers a larger range of loan types and interest rates.

The sale of your mortgage to a secondary market is very common, and the mortgages often end up in the hands of Fannie Mae and Freddie Mac, two government-subsidized companies that help maintain and balance out the ebb and flow of the national real estate market.

Wholesale Lenders

Wholesale lenders are institutions that don’t interact directly with borrowers. Instead, they work with mortgage brokers (which we covered above) or with banks and entities that process the application and set up the deal. Like correspondent lenders, wholesale lenders also often sell the loan to investors or other companies soon after the borrower signs.

Warehouse Lenders

Warehouse lenders act like the backbone of funding for mortgages and allow lending companies to take on more loans and offer different loan types. Warehouse lenders actually lend money to the mortgage company that works with borrowers and allows them to pay down your mortgage loan.

When your mortgage company sells the loan to the secondary market, they are using some of that profit to help pay back the warehouse lender.

Portfolio Lenders

Portfolio lenders fund a borrower’s loans from their own capital. This allows a bigger degree of flexibility for both the lender and the borrower, since the loan can be bigger and the lender can set their own regulations and don’t have to conform to sell to the secondary market.

If you’re looking for a jumbo loan or a loan that doesn’t fit within conventional limits, a portfolio lender is one of your best potential options for funding a real estate purchase.

Step 3. Compare Rates and Terms From Multiple Lenders

We’ve said it before and we’ll say it again! Getting multiple options from lenders is crucial to getting a good loan. Every lender has their own fees and terms, and some will work better for your personal financial situation than others.

Even if you feel like you’ve gotten a great rate with the first lender, do yourself a favor and get a few more options under your belt before moving forward

Do you know what the differences are between interest rates and APR? Find out now!

Step 4. Get Preapproved for a Mortgage

Getting preapprovals from several different lenders is probably the best way to see what you qualify for and what different lenders offer. For a preapproval, you will probably be asked to submit some official documentation such as your social security number, history of residential addresses, income, credit score, and outstanding debt. Lenders will check your credit, but it won’t put a dent in your score.

Because lenders will do more in-depth research into your financial history once you submit an official application, you’ll want to keep your finances steady after getting preapprovals. Opening a new line of credit, for instance, could change the interest rates and loan amount that you qualify for, so it’s a good idea to avoid making any major changes before officially closing on a home and signing onto the loan

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Finding the Best Mortgage Lender for You

Each mortgage lender is different, and that’s a good thing! It means that you can shop around and find one that works best for your unique financial situation. Doing some research on your own and looking at reviews of lenders will go a long way in helping you narrow down your options, and it will set you up to move forward on a loan that you can feel good about.

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How to Refinance a Mortgage: Refinancing Process Guide

Consider this scenario. You bought a house several years ago, and at the time, you thought you got a pretty great deal. However, since you closed on your new residence, interest rates have plummeted, and you’re wondering how you can benefit from them. Does this sound accurate? If so, you may be in the right position to consider refinancing your mortgage.

People refinance their homes for many reasons, including snagging lower interest rates, reducing house payments, shortening the loan term, and withdrawing money from a house’s equity.

If you’ve been wondering whether refinancing could benefit you, this is the guide you need. We’ll cover the reasons you might want to refinance, the process you’ll have to follow, and all the questions you’re probably asking

We've created a refinancing checklist to help you through this complex process, check it out here!

What Is Mortgage Refinancing?

Let’s start with a basic definition of refinancing. Essentially, mortgage refinancing is the process of swapping out your current loan for a new one with different terms. It’s a relatively simple idea, and people pursue it with a variety of different motivations. These are some of the most common.

Change Your Loan Type

One reason to refinance is to change your loan type. You might want to do this if you started with an adjustable-rate mortgage (ARM) and you’re tired of fluctuating interest rates and payments. A fixed-rate loan could give you the payment reliability you’re craving.

Lowering Interest Rates

As we mentioned before, snagging lower interest rates is a common reason to refinance. Even if your new interest rate will only drop by half a percent, it’s still a savvy investment—as long as you see yourself staying in the residence for several more years.

Pay off Your Mortgage Faster

If you’re in the financial position for it, refinancing to decrease the length of your loan—from 30 to 15 years, for example—can help you pay your loan off faster. A mortgage can be the most significant financial burden a person will take on in their life and paying it off can open up enormous possibilities for how you can spend your time and money. You may also be able to save additional money in the long-term by paying less interest on a shorter loan.

No More Private Mortgage Insurance (PMI)

PMI can be a massive drag on your monthly payment, but refinancing can help you get rid of it. If you originally had to pay PMI as a requirement from your lender because you put down less than 20% on your house, you can have it removed in a refinance if your revised loan meets an 80% threshold in terms of your home’s value.

When Should You Go Through the Mortgage Refinance Process

Deciding when to refinance a home or condo depends on so many different factors that are unique to you and your family. Considering the time and money involved with a refinance, it’s not something you should jump into without fully understanding that process and your motivations.

Is Condo Refinancing Right for You?

If you’re wondering about refinancing a condo, know that the process is largely similar to that of refinancing a house—though there are specific requirements your condo and association may have to meet.

Once a lender has determined that your condo is eligible for refinancing, the biggest thing is to look at how the process will benefit you and affect your financial goals. If you want to speed up your payoff timeline, cut your payments, or reduce your interest rate, for example, condo refinancing can be smart. If your reasons for refinancing are to borrow money from your home’s value to pay for other expensive necessities, a cash-out refinance can be a wise choice.

Would a Condo Refinance Leave You Better off?

A condo refinance could leave you in a better place if you make sure to do it at a time when interest rates are low, or if you do it to support your other long-term goals, such as funding your children’s college education or paying off your loan faster.

Calculate Your New Payment

Refinancing can affect your loan payment in both directions. Essentially, you can end up with a higher or lower monthly amount based on several different factors. You’ll just need to provide details such as the current balance of the loan and interest rate, how much time remains on the loan, and the new interest rate. There are many internet calculators that you can use to get an estimate of the new amount you’ll pay.

Common Questions About Refinancing

Refinancing can get complicated, and it’s normal to have a lot of questions about when to refinance and how it’ll affect your life. We’ll walk through some common questions below.

When Does It Make Sense to Refinance Your Mortgage?

If your main goal is to lower your interest rate, wait to refinance until doing so would bring your interest rate down by no less than half of a percentage point.

Here are a few other optimal situations:

You’ve accumulated sufficient equity in your home to eliminate PMI.
You want to get out of your adjustable-rate mortgage.
You plan to stay living in your house long enough that your home value will increase enough that it will offset any expenses incurred through refinancing.

Is Refinancing Ideal During COVID-19?

You may feel uncertain about refinancing during an evolving pandemic, but in reality, this may be a great time to refinance. The Federal Reserve cut interest rates to give the economy a leg-up, which means mortgage rates have also gone down

Read our blog all about how COVID-19 has affected the homebuying process here.

How Does My Credit Score Affect Refinancing?

Has your credit score improved since you first bought your home? You may want to jump on a refinance as a better credit score can get you better rates and reduce the amount of money you pay.

Is Refinancing Available for FHA, VA, Jumbo, or USDA loans?

If you have a USDA, Jumbo, FHA, or VA loan, you can also choose to refinance and potentially get a lower rate. One option to lower monthly payments for FHA loans is the FHA Streamline Refinance Program, which allows you to forgo income/credit score verification and appraisal. However, the streamline program has specific requirements, such as a certain amount of on-time payments, and limitations, such as the inability to pursue a cash-out refinance. You also won’t have the option to finance your closing costs, and you will be liable for mortgage insurance premiums.

What documents do you need to have to refinance your mortgage? Find out here.

How to Refinance Your Mortgage

Now that you’ve learned what’s involved in refinancing a mortgage, let’s move on to what refinancing looks like in practice.

Step 1: Set Clear Financial Goals

Don’t start refinancing without knowing exactly why you’re making this switch and what the outcome may be. If you’re doing a cash-out refinance, know that your loan amount will go up. If you’re shortening your loan term from 30 to 15 years, know that your payments may be higher. Each option has a tradeoff, but there’s no need to fret about the cons if you’re secure in your decision.

Step 2: Review Your Credit Score and History

How is your credit? You must know where you stand with your credit score before starting the refinance process since your credit score has bearing on the quality of the rates you get.

Step 3: Figure out How Much Home Equity You Have

The higher your equity, the better chance you have of getting outstanding rates. Be sure to check your home equity as part of your refinance prep work by subtracting the amount you owe on your home from its current approximate value.

Step 4: Shop Multiple Mortgage Lenders

Don’t necessarily go with the first lender you find. Instead, shop around to find the best rates and compare fees from one lender to the next. The extra time spent researching could end up saving you money.

Step 5: Prepare for the Appraisal

Depending on the particular mortgage lender you work with, you might have to have your home appraised before you can refinance. The cost of this appraisal will add to the amount of money you need to pay during the process.

Step 6: Come to the Closing with Cash, if Needed

There’s no such thing as a free lunch—or a free refinance. When you go to close on your loan, you need to take additional fees into account. Building the costs into the loan, when possible, can also make your loan or your rates higher, so consider whether this tradeoff is worth it in the long run.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Next Steps: Getting the Best Refinance Rate

Is refinancing right for you? After reading this article, you should understand when the best times to consider a refinance are and how it can benefit you, from securing you a lower interest rate to removing the burden of PMI. When you’re ready, take the next step by reaching out to a reputable mortgage company to find out what kind of rates you could obtain.

Is It Time to Refinance?

Property Tax Calculator

There are a lot of expenses associated with purchasing a home. A homebuyer will need to set aside enough money for the down payment and various closing costs. But as a homeowner, there are expenses above and beyond the mortgage you’ll be responsible for.

One of the most commonly overlooked expenses are the property taxes and depending on the area you purchase your home in, the property taxes can be a considerable expense. Understanding property taxes, how to calculate them and what they pay for is very important.

Paying Property Taxes

Property tax is not only an expense associated with owning a home, in some states you may also have to pay property taxes on your cars. Property tax is paid to the city/town you live in, and the money is used for local projects and expenses. These projects or expenses include; paying for town employees (teachers, police officers, the fire department, waste removal, the city dump, etc.), parks, recreation centers, and even maintaining public roads and infrastructure.

Calculate Your Property Taxes

Most homes listed online will have the property tax associated with the listing. If you’re working with a licensed real estate agent, they’ll also be able to tell you exactly what your property tax obligation would be if you purchased the home. With that said, it’s important to know exactly what goes into calculating your property taxes.

Understand Your Assessed Value

Understanding the value of your home/property is the first step to calculating your property tax obligation, as property tax is derived from the overall value of the property. The assessed value of your home can change every year, and generally speaking most towns will do a ‘rebalance’ every 3-5 years.

Pay the Mill Levy

Each town or county has its own tax rate, also known as the mill levy. Some towns have a higher tax rate, where other areas are well known for their low tax rates. You can find the tax rate online, or by contacting the local tax office in the town you want to purchase a home in, or by working with a local real estate agent.

Finding Your Tax Percentage

Once you know your home's assessed value, and the mill rate, you can do some simple math to get an understanding of what the property tax obligation will be. If you contact the town and ask them what the mill rate is, they may give you a whole number. For example, the town may say your mill levy is 90.

Convert 90 into a percentage (90/1000 = .090) and multiply that by your home's assessed value. If your assessed value is $30,000, your tax responsibility is $30,000 x .090 = $2,700 a year.

Taxes Vary by Town

One of the most frustrating things about property taxes is how they can vary by town. One town may have a mill rate of 35 whereas the town next door may have a mill rate of 15! The tax one pays on their property will impact how much of a mortgage a lender will approve them for.

Additionally, depending on the mill rate per town, the property tax expense can actually make a less expensive home cost more money per month when you factor in the property tax expense. Here’s an example:

Option 1Option 2Home Price$300,000$250,000Down Payment20%20%Interest Rate3%3%Annual Property Tax$2,000$5,000Home Insurance$1,260$1,260Monthly Payment$1,284$1,365

Paying the Property Tax

Some mortgage companies roll the property tax into your monthly payment. This is known as having an escrow account. You’ll pay the mortgage company each month, and they’ll pay property taxes to the town accordingly.

Following the above example, if your property tax is $2,700/year, each month you’ll pay $225 to the mortgage company. They’ll keep that money safe and will pay the town either bi-yearly or yearly, depending on the town's requirements.

If you do not have an escrow account with your mortgage company, the homeowner will be responsible for paying the town at the proper interval. Some towns require bi-yearly payments, whereas other towns require yearly payments. It’s best to account for this expense each month so you’re not faced with an unexpected or unbudgeted expense.

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Property Tax Exemptions

The government does give some tax breaks to various homeowners. The most common tax breaks are given to:

Disabled Veterans

Many states offer property tax exemptions for disabled veterans. The amount discounted, and income threshold, varies by state. Some states also offer discounts on property tax for non-disabled veterans, contingent on a minimum of 90 days of service and honorable discharge.

Farmsteads

Similar to the above exemptions or tax breaks, farmland can also qualify for a tax break! Many states have a qualification requirement for what constitutes as farmland, and what discount or exemption the property is eligible for.

To better understand what discounts or exemptions your property may qualify for, contact your local tax assessor.

Capital Gains Tax on Property

Capital gains tax is not the same as property tax. Capital gains is the tax you pay when you sell an asset (most commonly real estate or stocks). You’ll pay tax on the profit you’ve made between the acquisition price and the sale price.

The 2020 tax law excludes capital gain tax for single filers if the capital gain was less than $250,000. For married couples, capital gains tax is excluded for the first $500,000 in profit. If the property is an investment property, and not your primary residence, there is no capital gain exemption.

Make the Calculator Work for You

Understanding property tax is a critical piece to calculating how much owning a home truly costs. Property tax is not a one size fits all approach. Various towns/counties have a drastically different property tax rate. The higher the property tax is, the more your monthly or yearly payment will be.

The tax you pay on your property pays for a variety of expenses. Between the first responders salary, building and maintaining schools and parks, and even paving the roads, property taxes cover a wide range of expenses. Towns that properly manage their budget and spending habits tend to have a favorable tax rate.

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Mortgages for the First-time Home Buyer: Ultimate Loan Guide

If you’re new to buying a home, you probably have quickly realized the overwhelming amount of options there are for your mortgage. To help you get your bearings as a first-time home buyer, we’ve covered the different types of mortgage programs and financing available, as well as some lesser-known tips and grants for first-time home buyers that can help you in the process of buying your first home.

Read our complete beginner's guide to buying a home here!

Tips For First-Time Home Buyers

Before we get into the details, here are a few simple ways to gear up towards financing your first home.

Start Saving Early

Down payment amounts vary greatly based on where you buy and what mortgage loan you use, so it’s a good idea to start saving as early as possible to secure funds for a down payment and for fees that you’ll have to pay to your lender, inspector, broker, and attorney throughout the process.

Know Your Credit Score

Your credit score will be one of the largest factors in determining what interest rate and overall loan amounts you qualify for. Knowing your credit score will help prepare you to see your loan options. If you have a low credit score or if your score recently dropped, be ready to have an explanation for lenders.

Compare Mortgage Rates and Fees

Don’t just get one quote: shop around for your lender! Because a mortgage loan will have a lasting impact on your finances, it’s crucial to have some options to compare and to know which type of loan you can afford and which lender works best for you

Mortgages come with a lot of fees, even some you may not be expecting. Read our blog about unexpected mortgage costs here.

Mortgage Loans for First-time Home Buyers

While conventional loans typically require high down payment amounts and excellent credit scores, there are other options that might be more accessible to first-time buyers.

FHA Loan

The FHA loan is perhaps one of the most accessible and popular types of government-backed loans. The FHA mortgage is offered through traditional lenders but is secured by the government, which allows to offer down payments as low as 3.5% and lower interest rates. It’s a great loan for first-time home buyers because of its accessibility and competitive interest rates.

VA Loan

Veterans looking for mortgages for first-time homebuyers may want to consider the VA loan. The VA loan is offered to military veterans or active service members and offers incredibly low interest and down payment rates. It’s important to note, however, that both the FHA and VA loans come with specific requirements for each property concerning structural integrity and livability: the house must have running water, for example, and must meet other HUD requirements before it can be purchased under the loan.

USDA Loan

The USDA loan is a great option for buyers who are looking for remote land. Each state has predetermined rural areas where homes or property can be bought with the USDA loan for lower interest rates and options for small down payments. USDA loans can be used for primary residences but can’t go to vacation homes or rental properties.

NADLs

Native American Direct Loans (NADLs) offer additional loan opportunities for those who qualify for a VA loan and identify as Native American. To qualify, you must be a Native American enrolled in an American Indian tribe or Alaskan Native village that has set a MOU (Memorandum of Understanding) with the VA.

Fannie & Freddie

These private entities buy up mortgages from private lenders across the country, and therefore assume that debt-to-be-paid and risk. This allows lenders to offer those lower rates without having to assume high risks when someone defaults on their payment.

Programs for First-time Home Buyers

In addition to government-backed loans that provide low rates, you’ll find various programs and options designed to help first-time home buyers with down payments and low rates.

Down Payment Assistance

One of the most common assistance program options is down payment assistance, which helps cover a home buyer’s down payment amount through different types of loans or grants.

DPA Loans

If you anticipate struggling to make a large, one-time deposit for a down payment, your lender may allow you to take out a second mortgage at the same time as your first to help cover the cost. Other options include loans with deferred payments due later during the loan term or when you move or want to refinance. These loans can help offset upfront costs, but require some thinking ahead since they do have to be repaid at some point.

DPA Grants and State and Local Programs for First-time Homebuyers

There are also programs which offer grants that don’t have to be paid back. These grants often change based on local government and funding and don’t have to be repaid. There are also options for forgivable loans, which function as second mortgages but have a 0% interest rate and are forgivable if you can stay in the home for a set amount of years.

Good Neighbor Next Door

The Good Neighbor Next Door program gives teachers, firefighters, police officers, and emergency service technicians up to 50% off the sale price for homes in designated “revitalization” areas. After getting pre-approved, applicants are matched with an advisor who helps them find a home where they must live for 36 months to maintain eligibility.

The Good Neighbor Next Door program is highly competitive, but is a great option for those in teaching or public servant positions who need assistance finding an affordable mortgage.

HomePath Ready Buyer Program

HomePath homes are homes that are offered for sale after the buyer defaulted on a mortgage owned by Fannie Mae. Not only are these homes offered for a discounted price, but they come with closing cost assistance of up to 3% of the home’s sale price if the buyer takes an online home-ownership course.

Charitable or Nonprofit Programs for First-time Home Buyers

There are also several nationwide nonprofit organizations specifically for first-time homebuyers who need down payment or mortgage assistance.

Habitat for Humanity

Habitat for Humanity provides housing specifically to those living in poor living conditions or who have a mortgage or rental costs that they cannot afford. The organization provides affordable mortgages in exchange for volunteer time spent improving properties for others.

Neighborhood Assistance Corporation of America (NACA)

Neighborhood Assistance Corporation of America helps eliminate costs for closing, down payment, and fees for eligible applicants in both urban and rural areas across the country

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Finding the Best Mortgage Loan

It can be hard to look for affordable options when looking to buy a home for the first time. Researching local options and reading about programs through the HUD website for your local area can help provide options for homeownership. Finding a good realtor will also help, since they may know of programs local to your area that work specifically for your situation.

To learn more about the homebuying process, head to our Learning Center. You can also contact us for a personalized rate today to begin the search for your new home.

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Should I Buy a House Now? What to Expect When Buying a House in 2022

At the beginning of the COVID-19 pandemic, toilet paper was the hottest commodity. While that has changed over the course of the viral outbreak, a piping hot housing market has taken its place. We’re more than halfway through 2021 and the housing market is showing no signs of cooling off.

The market is a lot different from what we are used to because a lot has changed. Should you buy a house right now? What should you expect during the purchasing experience? We’re glad you asked! We have the answers to these questions and more.

Is Now a Good Time To Buy a House?

Figuring out if now is the right time to buy a house isn’t an easy question to answer. There are so many variables that must be factored in before you can fully understand whether or not now is the right time for you.

Nowadays, interest rates on mortgages are near all-time, unprecedented lows. The lower your interest rate, the less your monthly mortgage payment will be and the more money you will save over the term of your loan. But how much can you really save with a 0.5% difference? Well, it’s actually a lot!

Option 1Option 2Purchase Price$300,000$300,000Down Payment$60,000$60,000Mortgage Length30-years30-yearsProperty Tax$2,500/year$2,500/yearHome Insurance$1,200/year$1,200/yearInterest Rate (Fixed)3.25%3.75%Monthly Payment$1,353$1,420Monthly Savings$67 30-year Savings$24,120

Without question, lower interest rates are playing a role in motivating people to purchase a house in 2021. But it’s not the only factor.

With remote work becoming increasingly more popular, people no longer need to live near their places of work, which are often within city limits. In turn, waves of people are leaving cities in search of somewhere to live in the suburbs. That means a lot of people are purchasing homes at greater rates than ever before, thereby increasing demand while decreasing supply.

However, the basic economic rule of supply and demand is no stranger to the housing market. Since homes are in greater demand, the prices of homes are skyrocketing. Therefore, although you’re saving money with a lower interest rate, you might end up paying anywhere from 15% to 25% more for a house in 2021 than what it would have sold for pre-pandemic.

Are You Eligible To Buy a House This Year?

Your personal finances will play a vital role in determining whether or not you are eligible to purchase a home. Factors such as your debt-to-income ratio, your credit score, your employment status, and the amount of savings you have will heavily impact your home buying eligibility.

Not only do you need to meet the loan requirements, but you’ll also need to have enough money for a down payment. Depending on the financing route that you choose to pursue, you’ll have to put down anywhere from 3.5% to 20% on your home. Closing costs, which range from 2% to 5% of the purchase price, must be taken into consideration.

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What’s Different About Buying a House in 2021?

The sizzling hot housing market has changed the purchasing experience as we once knew it. Here are some of the most noticeable changes thus far.

Appraisals have become more high-stakes

There’s a lot depending on the appraisal process. In order to get approved for a loan, the house must appraise at or above the desired loan value on the home. If the house appraises for less than the desired loan value, which is how much money you are asking to borrow from the lender, then you as the buyer must make up the difference.

For example, if the house costs $300,000 and you planned on purchasing it with a 10% down payment, you’d need a loan for $270,000. If the house is appraised for $250,000, then you’ll need to either walk away from the deal or make up the $20,000 difference with a larger down payment.

You may want to make a large down payment

Depending on what type of mortgage you’ve decided to use, you may have to make a huge down payment in order to close on your home of choice.

According to a recent survey led by the National Association of Realtors (NAR), sellers are less likely to accept offers that aren’t conventional loans.The survey found that only 30 percent of homebuyers using a government-backed loan had their offer accepted compared to the 89 homebuyers with conventional financing. With that being said, conventional loans typically require a 20% down payment or private mortgage insurance. As for government backed loans, down payments are usually lower.

A pre-approval letter can make an impact

A pre-approval letter tells sellers that you are ready, willing, and able to purchase a house. Given the competitiveness of the current real estate market, real estate agents may not be willing to work with you unless you have been pre-approved for a mortgage.

Additionally, if you were to find a real estate agent willing to work with you, it’s possible that you’d get outbid by another potential buyer who is closer to the point where they can close on the deal when you’re not.

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What to Expect When Buying a House in 2021

Let’s compare some of the advantages and disadvantages of purchasing a home in 2021.

Current market advantages for homebuyers

Some of the most common advantages homebuyers have in today’s housing market include the following:

Interest rates are near an all-time low. As shown above, this can add up to significant savings over the course of the lifetime of the loan.
Buyers can live where they love if they are working remotely. Instead of worrying about how easy it is to access the train, or how far away the office is, buyers can move into an area they love and work remotely as long as their place of employment allows that.

Current market disadvantages for home buyers

Just as there are many advantages of the current housing market, there are also many disadvantages. Let’s take a look at two of them.

The prices of homes have skyrocketed recently. For example, a house that costs $300,000 today could have sold for $250,000 in late 2019 or early 2020.
Although there isn’t any skepticism that the market will correct itself in the near future, you never know what could happen. There is some added level of risk to purchase such a large asset at its peak valuation. What goes up must come down, and many people believe the housing market will recover, or pull back, in the near future. But what exactly does that mean? Well, if you purchase a house for $300,000 before the market corrects itself, the house may depreciate in value by dropping down to $270,000 during a market correction. In hindsight, you may have wished you didn’t purchase as early as you did because you could have purchased it for $30,000 less if you had waited.

2021: A Year Like No Other

Without question, 2021 has been a year like no other for the housing market. Folks are leaving the cities in favor of the suburbs, and they are fleeing city life rapidly. This mass migration is causing the most basic economic rule of supply and demand to kick in, and house prices are quickly on the rise!

Despite the prices of homes increasing at a rapid rate, buyers are still purchasing homes. These buyers no longer need to live in or near the city as their place of employment lets them work remotely. Additionally, apartment living just isn’t as comfortable anymore because the kitchen table can only function as a legitimate office for so long. People want more space, and they are finding that space by purchasing a new home in 2021.

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What Is a Cash-Out Refinance?

A cash-out refinance is the process of taking the equity you have built in your home in the form of a cash deposit into a designated account or physical check. Many people choose this type of refinance to remodel their home or pay down debts, but the funds can be used however the homeowner chooses

Begin the refinance process today right here.

An example of a cash-out refinance:

Mortgage balance: $100,000
Home Value: $300,000
Equity: $200,000

The homeowner in this example would be able to refinance the $100,000 balance for up to 80% more in value. In this case, the homeowner could refinance their mortgage balance and receive the additional funds of $140,000 in cash at the refinance closing.

This article will outline when and how to navigate a cash-out refinance.

When Should You Do a Cash-Out Refinance?

A cash-out refinance can be used in many different situations when you need to pull equity out of your home. It’s best to contact your lender to advise you if and when you are able to do a cash-out refinance. There might be waiting periods or other stipulations in order to qualify for a refinance.

Lenders usually recommend cash-out refinances to homeowners that have a substantial amount of equity in their homes. Most lenders will advise you to leave 20% of your home’s equity within the home during a refinance to avoid high interest rates as well as PMI (private mortgage insurance). Ideally, the homeowner seeking a cash-out refinance should have over 40% equity built in their home and should have a solid plan for what they intend to do with the cash in hand.

What Can You Use a Cash-Out Refinance For?

The purpose of refinancing is to get better terms on your loan payment, but with a cash-out refinance you may have the potential to receive better terms as well as gain cash in hand. When completing a cash-out refinance you are able to use the funds however you choose, below are a few common options that could help your financial situation.

Home Renovations

A common reason homeowners choose to do a cash-out refinance is to remodel their existing home. Depending on the market, you could receive a lower interest rate compared to a credit card or personal loan on a cash-out refinance, plus the remodel can increase your home’s value.

Before you refinance, have a solid plan for your remodel. Meet with several contractors to get quotes and always factor in contingencies (things that could go wrong or end up being more expensive than anticipated!). Be sure to take in account the timeline for the project to be completed and when payments are due at different stages of the remodel. Once you have a plan, apply for an amount that makes sense with your renovation budget.

Paying Down Credit Card Debt

Refinance rates are very competitive compared to high interest credit card APRs. If you are able to make your credit card payments but are stuck paying high interest each month a cash-out refinance might be a good option.

The first step in considering this option is to gather all of your credit card debt information and carefully calculate the cost of paying them off at your current interest rates. Once you have the total, compare the cost to paying them off in a lump sum plus fees and interest incurred on your cash-out refinance. Using this information you will be able to determine the total savings on each option and you can then make an informed decision.

Debt Consolidation

You may have debt from sources other than just credit cards. If you are looking to roll all of your debts into a single payment with more favorable terms, you could consider a cash-out refinance. Because this refinancing option allows you to use the funds for anything you wish, you can pay off student loans, credit card debt, or even an auto loan.

Be sure to weigh the total debt being paid individually vs rolling all of your payments into one refinance loan. Your refinance is directly tied to your home so only use this option if you are absolutely sure it makes financial sense.

How Much Does a Cash-Out Refinance Cost?

Just like your first mortgage loan, a cash-out refinance has application fees, closing costs, interest rates, credit report fees, and will require an appraisal of your home. According to Freddie Mac, the national average closing costs on a refinance is around $5,000 or between 2-5% of your total refinance amount.

To get the best interest rates and save over the lifetime of your refinance, we recommend having a credit score in the “good” or higher range (670+ credit score). You can, however, still apply and qualify for a cash-out refinance with a sub-par score, but be prepared to pay a higher interest rate and qualify for less cash in hand.

Below are some hard costs associated with a cash-out refinance. Depending on your lender you may have more or less fees and the possibility of rolling your closing costs into your cash-out refinance loan

Refinancing often involves a lot of fees, read all about what they are and if you can lower them here.

Item

Average Cost

Application Fee - This is the cost for someone to review your W2’s, bank statements, tax returns, and application.

$0 - $500

Credit Report - The lender will hard pull your to show you have excellent payment history and do not have too much debt.

The lender may or may not charge you for your credit report, this charge can be anywhere from free to up to $100.

Home Appraisal - Is required to inspect the condition and value of the home should you default on the loan.

$300 - $1000 Your appraisal rate is dependent on your home's location and the size of your home. Be sure to compare rates with local companies.

Title Search - Shows the lender that there are no outstanding liens, paperwork errors and more on your property.

$0- $200

Mortgage Points - This helps bring your interest rate down.

0-1% of loan per point

Underwriting Fee - Depending on your lender you may have to pay for someone to verify that you qualify for the loan. This is known as underwriting.

$0 - $900

The Cash-Out Refinance Process

If a cash-out refinance seems like a good way to restructure your loan and to gain access to the equity in your home, here’s how to get started

We also wrote an entire blog just about the refinance process, read it here.

Step 1: Application

Your refinance application will be similar to your previous mortgage application. Your lender will need to verify your identity, check your credit report, tax returns, W2’s or self employed income statement, bank statements, list of all assets, liabilities, investments, your current home insurance policy and verify any additional properties in your name.

Your lender will likely provide you with a checklist or form with all of the items needed and will contact you for any additional information and explanations

We put together a list of the documents you'll likely need to gather to refinance, read it now!

Step 2: The Appraisal & Title Search

Your lender will ask you to schedule an appointment with a home appraiser to verify the value and condition of your home. This gives the lender insight on the current market value of the home and will have some weight in determining your cash-out value. In this same step your lender will submit the documentation for a title search on your home. This lets your lender know that you do not have any outstanding liens, unpaid property taxes, will discrepancies, and any other restrictions on your home.

If you qualify for a Property Inspection Waiver (PIW) you will be able to skip the appraisal portion of this step.

Step 3: Closing Your Loan

If the title and appraisal come back favorably, your lender will start the process of closing your cash-out refinance. A cash-out refinance can take a few weeks to finalize this process. During loan closing you will need to pay closing costs and possibly have the opportunity to buy mortgage points. On average a cash-out refinance will take between 30 and 45 days from application to closing.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Cashing Out On Your Home Equity

A cash-out refinance can be a great tool when used properly. This type of refinance is most commonly used for home repairs and upgrades but the homeowner is allowed to use the funds however they would like. Some tips when applying for a cash-out refinance are to make sure you have a good credit score, have a large amount of equity in your home, and you have a solid plan of what you want to do with your cash-out funds.

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What Credit Score is Needed to Buy a House?

One of the most important parts of preparing to buy a home is having a solid credit score. Building up your credit over time shows that you’re capable of paying off a mortgage, and it’s one of the largest factors that impacts your interest rate. If you’re wondering what credit score is needed to buy a house, read on to learn more about how it works and affects your mortgage loan eligibility.

Understanding What a Credit Score Is

A credit score is a number ranked between 300 and 850 that represents an individual’s creditworthiness. It can be impacted by factors such as how much credit is used, how much credit is available, number of inquiries in the last 12 months, how many lines of credit are open, outstanding loans or debt and the proportion of loan balances to loan amounts, and any late payments to credit cards and loans.

What is Considered a Good Credit Score to Buy a Home?

Each different type of home loan comes with different credit score requirements, which we’ll cover more in detail below. To get a favorable rate on most loans, it’s important to have a credit score of at least 600 or higher and to have a score of at least 650 for conventional loans. The higher your credit score, the more options and amenable rates will be available to you.

Here is one breakdown of how credit rates are categorized when it comes to eligibility for mortgage loans:

Exceptional: 800-850
Very good: 740-799
Good: 670-739
Fair: 580-669
Very poor: 300-579

(source: UFCU)

What Is the Minimum Credit Score to Get a Mortgage?

In general, borrowers need a minimum of 580 to be eligible for an FHA loan, with requirements typically running higher around 620 for a conventional loan.

What Is the Best Credit Score to Buy a House?

While you might be able to qualify for a mortgage with a lower score of 580 or 620, a higher score will give you more options for financing and much lower interest rates. As you prepare to buy a home, building up your credit will be advantageous no matter what type of loan you plan on using.

How Your Credit Score Impacts Home Loans

Fico Score

Your FICO score is the commonly-used official credit score used by lenders to determine your mortgage eligibility. It takes into account five areas of creditworthiness: payment history, current debt, credit history, types of credit, and new credit accounts.

Credit Bureaus

Lenders typically look at FICO scores from any or all of three different credit bureaus: Experian, Equifax, and TransUnion. Each bureau uses a slightly different form of the FICO method to produce its own version of the score, which is why lenders like to cross-reference them when considering your application.

How the Pandemic has Impacted Creditworthiness

While unemployment rates have risen due to the impact of COVID-19 on the United States and countries around the world, credit scores are doing well and continue to rise nationwide. If your credit score has dropped due to unforeseeable consequences of COVID-19, consider contacting your lender, bank or credit card company to ask for deferment options for your payments. Deferment or forbearance on loans or money owed allows you to delay payments and is not reported as a late payment to credit bureaus.

Department of Veterans Affairs

In an effort to help those who have previously served or who are active service members of the military, the Department of Veterans Affairs does not carry a strict credit score requirement for VA loan applications. Private lenders that offer the VA loan do still have their own credit requirements with a typical minimum of 580, but make sure to shop around for several options to get a low rate.

What Else Do Mortgage Lenders Consider?

Credit score isn’t the only aspect of your credit history that lenders will look at when reviewing your application.

Credit Utilization

The amount of credit that you use month-to-month is one way that lenders assess your financial stability. Using a healthy amount of credit without maxing out your limit or letting payments go overdue generally tells lenders that you will be able to make on-time mortgage payments.

Can You Get A Home Loan With Bad Credit?

Government-backed loans are great opportunities for applicants with lower credit scores. An FHA loan can go to buyers with scores as low as 580 (although you may be required to pay a larger down payment percentage than the traditional 3.5%). VA and USDA loans also offer lower credit score requirements, although meeting a minimum score limit is still required by lenders.

Other Options for Lower Credit Scores

Lenders may consider applicants with lower credit scores on a case-by-case basis. If you apply for a loan with a low credit score, you have a few options. Lenders will sometimes allow you to find a co-signer, who will sign the loan and assume all responsibility in case you default on your payments. You can also look into DPA (Down Payment Assistance) programs, which sometimes offer assistance to applicants with low credit scores.

It’s also important to remember that a bad credit score isn’t permanent. By taking time to make regular payments and pay off outstanding debt over time, you can build your credit score up in order to qualify for lower interest rates.

Minimum Credit Score by Loan Type

While credit score limits are set by each independent lender, here are the goalpost credit limits for well-known and popular loan types:

Loan Type

Minimum Credit Score Requirements

Maximum Loan Amount

Average Interest Rate for 30-year loan

(as of 4.14.2021)

FHA with 3.5% down payment

580

Varies based on the median income in the geographic area, from $356,362– $822,375

2.940%

FHA with 10% down payment

500, but private lenders may require higher

Varies based on an area’s median income, from $356,362– $822,375

2.940%

Conventional

620

Varies based on the median income in the geographic area, from $548,250 to $822,375

3.250%

Jumbo loan

680

Anything above an area’s conforming loan limit, from $548,250 to $822,375

3.000%

USDA loan

None, but 640 is preferred

$285,000

2.380%

VA loan

None, but 620 is preferred

$548,250

2.525%

(Source: CreditKarma)

Finding the best loan option for your credit score

What credit score is needed to buy a house? The answer can depends on a variety of things such as entirely on what type of loan you are eligible for and interested in. Your credit score is one of the bigger factors that determines your goes into your approved interest rate with different lenders. However, if your score is less than stellar, there are some loan options with lower minimum score requirements. You can also make regular payments to improve your credit slowly over time in order to qualify for better rates on your mortgage.

Working with a mortgage lender can help you find out what options are best for you. At ZeroMortgage, we aim to make sure the mortgage process leaves you feeling like a rockstar. To learn more, check out our learning center or get in contact with one of our experts.

Put That Credit Score to Work Today!

Mortgage Refinance Checklist

Refinancing can open up opportunities for homeowners to cash out on equity, reduce monthly mortgage payments, or renegotiate the interest rate on their home loan. However, the paperwork and knowledge needed to navigate a refinance can be monumental, and the process can easily become overwhelming.

We wrote a whole blog covering the full refinance process, read it here!

We’ve compiled an extensive checklist of documentation that you as a homeowner will want to prepare ahead of beginning your refinance process. Having all of this paperwork in order can help streamline the process and make refinancing a less stressful and more exciting process.

What Documents Are Needed for Refinance?

Homeowners will want to prepare their documentation ahead of time and should know that requesting paperwork from the city and financial institutions can take up to a few weeks. If you are applying for a mortgage with a spouse, you can pool resources and get better interest rates. However, if your spouse has a low credit score or a higher amount of debt, you may need to apply as an individual.

If you apply together, note that it may be best that both of you collect all individual paperwork for the requirements below.

Personal Identification

One of the first things you’ll likely need is your own verified personal identification. If you are a U.S. citizen, bring a valid driver’s license to appointments with lenders and be ready to provide your Social Security number.

Current Mortgage Details

Pull together any paperwork detailing your current mortgage to have it ready for your lender to verify. This includes the deed, deed-in-trust, and all of the details of your mortgage cost, interest rates, and other fees.

Income Verification

To feel confident that the terms of your new loan are conducive to your personal financial situation, lenders will want to see your proof of income. Be prepared to show records of pay stubs for the past thirty days at a minimum.

Ongoing Debt

Most Lenders will pay close attention to your current debt situation to help discern your ability to make payments and stay above water. You will want to collect paperwork detailing the history and current situation of any debts, including your mortgage, student and auto loans, credit card balances, and home equity loans.

Credit History

Lenders will pull your credit history to verify your credit score and any outstanding credit debt. If you’re submitting claims to more than one lender, consider providing your own copy of a credit report before they pull your credit, since multiple credit checks can result in lowering your credit score.

Whichever lender you choose will require an official credit check, but having a copy on-hand might help avoid preliminary checks before you’ve narrowed down your choices, which will help maintain your score in the long-term.

Letters of Explanation for Credit Issues

Be prepared for your lender to ask for a letter of explanation for credit issues. A request for a letter in no way bars you from being eligible for a refinance, but simply serves as a chance to explain missed payments, dips in credit score, or other shifts in your credit history.

Lenders will also ask for letters of explanation for applicants who have been living rent-free or who have large gaps in their employment. Be prepared to provide any additional documentation that might support what you write in your letter.

Tax Information

Lenders will need a copy of your most recent tax return along with tax forms you’ve received from employers or sent to employees and contractors (1099’s, W-2’s, and the like).

Appraisal

Your lender will most likely require a current appraisal of your home. This ensures that you aren’t asking to borrow more money than the home is worth, and takes into account any renovations and changes made to the property over the years. Lenders typically hire third-party appraisers, so it’s worth preparing to have a stranger walk in and around your home and property in preparation for the refinance.

Homeowner Insurance

Prepare to show documentation of your homeowner insurance coverage and history of past payments to verify that your policy covers your home. If the appraisal shows that your home is worth more than what it was at the start of your insurance, you might need to adjust the policy to cover the new value.

Title Insurance

Your title insurance taken out with your first mortgage can cover any potential losses associated with the property’s past (fraud, unpaid taxes, etc.) that you might have not known about. The title insurance can also protect your mortgage lender; so they will want to see a copy of it as part of your paperwork.

Bank Statements

In addition to proof of income, lenders will want to see proof of your assets. This entails paperwork detailing your savings account along with any CD and retirement accounts, stocks, bonds, and mutual funds, and information on any other investment property that you own.

Payment History

Lenders will want to see that you’ve been able to make regular payments of the full amount towards your mortgage. This is typically reflected in your credit score, but you’ll want to be able to provide records of your payments and relevant bank statements if requested.

Profit & Loss Statement

If you’re a business owner or a self-employed freelancer, prepare to show lenders a profit and loss statement. This shows not only the income you’ve made but explains serious purchases or reasons for lowered credit scores. If you are unable to provide income verification from another company, the profit and loss statement helps lenders know more about your income and the expenses related to your business.

Court Order or Judicial Decree

If you’re refinancing as part of a divorce, prepare to bring proof of alimony that you are paid or owed as part of your proof of income. You’ll also want to bring documentation of any court order or judicial decree that’s relevant to the refinance as well.

If you're unfamiliar with the fees commonly associated with refinancing, read all about them here.

How to Use the Refinance Checklist

Each lender has slightly different requirements for what paperwork they’ll need to evaluate your refinance eligibility, so think of this checklist as a set of guidelines of what you might expect to be asked to provide. Make sure to include any additional paperwork that will help explain your financial history and show your ability to make on-time payments and pay off the closing fees associated with the refinance.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Preparing for Your Refinance

Refinancing can be both exciting and overwhelming. If you are able to collect your documentation and prepare in advance for credit checks and income verification, it will be a lot easier to shop lenders and get a good understanding of your options. Use this checklist to apprehend what you’ll need to bring to have a smooth refinancing process.

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How to Buy a House With Bad Credit

Buying a house is one of the most important investments you will ever make. Your home will be your safe place and your sanctuary from the outside world.

Are you wondering if you can buy a house with bad credit? You may have thought that bad credit or other credit issues would mean that you can’t buy a home, but that simply isn't true!

In this article, we'll show you how to buy a house with bad credit. We’ll also introduce you to various home loans designed for people with bad credit so that you can build solid ground and start working towards your future today!

Even so, we’re sure that you've heard all of the homebuying horror stories. And while those things happen, they don't have to be part of your story. We'll show you how home loans for bad credit can make home ownership a possibility no matter your financial situation or credit history.

Can You Buy a House With Bad Credit?

Yes, you can buy a home with bad credit. You just need to know how to go about it. There are many home loans available for people who have bad credit scores.

If you have a credit score of at least 620, then you can apply for home loans like the ones offered by FHA and VA. These two government-owned loan options come with much looser requirements than those of traditional lenders like banks and mortgage companies.

What Credit Score Do You Need To Buy a House?

To buy a home with bad credit, you'll need to have a FICO score of at least 620. Your home loan's interest rate will be a lot higher if your score is any lower than 620.

If your FICO score is lower than 620, you may be able to ask homebuyers with a higher credit rating for help. They can act as joint borrowers, and the homebuyer’s payment will need to be divided according to their share of ownership.

The homebuyer must agree that this offer is entirely voluntary on their part, so make sure they understand what they agree to before signing any papers!

What Other Factors Do Lenders Consider?

The amount of money that you can afford to put down is determined by how much the home costs and how much of your income you can put towards your monthly mortgage payments. You must also consider your existing debt obligations like car loans, student loans, or credit card debts.

These are called “debt ratios,” which lenders use to determine if they are willing to offer you a home loan given your credit score. The lender may inquire about comparable homes that were recently sold nearby during their appraisal process because this gives them an idea of the price range that would be considered reasonable for you based on recent sale prices in your area.

Down Payment Amount

One of the most important steps of buying a home is coming up with the money for your down payment. The money you pay in the form of a down payment is used to buy a home, but the money doesn't have to be paid directly out of your own pockets.

Some people secure loans for their down payments, while others take on debt from family members or friends. You can apply for FHA loans with a credit score between 500 and 579. You’ll also need to pay a minimum down payment of 10% unless you have a credit score above 580, in which case you can likely pay a 3.5% down payment.

Debt-to-Income Ratio

The debt-to-income ratio is one of the most important ratios to consider when applying for a home because it can greatly affect your eligibility. If you're self-employed or you have other sources of income that are harder to quantify, talk with lenders about their specific guidelines before applying.

Work History Length

Lenders will consider the length of your work history and how long it has been since you have paid off your existing debt balances. Some lenders will require that the applicant has a history of work prospects extending at least one year, with a minimum of two years' worth of employment history if it has been less than five years since they last worked.

All in all, it's important to seek out new employment opportunities to remain in good standing with lenders. If you are planning to quit your job, make sure your current employer agrees to let you leave on good terms so that you don’t risk their business because that would reflect poorly on you when it comes time to apply for a home.

Home Loan Options For Buyers With Bad Credit

There are many home loan options for buyers with bad credit. It just takes a little patience and extra time to find the right one. Seeking the assistance of professionals will help in this situation.

Buyers don’t have to give up on their dreams of home ownership just because their credit scores aren’t perfect. There are many options available, and it’s worthwhile to conduct research before giving up hope!

Some people believe that home ownership is a natural right. But with home prices at an all-time high, it can be hard to purchase your own home all on your own. Even so, where there’s a will, there’s a way, and it’s possible to buy a house with bad credit.

Here are some tips to keep in mind!

Don't rush into making any decisions about buying a home solely based on a specific lender’s requirements for a perfect credit score.
If you have steady income and a decent savings, then an FHA home loan is smart if you want to keep monthly payments low. You could even consider applying for a Fannie Mae HomeReady® loan because some of your payment will be put towards your debts like student loans or past foreclosed homes.
Before signing anything, read the documents closely. This step is very important!

FHA Loans

Home loans from the Federal Housing Administration (FHA) are a great opportunity to buy a home with bad credit. Homebuyers with good credit scores may not get the best deals that FHA offers, but they can still enjoy the benefits that come with an FHA loan.

The monthly mortgage payments of FHA loans are usually lower than other mortgages as a result of competitive interest rates. Mortgage insurance is cheaper with FHA loans, and there is an upfront premium that lasts for twelve months, at which point it goes away permanently, meaning you don't have to pay this premium every month like other types of home loans.

FHA home loans require homebuyers to pay for mortgage insurance for the duration of their ownership of the home. This requirement is something that other types of home financing don't have.

There are special programs available for military personnel, doctors, nurses, teachers, and government employees. These programs offer various benefits, including fewer down payment requirements or lower monthly payments because these folks often earn less than the average American family.

VA Loans

The Veteran Affairs (VA) home loan is a type of financing that can be used by veterans, active duty military personnel, and qualified spouses to either buy or build a home. While the program offers far more advantages for eligible borrowers than traditional home loans, there are some drawbacks as well.

For starters, service members don't have to pass credit checks to qualify. So, this means that if you've experienced difficulties getting approved for other types of mortgages because of your poor credit history, you can still qualify for a VA loan as long as you hold an active duty status in the military.

Regardless, it's important that you don’t solely rely on your VA benefits when applying for mortgage approval since it might result in an unfavorable outcome due to your high debt ratio.

In addition, there are instances when homebuyers have been denied VA mortgage loans because of a lack of good credit history.

For example, recent veterans or those discharged from the military without any prior service time are ineligible for a VA home loan if they cannot provide any proof of previous conventional mortgage experience. An adequate debt-to-income ratio is required as well.

You'll also want to make sure that you are aware of the down payment requirements, which you can better understand by speaking with your lender. You’ll want to look into the requirements for a VA home loan before committing to one home loan in particular, too.

For instance, some homebuyers may find that paying upfront will result in them being able to buy more houses than they’d be able to buy with other home loans. But again, keep in mind that the homebuyer must be a veteran, active duty military personnel, or a spouse of a military personnel in order to qualify for a VA home loan.

Local And Federal Assistance Programs.

If you're unable to qualify for a home loan because of your credit history, there are still options out there that can make it possible for you to purchase a home. The government has created assistance programs that are designed for people with less-than-perfect credit scores and finances.

While they may not be the best types of home loans, they do offer some relief for people in tough financial circumstances. These programs include HARP and MCCP.

Home Affordable Refinance Program (HARP), which allows homeowners who meet certain criteria to refinance their home for better rates
Mortgage Credit Certificate Program (MCCP), which lets qualified buyers purchase homes without putting any money down and instead adding funds into an MCCP account.

There are some state programs designed specifically for those who have less than perfect credit histories. For example, in California, the CalHFA Down Payment Assistance Program provides funding assistance to homebuyers who qualify as moderate-income households. The program is also available to those who live within areas that experience high levels of poverty and other underserved communities throughout California's 13 investor-owned utility services territories.

You should also consider looking at smaller lenders like local banks and non-profits because they give people more leniency than big-name home loan providers. The bottom line is that there are many options available to homebuyers who have bad credit.

Even so, those options might not be your best bet if you're looking for top rates or security from one of the large home loan companies. But then again, sometimes it's worth taking what you can get when times are tough and make home ownership possible via these options.

You can visit different home lending websites to see which mortgage programs are available. Once you find the option that suits your needs the best, be sure to grab it right away! This will make it a lot easier for you when dealing with lending institutions because they’ll know what type of home loans you're looking at based on your previous search history or inquiries made online.

Real estate agents also have ways to offer potential homebuyers financing options from lenders who specialize in these situations. If possible, ask about other resources, like grants or local assistance programs, which homebuyers with bad credit can also benefit from.

Final Thoughts

If you're looking to buy a house but you’re worried about a bad credit score, we can help. Buying a home is one of the biggest investments most people will make in their lifetime, so it makes sense that many buyers are willing to do whatever they need to do in order to purchase their dream home.

For those with poor credit scores who think they may not be able to qualify for traditional financing options, like mortgages through banks and other lenders, don’t worry. There are still many ways by which you can buy a home with a bad credit score.

We hope this article has helped clarify what types of loans might work best if you want to purchase your first property! Have any questions? Send us an email for support.

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What Is The Home Appraisal Process? How Appraisals Work

Buying a home? You’ll likely need to get it appraised before you receive the clear to close. If you’re wondering what is the home appraisal process, or why you should care, this article is for you. We’ll cover everything you need to know on both the buy and sell side of the appraisal.

Buying a home for the first time can be overwhelming, so we put together this complete guide for first-time homebuyers.

How Do Home Appraisals Work?

Simply put, the home appraisal process is when a licensed home appraiser carefully reviews and inspects the home you’re looking to buy. The appraisers job is to provide a fair valuation on the property. This valuation is not the price the house is currently listed for, but what the house is worth in the eyes of a bank/lender. Getting a home appraised can help prevent overpaying for a property.

How To Order a Home Appraisal

First and foremost, as the home buyer, you may be required to get the property you wish to buy appraised. Unless you’re paying for the house fully in cash, many lenders will demand the home gets appraised before they issue a loan.

Appraisals typically happen once an offer has been accepted. The mortgage lender will order the appraisal, and the results will be shared with all parties involved. Lenders will only issue a loan up to the appraised value of the home.

How Long Does a Home Appraisal Take?

The home appraisal process doesn’t take long. Generally speaking, the professional appraisal will finish the job in just a few hours. Keep in mind, the appraisal is not the same as a home inspection. The appraiser will still carefully review the home, but their scope of view differs from what an actual home inspector will look for.

How Much Is a Home Appraisal?

On average, a home appraisal costs between $200 and $700. There are a few variables that can influence the cost of the appraisal. Such variables include the size of the home. A home that is only 1000 square feet may cost $200 to appraise, whereas a home that is 3,500 square feet may be closer to $600 or $700. Additionally, the type of home may also influence the price. A one story condo may be less expensive to appraise than a 3 story colonial.

What Do They Look for in a Home Appraisal?

First and foremost, a home appraiser will inspect the quality of the home. Is the home in good condition, or does a lot of work need to be done to it? For example; are the hardwood floors in good condition, are there stains on the carpet, is the roof, gutters, shutters, and doors in good condition? Once the basics are inspected, the home appraiser will begin to look for value adding items.

Items that add value to your home are not necessarily essential, but are certainly appreciated by the buyer and can be rather expensive. These items include; decks, energy-efficient appliances or systems, fireplaces, a fence that surrounds your property line, interior trim work, and various updates/upgrades to the home.

Buying a house comes with all sorts of costs, some of them unexpected, which is why we put together this list for you.

How To Prepare for an Appraisal: 6 Steps

If you’re looking to sell your home, there are various steps you can do to help your house appraise out, or increase the appraised value of your home.

Step 1: Get Your Paperwork in Order

If you’ve lived in the home for a while, there is a good chance you’ve done some work to the home. Perhaps you’ve replaced the windows, upgraded the electrical system, replaced the HVAC system, or added a deck. Getting all of your paperwork in order, and leaving that paperwork on the counter for the home appraisal, will help the appraiser get an understanding of what work has been completed.

Additionally, they’ll want to see the closed permits for the jobs completed, so be sure to have the permit information neatly organized as well.

Step 2: Organize Your Home

It can be difficult to look past a cluttered home. A neatly organized home is always easier on the eyes, and makes the home look better. Not only does a neatly organized room look better, it’s also more practical. If your attic or crawl spaces are cluttered, and the appraiser can’t move around the mess, they may not be able to fully complete the valuation.

Step 3: Do Minor Upgrades

Before the home is appraised, you may want to complete some basic work yourself. If doors are damaged, you should replace them. If there is a huge stain in the carpet, consider renting a carpet cleaner to remove the stain. You don’t need to go crazy and replace the entire kitchen, but there may be a list of items you can complete yourself, without breaking the bank, that can help improve the appraised value of your home.

Step 4: Give Your Yard Some Love

Your entire property will be appraised, not just the inside of your home. Make sure your grass is mowed and edged, add some mulch to the mulch beds, and plant some flowers. Dedicating a Saturday or Sunday to sprucing up the yard will likely pay dividends.

Step 5: Identify Major Damage Before the Appraiser Does

If the foundation is leaking water, if the roof needs to be replaced, or if the sliding door doesn’t open to the deck, get that fixed before it’s identified. Understandably, these are not cheap fixes, but it may make the difference between selling your home and not selling your home. Remember, a bank will not issue a mortgage for the listing price unless the house appraises for at least the listing price. If there are major damages with the home, it may not appraise for the price you were hoping for!

Step 6: Ensure All Safety Equipment Is Working Properly

The house should have the right placement of smoke alarms. If there is a security system, make sure it works properly. These small details are often overlooked by the seller, but a professional quickly picks up on them and begins to deduct against the home's value.

Want to hit the fast forward button on your home purchase, read this blog on how to close on your new house quickly!

What Adds Value to a Home Appraisal?

Craftsmanship, build quality, and the condition of the home will all help increase the value of a home. Having a new roof, updated electrical, a well maintained and functioning HVAC system, and updated rooms will all help improve the home's value.

You don’t have to go nuts and redo your entire house before putting it in the market. There are plenty of small jobs one could do themselves that can help increase the value of the home. Adding updated lighting fixtures, faucets, replacing doors, and doing a thorough deep clean will certainly pay dividends.

If you were looking to make investments in the home before listing it, be sure to spend that money wisely. Don’t replace the appliances if the roof is leaking. If the siding is chipped or falling off the house, be sure to address that before you add ceiling fans to the bedrooms. Updated kitchens and bathrooms are certainly a huge selling point in any market, and will help increase your home's value.

What Hurts a Home Appraisal?

If the home is in bad condition, that will certainly negatively impact the appraised value of your home.

For instance, if your hardwood floors are cracked, discolored, or if there are boards missing, that will be a red flag. If the yard is overgrown and not maintained, that will also negatively impact the home's value.

Buyers and appraisers understand not every home is brand new construction. However, it’s hard to look past a leaky roof or a cracked window.

How to Dispute a Home Appraisal

In the event you do not agree with the results of the home appraisal, you do have the opportunity to dispute the appraisal.

The first thing you’d have to do is receive a copy of the appraisal. Figure out what negatively impacted the home's value, and verify the information is correct. For example, if the report suggests the HVAC is dated, but you just replaced the system in recent years, you have every right to bring that up and dispute the claim.

If the appraiser failed to identify the upgrades or improvements in the home, you can also call attention to all the changes you’ve made and the money you spent.

Home appraisers aren’t perfect. There certainly can be a margin of error on the report. In the event you believe the report is off base, you can request a second appraisal.

What happens if the home appraisal is less than the sale price? That happens all the time. If the home buyer is fixed on this home and would happily over pay for it, they’ll still have an opportunity to do so. The bank will only provide a mortgage for what the appraised value is. If the appraised value is less than the asking price, and the buyer still wants the home, they’ll have to make up that difference with cash.

This is rare as people generally don’t want to overpay for something. More commonly, the seller will need to lower their listing price to be aligned with the appraised value of the home.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Difficult But Worth the Work

Getting a home appraised is looked at as an unavoidable step in the home buying process. Although many people are intimidated with the appraisal process, as a home buyer, you ultimately want to get this done.

A home appraisal is designed to provide a fair, unbiased, valuation on the home. The listing price is not always the appraised price. In many cases, the appraised price may be lower. Without knowing the true value, you may overpay for a home.

As a home seller, there are various steps you can take to help increase the value of your home. Many steps can be completed on a tight budget, and most of them won’t take a great deal of time.

Looking to Refinance?

How Do Property Taxes Work?

Whenever you’re looking to buy a home, you need to understand the all in cost of that home. Doing this will help you budget and plan accordingly.

There’s a lot more that goes into the true expense of a home beyond the listing price. Sure, principle and interest payments play a major role in determining your mortgage expense; as does the homeowners insurance expense. But property taxes can drastically change your monthly payment once factored in. This can make a once affordable home go way out of your budget.

If you’re wondering how property taxes work, you are not alone. Our customers often inquire about this. So, in this article we’ll get into the details of property taxes. Once you finish reading, you should be a property tax expert.

What Is Property Tax?

On a high level, property tax is typically paid once or twice a year to your local government tax collector. Property tax is the ‘fee’ you pay for owning property. Additionally, these taxes are used for the maintenance and funding of the town.

In other words, property tax is simply the money you owe your municipality for your property. Your home isn’t the only property that is taxed. You’ll also pay property taxes on the vehicles you own! This is a financial expense which you’ll be required to pay in accordance with the laws of your local government.

When Is Property Tax Due?

Property taxes are due various times throughout the year. Due dates depend on the county, city, or town. Most commonly, property taxes are either due once a year or twice a year (at the first and middle of each year).

Furthermore, many mortgage lenders may pay the property tax for their customers. To do so, lenders will use the money they keep in the customers escrow account. Instead of the homeowner paying the taxes themselves, the mortgage company will divide the yearly property tax value by 12. In addition, the mortgage company will charge the homeowner as part of their mortgage payment each month. That money will likely be kept in escrow until the property tax is due.

Once due, the lender should pay the property tax on the homeowners behalf.

Why Do We Pay Property Taxes?

Now that we covered some of the basic principles, let’s discuss what property tax is used for.

Property tax is a source of income for the state and local governments. It’s expensive to maintain a town, and the only way to do so is to charge the town's residents a property tax. Furthermore, income that’s received is then used to invest in various buildings, services, and amenities throughout the town.

For example, property taxes are used to help fund things such as the public school system in your town. They also fund the upkeep of the roads, parks, walkways, the first responders working within your town, and more. Property taxes also helps build new schools, pave more roads, or keep the beaches clean. These property taxes are also used to pay for the town's employees.

How To Calculate Property Taxes

Property tax is not calculated off of your income. It doesn’t even take in account of people you have living in your home. There’s a bit of mathematics that goes into the equation, but we’ll keep it high level.

To calculate property tax, you must know the assessed value of your home, and the mill levy or mill rate.

The assessed value of your home is quite different from the appraised value of your home. The assessed value is determined by the city, county, or municipality. The mill levy or mill rate is the amount of tax you pay for every $1,000 of appraised home value. The formula to calculate the property tax is (assessed value x mill rate) / 1000.

Here’s an example:

Assessed Value

Mill Rate

Sum

Total After Dividing Sum By 1000

$300,000

6,000,000

$6,000 in property tax

As shown above, this homeowner would owe $6,000/year in property tax for their property.

What Are Property Tax Exemptions?

Do all residents in the town pay the same amount of property tax? The short answer is no.

Although every property is assessed, all properties are not taxed, or not taxed in full. There are various exemptions one can qualify for. Additionally, these exemptions are not a ‘one size fits all’ approach. This is because various towns, states, counties and cities have their own list.

Some of the more common exemptions include; exceptions, or reduced taxes for senior citizens, those with a disability, veterans, animal welfare centers, churches, or non-for-profits.

Your local government should have a list of all exceptions. Contact the tax collector's office to see if they offer an electronic copy of this document. In the case your local government does not have a list, you can stop by their office. While there you can see if you qualify for any exemptions or breaks on property taxes. It could save you quite a bit of money if so.

Bring It All Together

Property tax, for many of us, is unavoidabled.

The local government invests a lot of money for the upkeep of your town. Between the cost of education, the upkeep, and the various services the government provides - running and managing a town is rather expensive!

In order for a town to keep up with that expense, they must charge their residents. This tax rate changes from county to county, or town from town. In fact, some parts of town have a different tax rate than others.

When calculating your property tax, be sure to consider the total property tax cost before buying a home. Some towns have a high mill rate, meaning the tax expense will be high. Towns with low mill rates will typically have lower tax expenses per year.

Moreover, it’s also worth considering how well the town manages their money and budget. Just because a town is charging you a lot of money in tax doesn’t mean you’re getting a lot of value. The specific town may be spending far more money than they take in; meaning they have to charge their residence even more money just to stay above water.

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HOA Rules: Guide to Homeowner’s Association Rules and Regulations

If you’re looking to buy a house that is part of an HOA, then you’ll want to be educated about HOA rules and regulations. Many homebuyers deliberately seek out homes within an HOA community.

Other homebuyers would never even consider purchasing a home in an HOA community because of the HOA rules. If you fall into the category of people who want to live in an HOA, keep reading! We have compiled key information about HOA rules for you.

What Exactly is an HOA?

Before diving into some of the typical HOA rules, let's take a step back and talk about what an HOA is. Simply put, HOA stands for homeowner’s association. A homeowner’s associate is a privately-held organization that oversees subdivisions, condominium complexes, co-ops, and townhouses.

An HOA is typically made up of various board members who are all in charge of enforcing the HOA rules and regulations. No homeowner’s association is the same. Some homeowner’s associations are stricter than others, and some provide more benefits than others.

An HOA property will have an HOA fee associated with it. This fee is typically paid monthly to the homeowner’s association.

Common HOA Rules and Regulations

There are various HOA rules and regulations that a homeowner living in an HOA will need to follow once they purchase a home within an HOA community. HOA rules and regulations could either be the biggest appeal or the single greatest deterrent when looking for a place to call home. Let’s take a look at some of the most common HOA rules.

Fee Obligation:

First and foremost, all homeowners will likely be required to pay a monthly HOA fee if they purchase a home within an HOA community. The homeowner’s association will put the money from fees towards a variety of goods and services.

Fees are commonly put towards the following responsibilities:

The maintenance of a community pool
The maintenance of a community park
Upkeep for basketball courts, tennis courts, or playgrounds
Maintenance of community centers or gyms
Garbage, recycle, or yard waste removal
Street lights for the subdivision
Roof replacements
Updated siding

Pet Regulations

It’s certainly not uncommon for a homeowner’s association to have strict pet regulations. Some HOA rules restrict homeowners from owning a pet, or if they do allow pets on the premises, the HOA may restrict certain breeds or types of animals from living on site.

For instance, the homeowner’s association may allow cats or dogs as pets, but they might restrict residents from raising chickens in their backyard. Other homeowner’s associations can restrict the size of pets, so while they may allow cats and dogs, they might not allow pets that surpass a specific weight limit.

Architecture or Appearance Rules

If you take a lot of pride in your home and you hate it when your neighbors let their property fall apart, you may love living in an HOA community. Just about every HOA community will have an HOA rule or two centered around the upkeep, architecture, and appearance of all homes.

The HOA community will likely require landscaping in a timely fashion. You won’t see overgrown grass or bushes in an HOA community. Additionally, the homeowner’s association will also likely have restrictions regarding the appearance of the home. You might be restricted in terms of what color you can paint your front door or house in general.

Also, for example, if the siding of your home is falling apart, the homeowner’s association can require you to replace the siding by a specific date. Homeowner’s associations often take it one step further as well. They may not allow boats to be parked in the driveway, on the street, or in the yard, nor will they allow inoperable cars take up space in driveways or on streets.

Insurance

Your HOA fees will typically act as insurance for the exterior of your home, but this doesn’t mean HOA fees can cover anything inside of your home. If a tree falls onto your roof, the HOA fee will cover the cost of roof repairs. But if your washer overflows and floods your home, you’ll have to check your homeowner’s insurance policy and see if the HOA will cover interior damage to your home.

Common Area Rules

Plenty of homeowner’s associations typically have a common area like a clubhouse or an outdoor area. There will likely be additional rules for the common areas.

For example, one of the rules might be that the common area closes at 10pm every night. Another rule might be that you have to reserve the common area a certain number of days in advance if you want to host a party or other event in that space.

How HOAs Enforce Rules

Once a homeowner’s association has determined that a specific property is in violation of a rule, the HOA will proceed by enforcing the rule in a few different ways. First and foremost, the HOA can issue a warning and provide the homeowner with an opportunity to fix, or correct, the issue.

For instance, if the homeowner's lawn is overgrown beyond the maximum length according to the HOA, then the homeowner’s association will give the homeowner an opportunity to cut the grass and bring the yard back to compliance. This warning is often time-bound, meaning the homeowner will have to fix their yard by a specific date.

If the homeowner fails to fix the issue by a specific date, the HOA reserves the right to fine the homeowner. This fine can grow in size if the issue persists.

If the fine does not motivate the homeowner to fix the underlying issue, privileges could be lost. For instance, if the HOA has a community gym, the homeowner’s association may restrict the homeowner from using the gym until the fine is paid and the issue is resolved.

Can the Police Enforce HOA Rules?

One of the common questions regarding HOA rules is, “Can the police get involved and enforce the rules?” To be honest, the answer to this question is not very straightforward.

The police enforce state and local laws. If the HOA rule is also aligned with statewide and local laws, then yes, the police can get involved and enforce the rule.

However, in most cases, going against HOA rules is typically not a criminal act on a state or local level. The HOA cannot rely on the police to enforce rules because most of the HOA rules are not laws.

When HOA Rules Are Unenforceable

There are times where HOA rules are unenforceable. Let’s look at some of the times where HOA rules cannot be enforced.

Violations of Rights or Law Breaches

If the HOA rule violates your rights or goes against the law, the homeowner’s association cannot enforce the rule. The homeowner’s association can make an effort to enforce the rule, but if it goes against the rights of a homeowner, then the homeowner can counter their efforts in court. A common example is when an HOA rule directly contradicts a homeowner’s freedom of speech.

No Power Act

A homeowner cannot be singled out by the HOA. Unless the homeowner is violating a rule, the homeowner’s association cannot issue fines against the homeowner without a legitimate reason.

This is referred to as a situation where the HOA has no power to act. It’s similar to police enforcing the law. They cannot arrest someone just for the sake of arresting someone.

Incorrectly Enacted Rules

HOA rules are subject to change with time. However, when an HOA rule changes, proper procedures must be followed. If protocols are not followed, then the rule cannot be enforced.

Selective or Inconsistent Enforcement

Following the point made regarding there being no power to act, if the HOA is enforcing a rule with you, they need to enforce the rule with every other homeowner who violates the same rule. You cannot be singled out within your community.

How to Handle Unenforceable HOA Rules

Generally speaking, a homeowner can handle an unenforceable HOA rule through a few different channels. Most commonly, the homeowner can seek legal counsel or talk to the HOA board.

Seeking legal counsel is always an option. If the homeowner believes certain HOA rules are violating the law, legal counsel can step in and represent the homeowner.

Homeowners are also encouraged to talk to the HOA board of directors. When reaching out to the board, explain why the rule cannot be enforced or why you believe there is a flaw in the enforcement of an underlying rule.

Is a Homeowner’s Association Right For You

Homeowner’s associations are either hated deeply or loved with a passion. For those that are looking to live in an area where everyone has a well maintained home, and the neighborhood has a strong sense of order and community, a homeowner’s association may be perfect for you.

However, if you are not interested in following rules, or do not agree with the rules of a specific association, you certainly shouldn’t consider purchasing a property within that community. Be sure to fully understand all the HOA rules before purchasing your property.

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What Is the Difference Between Interest Rate & APR?

Whenever you are borrowing money, whether it’s for a new mortgage, a refinance, credit card, or car loan, you’ll hear the terms interest rate and APR discussed quite a bit. Both of these terms are expenses, and it’s important to understand what each expense means and what they are made up of. What is the difference between interest rate and APR? We’re glad you asked

Our beginners' guide to mortgages probably has the answers you're looking for if you don't know where to start on your mortgage.

What Is an Interest Rate?

The interest rate is simply the annual cost associated with borrowing the principal balance from a lender. Interest rates are present on various different types of loans, including; mortgages, credit card balances, car loans, student loans, and even personal loans.

Lenders are in the business of making money, and charging an interest rate on the money lent allows them to do so. Borrowers will be required to pay back the principal balance plus the associated interest rate with the loan

Asking yourself what a mortgage even is? Read our blog to find answers to your important questions here.

How Does an Interest Rate Work?

Understanding how the interest rate works is also important. Some loans have a fixed interest rate, which means for the duration of the loan the interest rate percentage does not change. Other loans have a variable rate, or adjustable interest rate, which means the rate is subject to change over time.

The lower the interest rate is, the less money the borrower has to pay back. The higher the interest rate, the more expensive it is to actually borrow money from the lender. Credit card debt has a notoriously higher interest rate, whereas mortgages tend to have lower interest rates.

How Do Interest Rates Get Calculated?

There are various ways interest rates get calculated. We’ll address three of the most common.

First and foremost, interest rates can be derived from an associated risk equation. If one has a lower credit score, a high debt to income ratio, or an unstable financial history, the lender may view them as a higher risk of defaulting on the loan. To adjust for that risk, the borrower will charge a higher interest rate on the borrowed money if in fact the loan was approved.

Conversely, if the borrower is in a solid financial position, and has a history of paying debt back in full and on time, the lender may not view that borrower as a risk of defaulting on the loan. For that reason, the lender may charge a lower interest rate on the borrowed money.

Secondly, the time of the loan can also affect the interest rate. The longer the loan is, the more risky it can be considered - which results in a higher interest rate. The shorter the loan is, the easier it is for a lender to predict what will happen to the economy or one's financial situation, and will tend to charge a lower interest rate.

Last but not least, market conditions will impact interest rates. The government can pull various levers that will cause the interest rate to change. At a time where consumers are scared to spend money, the government may put policies in place to lower interest rates, resulting in consumers gaining confidence to spend. If consumer spending is high and the economy is thriving, banks and the government may raise interest rates. Various macro and micro economic factors will all influence interest rates, not only in the mortgage industry but in the overarching lending market.

What Is APR?

Now that we’ve covered interest rates, let’s dive into what APR is and why you should care.

APR in an acronym for annual percentage rate. Said differently, APR is the total cost associated with borrowing money yearly. This is a more encompassing way to measure the true cost of borrowing money from a lender.

How Does APR Work?

The annual percentage rate (APR) is made up of; the interest rate, any fees associated with borrowing money, any discount points the lender associates with the loan and various other charges you’ll be required to pay on the loan.

How Does APR Get Calculated?

APR gets calculated by adding up the total principal balance of the loan, the interest rate on the loan, and the various fees associated with the loan into one final total. Once that number is finalized, you divide that number by the duration of the loan, and convert that total into a percentage of the total loan value.

A $300,000 loan that has $10,000 in fees and a 4.5% interest rate actually has an APR of 4.71%. The 4.71% is the true cost of borrowing money, and as shown, the APR is always greater than the interest rate.

Calculating the numbers by hand or excel is a thing of the past. There are various online calculators that can help you understand your true APR rate by just inputting a few numbers.

How Do I Calculate APR From Interest Rate?

The interest rate is needed to calculate the annual percentage rate because the interest rate is added to the total fees paid, and the principal balance, to get one final aggregated number. From there, that total is divided by the number of days in the loan, multiplied by 365 and again divided by 100 to convert that number into a percentage. That percentage is your APR.

Is It Better to Have a Lower Interest Rate or a Lower APR?

Generally speaking, the APR is a more accurate representation of the true borrowing cost of the loan. The lower your APR is, the less expensive it was to borrow the money.

A lower interest rate may be easier on the eyes, as the monthly payment will likely be lower, but don’t be fooled. There may be high fees or costs associated with borrowing, which allows the lender to offer a lower APR

Read all about the hidden fees you may not even know you'll have to pay when getting a mortgage.

Does 0% APR Mean No Interest?

There are various times a lender may offer a 0% APR. The 0% APR is generally for a limited period of time, meaning the borrower may borrow the money for 12, 18, or even 24 months interest fee.

Once the time period has elapsed, interest becomes relevant with the loan and the borrower will be required to pay the interest expense associated with borrowing.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Now You Know the Difference!

There are certainly a lot of terms and acronyms in the mortgage, finance, or lending field. As a borrower, it’s important to fully understand what these terms are, and how they can impact your monthly payments.

Remember, the interest rate is the cost to borrow the principal amount of the loan, but it does not factor in all expenses. For a more encompassing and detailed understanding of the borrowing cost, use the annual percentage rate, or APR.

The APR is the fully baked financial metric that factors in the all in cost of the loan. The APR will add in the interest, closing fees, and broker fees into one aggregated sum, and divide that amount over the lifetime of the loan. That payment is converted in a percentage, which you’ll know as the APR.

Thinking of Refinancing?

Condo Mortgages: What You Need to Know Before Financing a Condo

Rates

Purchasing a condominium is a home purchase; however, condo financing differs from conventional single-family home mortgages. Buying a condominium comes with its own set of rules and fees.

From requiring you to follow extra steps in underwriting to boasting specific rules in particular programs, novices stepping into the world of purchasing a condo need to take time to learn more about mortgages. Buyers should consider the ins and outs of condo living before applying for the mortgage.

Here we take a closer look at what condo mortgages are and why they cost higher.

What is a Condo Mortgage?

Scoring a mortgage to purchase a condo is a lot different than obtaining a loan to buy a single-family home. Typically, condominium loans boast stricter requirements alongside higher price tags on standalone single-family dwellings.

It is primarily because the value of a condo is subject to many additional risk factors that are not under the borrower's control. Fannie Mae and Freddie Mac ask borrowers to meet higher eligibility standards on condo loans to mitigate the risks.

Why are Condo Mortgage Rates and Down Payments Higher?

If you're planning to buy a condo, it's a good idea to familiarize yourself with rates and down payments. Let's take a closer look at why mortgage rates and down payments are higher for condos.

Higher Mortgage Rates

Mortgage rates for purchasing a condo are typically higher than on single-family homes. Even if a borrower purchases them on similar terms, condominium mortgage rates exceed conventional mortgages due to condo mortgages being riskier.

Typically, on mortgages that Fannie Mae backs up, the rate on a condo may vary from 0.125-0.250% (one-eighth to one-quarter percent) higher than what you'd pay on single-family homes. Fannie Mae requires lenders to pay an upfront fee of 0.75% of the total loan amount. Here lenders may boost the mortgage rate to cover this fee.

Moreover, borrowers may avoid higher rates by paying the total upfront fee or making down payments totaling up to 25% of the home's purchase price. Unfortunately, condo buyers may find it challenging to score larger down payments, especially if they're novices.

However, if you choose an FHA loan, you may make a smaller down payment of around 3.5% while paying rates similar to when you would pay with larger down payments. The drawback here is that FHA also charges an upfront mortgage insurance fee comprising 1.75% of the total amount, which Fannie Mae loans don't charge.

In addition to this, you'll learn that specific lenders charge higher mortgage rates in different states. Generally, the difference isn't that noticeable. However, you'll find that some states charge half a percent more than other states.

Larger Down Payments

Here's the thing: to enjoy the best rates on Fannie Mae loans, borrowers need to offer at least 25% down on condominiums. On the flip side, homebuyers can get their hands on fantastic rates if they put down less than 20 percent.

Apart from that, specific lenders require borrowers to put down a minimum of 20 percent. However, this may vary from state to state – Florida and Nevada are known for the highest requirements. Some states allow you to enjoy down payments as low as 5% alongside stellar credits.

Moreover, FHA loans ensure down payments as low as 3.5 percent. However, you may still have to put down 10% if you're purchasing a condominium in areas that are newer but lack warranties of 10 years.

Warrantable Condo vs. Non-Warrantable Condos

Typically homeowners utilize 'conforming' mortgage financing, which means that they're acquiring their loan from government-sponsored entities, Fannie Mae and Freddie Mac. It also indicates that their loan meets both groups' minimum standards.

Fannie Mae and Freddie Mac use 'warrantable' to classify the different condo projects and properties against which they'll provide a mortgage. On the flip side, the term 'non-warrantable' refers to Condo projects and properties that fail to meet Fannie Mae and Freddie's Mac warrantable standards. Let's discuss what classifies as warrantable and non-warrantable.

Warrantable Condos

Fannie Mae and Freddie Mac consider condos warrantable if:

No person owns more than:
1. 2-4 unit project- 1 unit
2. 5-20 unit project- 2 units
3. 21 and higher units: 20% of units (Fannie Mae) or 25% of the units (Freddie Mac)
If the unit is detached, i.e., it does not share walls with other units while still classifying as a condo
Commercial space accounts for at least 35% or less of the property's total square footage
HOA (Homeowners Association) is not present in any lawsuits.

Non-Warrantable Condos

Condos are considered non-warrantable if:

A project is incomplete
The developer has not turned over controls of the HOA to owners
One person owns more than 10% of all units
The community offers short-term rentals
The majority are rented to non-owners

Pay Attention to Fees and Insurance

Condos are an excellent investment; however, you must understand the hidden costs of buying one:

While condos promise a maintenance-free life, Home Owner's Association (HOA) or Property Owner’s Association (POA) charge condo owners a monthly, quarterly, or annual fee to cover the property's maintenance. These fees can sometimes increase monthly mortgages up to $500 per month and more!

Condo owners may have to deal with special assessments on top of mortgage payments, HOA dues, property taxes, and insurance. Special reviews refer to extra privileges that HOA requires to cover any unplanned expenses that may occur.

Luxury condos present alongside the beachfront offer fantastic aesthetic appeal. However, these homes usually require homeowners to pay an additional cost.

Final Words

Today, more and more people are purchasing condos, from retirees to investors. It's no surprise that condos are growing in popularity for their benefits; ensuring you can enjoy a maintenance-free life and offering you the opportunity to build a community. You can even benefit from excellent amenities like fitness facilities, pools, spas, and even cafes!

While condo mortgage rates are different from single-family home loans, there are ways you can score fantastic interest rates. Make sure you spend some time contemplating other condos in various states before making your final purchase.

Ready to Buy a Condo? Apply Today!

Home Improvement: 8 Budget-Friendly DIY Changes For Your Home

Innovative and cost-effective home improvement ideas are all over the internet, especially when it comes to DIY projects that will add value to your home without emptying your checking account or maxing out your credit card.

If you want cheap-as-chips hacks to improve your home in a way that looks like you hired A-list TV renovators, you’ll need to use your resources, carefully plan for every penny, and prevent yourself from going overboard. You got this!

Here are some DIY home projects that are easy enough to complete over the weekend and on a budget. Best of all, each one has the potential to improve or enhance homeowner, visitor, and potential purchaser impression, whether you’re thinking about selling soon or you’re planning to stay for years to come.

Buying a home comes with some costs you might not know about. Read our blog about unexpected mortgage costs here.

1. The Front Door Restore

Looking for instant curb appeal improvement? You can get started by reviving your front door. Just about everyone who visits your home will enter your house through the front door, and as the years go by, your front door might sustain natural damage caused by sunlight and weather.

Over time, a hardwood front door can start looking shabby, tired, and weathered. Choosing a bright color for your front door can add a pop of personality while serving as a welcoming statement for guests and family members.

Cost: You’ll need tools like painter’s tape to cover existing hardware, a paintbrush, drop cloths, rags, and sanding blocks. You’ll also need an outdoor or exterior-grade paint, primer, a paint bucket, and a stir stick. A front door refresh should only cost you between $50 and $100, depending on which tools and materials you already own.

2. The Fireplace Facelift

Fireplaces do not have to be traditional. Even when your fireplace is not in use, it is a focal point of the room. Adding a mantel, replacing old brick with a minimalistic surround, or overlaying a basic builder with reclaimed barn wood planks can add a contemporary, modern, or farmhouse aesthetic to an otherwise drab fixture.

Cost: Costs will vary depending on the size of your project and the materials that you’ll need to purchase. Basic mantels can be purchased for under $100 both online and in stores. Barnwood wall paneling can be purchased for anywhere from $5 to $9 per square foot through Wayfair. Reclaimed barn wood planks can be found on Amazon, at Home Depot, or at Lowe’s.

3. The Interior Wall Repaint

Paint can change a room drastically, making it appear brighter, larger, smaller, or cozier. Many people say that changing the paint colors in a home will change the entire mood of the room. Accent walls and ceilings can highlight features in a room, like a window or a skylight, all while adding a pop of color. You can even make a room feel shorter or longer depending on the color you select for the walls!

Cost: Painting a room yourself will cost you anywhere from $100 to $300 depending on the room supplies that you need to buy and the size of the room. If you hire a professional painter, you will likely spend at least twice as much on the project, but on the bright side, you will not have to be concerned about doing the job yourself, so it’s a reasonable trade-off.

4. The Shiplap Accent Wall

Shiplap is a popular building material made famous by renovation reality shows. Historically, it was used as siding for barns and sheds. In the last decade, installing it as part of the interior of a house has become very popular, sparking debate among DIYers as to whether shiplap is timeless or trendy.

Installing shiplap in a horizontal manner as part of the interior of a room can move the eye horizontally around the space, making the room feel larger. Installing it vertically emphasizes the height of the room, making the room feel taller and bigger than it really is.

Cost: Also known as engineered wood wall paneling or medium-density fiberboard, shiplap can be purchased at any home improvement store as well as online through Wayfair. Costs will vary depending on where you purchase the shiplap from, but it will almost always be more expensive than drywall no matter where you buy it.

5. Updated Kitchen or Bathroom Backsplash

Adding texture to a kitchen or bathroom is a sure way to make it pop, even if you’re working with a monochromatic theme. Tile backsplash can upgrade any and all kitchens and bathrooms. Unfortunately, peel-and-stick wallpaper is often viewed as being inferior to tile backsplash.

However, if it’s installed correctly, it may be difficult to tell the difference. No special skills are required to install backsplash, and there is no demolition, dry time, or clean-up required. Today’s peel-and-stick backsplash options are leaps and bounds better than these materials when they were first created a few decades earlier.

Cost: Plan to spend between $6 and $25 per square foot. In most cases, you can easily install it yourself, so it’s likely that you won’t have to spend money on professional services in addition to purchasing the peel-and-stick wallpaper.

6. Peel-and-Stick Wallpaper

Just like you can use peel-and-stick wallpaper for bathroom or kitchen backsplashes, you can also use peel-and-stick wallpaper for entire walls! The verdict is in, and it says that wallpaper is definitely back in style. For DIY home improvement fans, peel-and-stick wallpaper is perfect for both short- and long-term purposes. For instance, self-adhesive vinyl wallpapers are easy to install and remove.

Cost: The costs of peel-and-stick wallpaper will fully depend on the amount of paper you need, meaning smaller accent walls will be more budget-friendly than the cost to cover the walls in a large room. An 8 x 12 wall will cost $432 to fully cover if you purchase your peel-and-stick wallpaper from Wallblush.

7. Foam Crown Moulding

Instantly upgrade your living room and bedrooms with crown moulding, which can both enhance the visual appeal of a room and hide all imperfections, cracks, or blemishes in ceilings. You can install beautiful flat-back crown molding without having to use miter saws or nails, too.

Cost: Plain recycled polystyrene crown molding starts at about $60 per package. You’ll need to purchase corner and transition pieces as well, though the number of them will depend on the size and the layout of your room.

8. The Bathroom Caulk Refresh

Caulk is king! In just a short period of time and for very low costs, you can improve the visual appearance of your bathroom, prevent mold from growing, minimize the likelihood of mildew growth, and make your bathroom look newer and cleaner all at once!

Caulk is the material used for the sake of sealing seams in your bathroom. Plus, it is easy to install. Start by removing the old caulk first. You can do this with a razor blade. From there, apply the new caulk with a caulking gun. If it’s your first time working with caulk, take a moment to review best practices on YouTube before making any changes.

Cost: Caulking is inexpensive. You can purchase an inexpensive caulk gun for about $5 as well as white acrylic latex caulk for less than $3 per tube.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Staying Within Budget Requires Planning and Self-Control

Remember that DIY home improvement projects can be budget-friendly, but most of the magic is in the cost calculations and budgeting efforts you utilize. It is so easy for even the most well-intentioned renovator to get out of control on a Saturday morning at the local home improvement store, especially with a credit card in their pocket.

If you want or need to stick to a budget, walk into the store knowing how much you’ll spend, and hold yourself to your promise to stick to your budget. This may require you to plan a reconnaissance mission, use tools that you already have, or ask to borrow tools from parents, friends, and neighbors. You can stretch your dollars even more if you are flexible when it comes to colors, styles, and the ultimate aesthetic of your renovations.

Looking to Refinance?

Can You Change Mortgage Lenders? How To Change Your Mortgage Lender

In today's day and age, there are a lot of reasons why homeowners are looking for new mortgage lenders. With mortgage rates dropping to historically low levels, now is a better time than ever to change your existing home loan.

If your new rate ends up being lower than your current rate, you will enjoy the luxury of reaping a considerable amount of money. Let’s explore what it takes to change your mortgage lender!

Can You Change Your Mortgage Lender?

Well, can you actually change your mortgage lender? Here, we will discuss if it is even possible to change your lender, why you might consider switching lenders, and how to carry out the process if you qualify.

Understanding Mortgage Lenders

A mortgage lender refers to a financial institution or bank that offers home loans. In addition, mortgage lenders typically have specific borrowing guidelines. Doing so enables them to verify your creditworthiness as well as your ability to repay a loan.

Lenders are responsible for determining terms, repayment schedules, interest rates, and other critical aspects of mortgages. In the event that you're a borrower, you won't get to choose who services the lender’s loans.

This is usually due to how loans are handled once you pay yours off and close your loan entirely. After closing, it’s not uncommon for a lender to sell your loan to external companies. This often can be done without the approval of the borrower.

Do Any Lenders Service Their Own Loans?

Some mortgage lenders boast the way they service their own loans. They will often handle the ongoing administration of the loans as well. So, although it’s rare, it is possible for mortgage lenders to service their own loans.

If you’re in search of a lender offering loans that they service, consider applying for a loan from one of the following banks:

Chase
Flagstar
Quicken Loans
Union Bank
US Bank

Reasons Buyers Switch Mortgage Lenders

When refinancing your mortgage, you don't need to stick with your existing lender. Here are the main reasons why you may want to switch to a new mortgage lender!

There May Be a Better Deal Available

You may assume that switching lenders will enable you to score a better mortgage rate. This can actually be done with the help of an account in good standing as well as a solid history of on-time loan payments.

However, different mortgage lenders will boast various loans and borrowing requirements. For example, a lender you've never worked with may offer you a 3.2% rate on your mortgage refinance whereas your current lender may be offering a 3.35% interest rate. It’s all relative, and it doesn’t hurt to look around at interest rates being offered by other mortgage lenders.

You Are Unhappy With Your Customer Experience

Some homeowners may have a bad experience with their mortgage lender. If this is the case for you, there are some ways you can handle this situation.

Document Every Conversation

Make sure you keep records of every interaction you have with your lender. Remember the names of the employees you spoke with, the date of the conversations, and what they told you.

In the event that the issues escalate, you'll have detailed notes to use as proof of mistreatment by your lender, which will make it easier to hold your mortgage lender accountable.

Boast a Clear Plan of Action

Before you start working with an organization, make sure you have a clear goal in mind. Get ready to articulate your desired outcome when speaking with potential lenders. That way, your lender will be on the same page as you, and if they go against your wishes, it will be in writing.

File a Complaint with the CFPB

The Consumer Financial Protection Bureau (CFPB) allows customers to submit complaints online. Make sure you organize your receipts, conversation transcripts, and notes before setting out to file a complaint. The more organized and detailed your complaint is, the better the outcome will be!

How to Change Mortgage Lenders

Before you change your mortgage lenders, it’s important to understand the rules and regulations of the process.

Mortgage Lenders Transfer Rules

Before you change your mortgage lender, it’s suggested that you make sure you have already been pre-approved by your new lender. The great thing about this is that the pre-approval process is not extensive. It’s usually done before you make the offer.

Assuming that you already have a mortgage, chances are you've gone through the pre-approval process before. So, all you have to do is repeat the process as soon as you're ready to change lenders.

When seeking a new mortgage lender, make sure you're transparent and let your real estate agent know. After you are pre-approved by the new lender, it’s important that you provide your real estate agent with your new pre-approval letter.

Drawbacks of Changing Mortgage Lenders

Changing your mortgage lender comes with several drawbacks, the most obvious of which is the delays. Here are a few other cons of switching mortgage lenders!

Different Rates

If you've scored a low rate with your most recent lender, it doesn't mean that your new lender will adhere to that same value. The quote you receive from your new mortgage lender will depend on the industry trends as well as your credit score.

These may change over time, and as such, they will differ from the rates you were quoted by previous lenders. Based on these two factors, your interest rate could end up being higher than prior loans, so getting a new lender can sometimes be detrimental in a financial sense.

High Closing Costs

Closing costs vary from lender to lender. Your new mortgage lender may charge additional fees or higher rates than you were used to with your previous lenders. For this reason, it's essential to compare the costs and fees of a potential lender before committing to making the switch.

New Lender Means Another Credit Check

It's likely that your previous mortgage lender already pulled your credit before starting the process for your loan. Lenders like to conduct credit checks before considering you for a loan because your interest rate will heavily rely on your credit score and subsequently influence the rate your new lender decides to offer to you.

Time to Get a New Appraisal

All lenders will require an appraisal before they’ll consider issuing a loan. An appraisal tells the lender that their money will be easy to recover even if you’ve defaulted on a previous loan.

You will need to pay an additional service fee when the loan payment is made to cover the costs of the appraisal. You might also have to pay other fees that were already pre-paid with your old lender.

Where to Go From Here?

Despite the drawbacks of changing mortgage lenders, making the switch is still worthwhile because signing with a new mortgage lender also comes with numerous advantages. While your primary focus should be ensuring that you're as happy with your loan terms as you are with your new house, it's essential that you choose your lender wisely.

Consider shopping around for the best rates. Furthermore, make sure you compare each lender by asking about closing costs, additional fees, and customer service protocols.

After selecting a new lender, communicate the details of your new loans to your new agent, the escrow agent, the seller, and other involved parties. This way, you can foster a deep relationship with your lender and real estate agent which will lead to a foundation of trust.

Apply for Pre-Approval Today!

What Is MLS? Understanding Multiple Listing Service In Real Estate

When you’re in the process of buying a home, you’ll often work with a single real estate agent who will help you to find the perfect place for you and your family to call home. But did you know that there’s a way for real estate agents to share information with one another about available properties in order to better serve homebuyers and sellers?

This special arrangement is called a multiple listing service, also known as an MLS. With 64% of the National Association of Realtors claiming to use MLS listings regularly, the concept is very widespread.

Today, we’ll explore what an MLS entails and how it benefits real estate agents, buyers, and sellers alike.

What is a Multiple Listing Service (MLS)?

Essentially, an MLS is a privatized database that can be accessed and edited by active real estate agents and brokers. The goal of a multiple listing service is to help real estate professionals connect their clients with high-quality listings that might fit their needs, even if they’re outside of the agent’s brokerage.

Though the concept of an MLS was originally created solely for real estate pros to share information with each other, the databases have developed over time to become an important resource that agents can use to share properties directly with their clients.

MLS listings will include vital information such as:

List price
Acceptable kinds of financing
The number of beds and baths
Number of days listed
Property tax information
Listing agent information

Depending on the MLS listing, other information will often be included as well, such as the age of the property or disclosures regarding the property’s condition. Information like this can give buyers a better understanding of what’s available in their desired area so that they can make more informed choices.

The databases include family homes and open properties as well as condos, foreclosures, and international properties. Rentals will occasionally be included as well.

Are All Homes for Sale Listed on the MLS?

If sellers do not list their properties through a real estate agent, their home will not be included on an MLS. Likewise, any property that is listed through an agent will be included on an MLS.

If you’re in the process of buying a home, know that the vast majority of properties for sale will be available for you and your agent to peruse together on a multiple listing service. Even so, MLS online listings aren’t the same as home-buying websites.

Real estate organizations across the country have been allocating millions of dollars toward the development of comprehensive, helpful multiple listing services. Some of this information gets forwarded to sites that list houses for sale, but the most complete and accurate information is often in the MLS.

Therefore, it benefits sellers, buyers, and real estate professionals to utilize an MLS for their buying and selling needs.

Benefits of Multiple Listing Services

MLS databases allow the property seller’s real estate broker to achieve a wider reach for the property, increasing their chances of finding the right buyer and selling the property for the right price. Similarly, using an MLS can help a buyer’s broker widen the variety of options that they can show to their clients.

In a sale created from exposure via the MLS, both the buyer’s agent and the listing agent will share a piece of the commission. An MLS acts as a kind of neutralizer that allows both small and large real estate companies to interact with one another on an even playing field.

At the same time, sellers and buyers who don’t have real estate training will come away with a positive experience. It results in both parties getting to receive what they wanted at a price that’s fair for everyone involved.

How to Receive MLS Listing

Multiple listing services are reserved for sellers and serious buyers who are represented by an agent. A realtor license number is required for access. Real estate professionals pay dues regularly in order to keep up the legitimacy and accuracy of MLS databases.

However, many real estate companies will display current MLS listings right on their website for potential buyers to peruse. Should a potential client hire a real estate agent or broker for assistance in buying a property, they will gain access to the MLS that the company belongs to by way of their agent.

Alternatives to the MLS

If you’re interested in buying a home, perusing an MLS is not your only option. There are several other popular real estate websites and apps available, including Zillow, Trulia, and Redfin. All of these alternatives allow potential buyers to find out what’s available in their area without requiring the services of a real estate agent.

Available homes can also be listed on sites dedicated to listings that are for sale by owner (FSBO). However, since these homes are sold without real estate representation, they won’t be available on an MLS. Instead, they may only be available on a limited number of third-party real estate sites.

Additionally, large real estate firms in busy markets will often have their own websites that are dedicated to their listings, which potential buyers are free to check at any point in time.

What is a Pocket Listing?

Pocket listings are properties that real estate agents keep “in their pocket” by only sharing them with specific potential buyers and a select few agents. In a sense, these listings are kept secret by not being included in any MLS listings or third-party real estate websites. Most pocket listing homes don’t even display a “For Sale” sign publicly.

Elevate Your Real Estate Experience with MLS Listings

Navigating the housing market can be difficult without the help of a real estate agent or a broker. Once you’ve hired a professional to aid you in the process, an MLS can be a crucial part of finding your family’s perfect home or securing the right buyer for your property!

Ready to Buy Your Dream House?

What is Forbearance? Understanding Mortgage Forbearance

In times of economic hardship, like the present economic events caused by the COVID-19 pandemic, many homeowners struggle to meet their mortgage payments. Employers end up cutting back work hours, causing financial circumstances to become very unpredictable.

Whether you are facing financial instability because of the pandemic or unrelated life events, there are ways to work with your lender and save your home from foreclosure. One of the most accessible short-term solutions is forbearance.

What Is Mortgage Forbearance?

Mortgage forbearance is an agreement between a homeowner and their lender that allows the homeowner to suspend or lower their monthly payment amounts for a set period of time. If you are in the process of finding new work or you are temporarily making less money per month than before, forbearance can give you a temporary break from your regular monthly mortgage payments while you get back on your feet.

How Does Mortgage Forbearance Work?

Each lender treats mortgage forbearance a little differently. It’s important to note that forbearance doesn’t permanently lower your mortgage payments and you will still owe amount of money that you don’t pay during the forbearance period to your lender.

Qualifying For Forbearance

Whether or not you qualify for forbearance depends on your lender and your loan type. For example, government-backed loans are treated differently than private loans. No matter your situation, clarity and initiative are key.

Set up a meeting with your lender as soon as you can so that you can settle on a plan before you miss any payments and subsequently damage your credit. Providing proof of the events that led to financial hardship, like your bills or proof of your loss of income, will give them information they need to understand and reasses your situation.

Repayment Options After Forbearance

The payment plan for your loan after forbearance is up to the entity that actually owns your loan, which in almost every case is different from your lender. For example, Fannie Mae and Freddie Mac both offer standardized repayment plans. Currently, they each allow up to twelve months of forbearance under the CARES Act, which we’ll cover momentarily.

The payment plan and repayment options for privately-backed mortgage loans will vary depending on which entity owns your loan. Contacting your lender to find out who owns your mortgage loan will help you better understand your repayment options.

Mortgage Forbearance COVID-19

Since so many homeowners have faced financial hardship due to COVID-19, the federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act applies to any loan owned by the government entities like Fannie Mae and Freddie Mac.

The CARES Act has made it possible for homeowners to use forbearance plans to pause or reduce their mortgage payments if they are struggling to meet their mortgage due to the economic impact of COVID-19. Home loans backed or insured by Fannie Mae, Freddie Mac, HUD, the VA, or the USDA are covered under the CARES Act during the COVID-19 pandemic.

Repayment Options For Federally-backed Loans

Homeowners with federally-backed loans covered by the CARES Act can repay their mortgage after forbearance in one of many ways. One option is to submit a lump sum payment that covers the missed amount in full at the end of forbearance.

However, this often isn’t always feasible option for those struggling financially. That’s why options like a short-term repayment plan, where you pay an additional payment each month along with your mortgage, or an extended loan modification, which extends your loan term and adds the missed payments to the end of your loan, exist.

Borrowers who can’t afford their mortgage at its current interest rate and monthly payment value may be eligible for a flex modification option. This is available on a case-by-case basis and it will change your loan terms in a way that works for both you and the lender.

Repayment Options For Privately-owned Loans

Private lenders offer similar options to the ones listed above, but their repayment plans vary depending on the bank or institution. Contact your lender to get more information about who owns the loan and the available forbearance options.

Can Forbearances Or Deferments Hurt Your Credit?

Mortgage forbearances or deferments will not hurt your credit. However, it’s crucial to arrange an agreement with your lender as soon as possible. Mortgage payments that go unpaid for more than 30 days without an explanation are typically reported to credit bureaus.

At that point, your missed payments will hurt your score. The sooner you talk to your lender, the better your chances are of finding a viable solution before you start missing your payments.

Mortgage Forbearance vs. Loan Modifications

To understand whether or not you should look into mortgage forbearance, it’s important to compare it with a loan modification. Forbearance is a temporary fix that only suspends your payments for a set amount of time. Plus, the missed payments are still due to the lender after the forbearance period is over.

A loan modification is often an option for those who are already in default on their loans because they have missed payments. Homeowners are eligible for loan modifications on a case-by-case basis. With a loan modification, the terms of their loans will be changed in a way that works better for their financial situations. Typically, this extends the length of the loan but even so, it gives them more time to pay off their loan in smaller doses.

Forbearance Options For Homeowners

Mortgage forbearance can help a homeowner during times of financial stress or instability by suspending or reducing monthly payments in a way that won’t negatively affect credit score or lead to foreclosure. Homeowners will still have to repay the missed amount eventually, but with forbearance, they have more time to find a job or save up the money they need in order to make regular payments again.

If you think forbearance might be a good option for you, don’t hesitate to reach out to your lender. Provide them with details of your financial situation so that they can find a solution that suits your needs when it comes to making payments on your mortgage loan.

Right Now Might Be a Great Time to Refi!

What Is Earnest Money? | Earnest Money Deposit Explained

If you find a property that you’re highly interested in buying but are concerned that the seller might choose another offer over your own, you may consider making a deposit in escrow to show that you’re committed to your offer. This deposit is called an “earnest money deposit,” and is a great way to back up your offer in a competitive housing market

Read our blog written specifically for homebuying beginners here.

What Is Earnest Money?

Earnest money is typically deposited in an amount between 1 and 2% of the purchase price. It shows that you’re serious enough about your offer to give that money to the seller if you back out without good reason during the closing process. Earnest money isn’t a requirement, but it’s strongly recommended and shows your commitment to the seller.

Understanding How Earnest Money Works

Earnest money is delivered to a third party in an escrow account when you sign a sales contract or purchase agreement. If you purchase the home, the money is refunded to you or can go toward your down payment. If you back out for a reason that isn’t outlined as a contingency in the contract (which we’ll cover more in a minute), the seller will get to keep the earnest money.

Earnest Money in Action

As an example, say that Nathan wants to purchase a $150,000 condo. Since he’s buying in a competitive market and wants to make his offer stand out, he decides to indicate in his offer that he will make a deposit of 2% of the sale price ($3,000). When his offer is accepted, Nathan wires the money to an escrow company.

If Nathan’s home inspection covers a serious issue like a dangerous crack in the foundation, he can back out and receive his money back. If he decides to move forward to close on the property, the earnest money will either be refunded to him or will go towards his down payment. However, if Nathan were to find another property that he was more interested in, he would have to forfeit the $3,000 in earnest money in order to withdraw his offer.

Earnest Money Deposit vs. Down Payment

Be sure not to confuse earnest money with the down payment on a house. The down payment money is brought as a cashier’s check to closing, and the amount depends on both the property type and the kind of financing used. Nathan might be able to use his earnest money as part or all of his down payment, but this isn’t a requirement.

How Much Earnest Money Is Enough?

As you can see from the example, a buyer may want to make a higher earnest money deposit when they are committed to buying or are shopping for houses in a highly competitive market. The minimum amount is 1% of the sale price, which is typically just a few thousand dollars at most.

Your real estate agent will be a great resource when it comes to deciding an earnest money amount and will use their expertise on local trends and competition to help you write your offer.

Can Earnest Money Be Refunded?

As we discussed, earnest money will either go towards a down payment if you close on the home or can be refunded if you decide to withdraw your offer for a reason outlined as a contingency in the buyer’s agreement.

4 Types of Contingencies

There are several different types of contingencies that might be included in the agreement signed by you and the seller.

1. Home Inspection Contingency

The home inspection contingency allows a buyer to withdraw earnest money if inspection findings reveal a problem with the property that costs too much to repair or that would make the home a bad purchase

Read our blog covering 8 budget-friendly DIY home improvements here.

2. Appraisal Contingency

An appraisal contingency ensures that the buyer can withdraw their offer and earnest money if their lender appraises the house and determines that it is worth significantly less than the same price.

3. Financing Contingency

A financing contingency is an important protection for the buyer that allows them to withdraw their offer and earnest money if they are unable to receive financing for the home. It also provides them with a predetermined amount of time in which they can look for financing.

4. Contingency for Selling an Existing Home

Depending on the buyer’s finances, they may want to include a sale contingency, in which they can withdraw their offer if their current home or property doesn’t sell in a given time period.

How to Protect Your Earnest Deposit in 4 Steps

Earnest deposits can range anywhere from a small amount to thousands of dollars. It’s important to take the right steps to protect your money in case you do want it refunded.

Step 1: Use an Escrow Account

Escrow companies exist so that neither the buyer nor the seller has possession of cash or assets while a house is in the middle of the sale process. If you were to give earnest money to the seller and then ask for a refund if, for example, your first home were unable to sell, there’s more room for conflict than if the money is held by an objective third party.

Step 2: Know Your Contingencies

Make sure that every relevant contingency is included in your buyer’s agreement. If you choose to forfeit contingencies, do your research beforehand to make sure you’re willing to take the chance of losing that deposit.

Step 3: Stay on Track With Responsibilities

Your responsibilities don’t stop with a signed contract. Protect yourself by staying on track with next steps: securing the financing for the home and scheduling a home inspection. Delaying these processes or failing to be through might result in a loss of your earnest money or in making rushed decisions later on.

Step 4: Put It All in Writing

Make sure that every contingency and term is included in an agreement that is signed, in writing, by both you and the seller. It might seem simple to make promises and agreements in person or over the phone, but having written documentation will guarantee your financial security and will keep a record of the process.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Working With a Real Estate Agent

Making an earnest money deposit is only one aspect of making an offer on a potential home. Working with a real estate agent ensures that you have help in deciding when earnest money is important and how much to offer as a deposit. Since market trends can change depending on property type and area, it’s important to find an agent who is specifically experienced in the kind of home you’re looking for and in your neighborhood of interest.

Ready to Find the Home of Your Dreams!

What is a Cash-In Refinance?

A cash-in refinance is the process where the homeowner brings in additional funds at closing to reduce the outstanding mortgage balance. This allows the homeowner to lower their loan-to-value ratio, potentially qualify for better terms, or even eliminate the need for mortgage insurance. Many homeowners opt for a cash-in refinance when they want to reduce their monthly payments or pay off their mortgage faster. Instead of taking cash out, the homeowner deposits cash into the mortgage to improve their financial situation over the long term.

What is a Cash-In Refinance?

If you’re making high monthly payments on a mortgage but can’t qualify for a refinance, you might have heard of the opportunity for a cash-in refinance. A cash-in refinance happens when the homeowner brings a cash sum to put towards their home equity to become eligible for traditional refinance options.

Because most lenders require a maximum loan-to-value ratio, homeowners who don’t have a lot of equity in their property often can’t qualify. If you can provide the difference in cash, you can become eligible and then qualify for those lower monthly payments. While handing over thousands of dollars in cash isn’t a pleasant idea, it can help homeowners who need to refinance to a lower monthly payment and in some cases can make sense as an investment strategy.

Cash-in vs. Cash-out Refinancing

Cash-in and cash-out refinancing are different scenarios, but the principle is the same: either you’re bringing cash to your mortgage to increase equity for a refinance that will lower your monthly payments, or you are refinancing in order to take that equity out in the form of cash. In both of these scenarios, cash holds the power; it either boosts your home equity or is taken out to be used for other financial decisions.

What Happens to Home Equity?

A cash-out refinance mortgage takes some of your home equity out of your loan to be used as cash. A cash-out requires significant equity to have already been built up in the home, which is then lowered when you take out a portion of it in cash.

A cash-in refinance happens when you don’t have enough equity to qualify for a traditional refinance. It’s an opportunity to boost your home equity by injecting a large amount of capital at one time when monthly payments haven’t built up as much as you need to refinance.

When a Cash-In Refinance Makes Sense

Let’s take a step back to look at an example of when a cash-in refinance is helpful. Say that you bought a home for $400,000 at the height of the housing market. Now the property value is only $300,000, and you’re stuck with a mortgage that’s worth more than the house. You want to refinance to get lower monthly payments, but you don’t have enough equity in the large mortgage to qualify for a refinance.

Getting “Above Water”

A cash-in helps absorb the part of your mortgage that’s keeping you underwater in your payments. If your years of payments have only gained you a small percentage of equity, bringing cash will make you eligible for the refinance by improving your loan-to-value ratio, which will allow lower payments and the ability to stay “above water” on the overall loan.

Improving Loan-to-Value Ratio

A loan-to-value (LTV) ratio is calculated by dividing your remaining mortgage amount by the value of your property. Today, banks typically require an 80% LTV; that would mean that the maximum amount you could have left in your mortgage on a $300,000 home would need to be $240,000. But if you’re still paying off the initial mortgage of $400,000, chances are you have a lot more to pay off before getting to that 80% LTV ratio. Bringing cash to the refinance allows the opportunity to qualify you for that refinance without waiting years for your monthly mortgage payments to accumulate.

Once your LTV ratio is in the right place, lenders can help you refinance your home. That new equity you’ve built up will give you lower interest rates and can lower monthly payments to reflect the remaining value left to be paid.

Getting Rid of Private Mortgage Insurance

Another advantage to building up equity with a cash-in refinance is that it can remove required PMI payments. PMI (private mortgage insurance) is required for conventional loans by most lenders until homeowners have paid off 20% of their mortgage. If you’re stuck with a big mortgage, it can take a long time to get rid of PMI. With a cash-in refinance, your equity will jump and give you the opportunity to stop making those monthly payments.

When to Say NO to a Cash-in Refinance

There are certain scenarios in which a cash-in refinance is not the best option. It’s important to remember that a refinance extends the terms of your loan, and that the lower monthly payments will take more time to pay off the total mortgage balance. It’s good for your month-to-month finances but will extend the time it takes to pay off your home. Since the loan term is extended, you will also be paying a larger amount of interest to the bank.

Another factor to consider is how long you plan on staying in the home. Putting hard-earned capital towards a home that you plan to sell in a year might not actually help you financially; instead, that cash is frozen in a property that you don’t plan to keep.

Cash is King

The bottom line of refinancing is deciding how best to use the cash that you have in hand. If refinancing will get you a lower interest rate in a home that you plan on living in for a long time, that initial cash investment makes sense. But if the interest rates on your mortgage are already low or if you are considering moving, you may want to use that capital on another investment with a higher return rate instead of tying it up in your property.

Ready to Refinance?

What Is a Mother-In-Law Suite, and Should You Have One?

Multigenerational living is on the upswing as an increasingly high number of households are embracing cohabitation. The reason could be to fulfill a specific need or simply by choice.

But either way, a 2019 report revealed that 20 percent of Americans reside in the same household with two or more adults, which is a major contrast to 12 percent in 1980. This latest housing trend in real estate has heightened collective interest in a type of household add-on known as in-law suites.

What is an In-Law Suite?

An in-law suite is the name for a small abode that is either part of or attached to a home. It’s often added for the purpose of allowing an older family member to enjoy a tinge of privacy and solitude at home.

An in-law suite is known by many other names, including mother-in-law suites, accessory dwelling units (ADUs), secondary units, granny flats, and ohana units in Hawaii. But no matter what you call them, in-law suite additions typically include a separate area with a bathroom.

These add-ons are usually located in the basement or next to the garage of existing homes. They are very helpful for multiple reasons, and providing a cozy place for an elderly family member is only one of many.

What is the Appeal of an In-Law Suite?

There are a lot of reasons to incorporate an in-law suite into your home. Multigenerational living, particularly with mothers, is on the rise. Currently, over 40% of Americans purchasing a home are contemplating including an older person or adult child as part of their households.

The main allure is the cost savings of living in the same home. It also promotes family bonding as you get to spend more time with your beloved relatives. For instance, Granny may adopt the role of a standby babysitter who spends valuable time with her grandkids.

In other situations, elderly family members might be suffering from a terminal or difficult disease that requires in-house caregiving. By welcoming your family member into your home, you’ll save a lot of money by not having to pay for caretakers or at-home services.

Alternate Uses for In-Law Suites

Home Office: The pandemic has normalized working from home, making the mother-in-law area the best place to oversee a small business or work on your remote career.

Guest Sections: Whenever out-of-town visitors stay with you, an in-law suite is a lifesaver as it’s the most suitable place for friends and extended family members to enjoy their own bedroom and bathroom space. Wouldn't you rather make a memorable impression on your guests than ask them to stay in a hotel? In-law suites can make that possible.

Housing a Grown-Up Relative: Adult children who are working towards financial stability can be housed in your mother-in-law suite until they become fully financially independent on their own. You can also charge your relative a small fee for staying with your relative if you’d like.

Short- or Long-Term Leasing: Many in-law additions are well-equipped living spaces, thereby making them eligible rental apartments that can generate ancillary revenue.

What to Know When Considering an In-Law Suite

With so many options of what you can use an in-law suite for, you’ll need to know what to look out for when creating an in-law suite as well.

Regulation: First, you need to know if you're permitted by law to create an in-law suite. In some regions, zoning laws may prohibit you from adding a supporting property. In places where building the suite is legal, there will still be restrictions regarding the legal size and the purpose of your in-law suite.

Maintenance Costs: We have already provided you with insight into the cost of creating a mother-in-law suite, but your spending requirements won’t stop after the final addition is commissioned. You'll need to include the cost of utilities, like electricity bills and plumbing expenses. Over time, repairs will be necessary, so keep extra cash for that.

Design: You need to create a safe design for your in-law suite, especially if you intend to accommodate an older relative. Consider installing guardrails to prevent the chances of falling or windbreakers if your neighborhood is prone to violent weather.

Are In-Law Suites Legal?

Municipal laws vary when it comes to the legality of an in-law suite and its use. Approach your local zoning office to find out whether installing a suite on your property is permissible.

You'll also need to obtain building permits. Still, there might be some limitations on what can be integrated into the suite. For instance, some municipal laws do not permit in-law suites to contain complete kitchens in an effort to eliminate the risk of stove fires.

Some laws also stipulate that the suite cannot be leased if it is not being used for the purpose of housing a relative. All in all, make sure you’re aware of local laws and abide by the applicable laws before you begin to construct an in-law suite on your property.

Does a Mother-in-Law Suite Add Value?

Buyers are quick to identify the potential benefits of a mother-in-law suite, whether it be for a home office, for relatives, or for making passive income by renting it out for profit. So yes, a mother-in-law suite does add value.

How Are These Suites Configured or Added?

A common way to add a mother-in-law suite is by remodeling a space that is not being utilized. The garage is a perfect example. The garage is either attached to the existing house or detached completely, but either way, it works great as an in-law suite.

You can add extra square footage to the garage if necessary and create a spacious in-law suite from there! Another option is to convert an existing bedroom that offers some sense of privacy, particularly one that is near the back of your house. This opens up more options for design uniqueness and expansion, like adding a door that leads outside or creating a roomy bathroom.

How Much Does it Cost to Build a Mother-in-Law Suite?

When creating an in-law suite, you can expect to spend an average of $32,000 to $63,000. Building a new structure altogether, as opposed to adding an in-law suite to your existing home, can cost upwards of $125,000.

The exact amount of money that it will cost to build a mother-in-law suite will depend on the size you want it to be and what you plan to add to it. The overall expenses will also depend on whether the suite is intended to be used as a standalone structure or an annexation of the existing house.

Different Types of Mother-in-Law Suites

Now that you have a better idea of what it could cost to install a mother-in-law suite, let's talk about the two major types of in-law suites.

Freestanding In-Law Suite

As the term implies, a freestanding in-law suite is a standalone design, meaning this type of in-law suite will be completely detached from your house. This is a suitable option for anyone who wants to offer ultimate privacy to guests. A freestanding in-law suite is expensive, and you may need to spend even more money to modify the existing property so that it accommodates the new sub-unit. Expect to dole out up to $100,000 on a freestanding in-suite project.

Attached In-Law Suite

If you don't have an additional room that can be converted into a secondary unit, you can build an add-on from scratch. Most remodelers debate the benefits of this style as some believe it lowers the risk of violating the structural integrity of the house while others disagree. But either way, the attached in-law suite idea is not as expensive as the freestanding option. Rather, attached in-law suites usually cost anywhere from $30,000 to $60,000 on average.

Common Questions About Buying a Foreclosed Home

Over the course of the building process for your mother-in-law suite, you may consider buying a foreclosed home. Some foreclosed homes are in great shape, while others need considerable work.

With enough money to cover repair costs, you can secure an enviable deal. But first, you need to know the answers to common questions that prospective homeowners ask before buying a foreclosed house.

Are There Any Liens on the Home?

This is a very important question. If there is a lien on the home, it will carry over, meaning once you own the home, the lien will become your responsibility. In other words, the lien will be transferred to you when you purchase the home. The seller is probably selling their home because they want to get rid of the lien. Never omit this question as the answer can make or break your decision to purchase the home after all.

What Are the Previous Issues With This Property?

This is a primary question that yields straightforward answers. Make sure you are informed about any and all issues pertaining to the home’s foundation, problems with neighbors, previous inspections, the age of the roof, fittings, electrical, and plumbing concerns, among other house-related details that you need to be aware of before you buy the property.

What is the Neighborhood Like?

Whether the house you're buying is foreclosed or not, you must do your due diligence by exploring the neighborhood. Find out if there are amenities like parks, centers, schools, or anything else that may pique your interest. Knowing the neighborhood through and through will put you in a better bargaining position. Plus, there will be fewer surprises awaiting you when you move in and turn the house into a home.

Summing Up Everything About In-Law Suites

A mother-in-law suite is a secondary suite that offers a myriad of benefits, like providing the most thrilling live-in for your grandma or helping your adult child as they make their way to financial independence. Just make sure the type of in-law suite that you decide to create is within your budget and that your project abides by local legal stipulations.

Looking to Buy a New Home?

What is a Private Mortgage?: Understanding Hard Money Lenders

Considering the complexities of today’s real estate market, many potential buyers are asking themselves, “Should I buy a house now?” In many places, the current market is a seller’s market, which means that it’s easier than ever for people who are selling their properties to make a lot of money.

However, buyers may need additional financial support to meet a seller’s expectations. Enter the private mortgage. Real estate purchases financed by friends, family, and private institutions come attached to fewer strings than traditional bank mortgages. Private mortgages also allow for greater flexibility in today’s challenging market.

What is a Private Mortgage?

You do not apply for a private mortgage through a bank or a mortgage lender. Instead, private mortgages are just that — private. When you reach out to family, friends, and business acquaintances for support with purchasing your new home, you can benefit from a non-institutionalized private mortgage.

The informal nature of these loans can benefit the borrower immensely but it can also put additional stress on personal relationships. To successfully establish a private mortgage, it’s in the best interest of the borrower to create an interest-forward contract, like a mortgage note or comparable contract, which will ensure that no one ends up getting shorted.

Two Ways You Can Use Private Lender Loans

Private mortgages aren’t single-use loans. Borrowers can use these mortgages to purchase a new property or refinance an existing property!

Purchase a New Property

The housing market is in a tricky place as of 2022. It is a seller’s market, which means that buyers need to step up their game if they want to purchase the property of their dreams.

Parties that are interested in securing a private loan should express their interest early on so that they are prepared to make an offer when the right multi-family or residential property comes along.

People who are interested in commercial investments can lean into the potential financial gain of those properties to more effectively secure the financing they need from private sources, too.

Refinance an Existing Property

Feeling confined by a traditional mortgage? Private mortgage lenders can help borrowers rather than the lenders or banks that the borrowers have worked with in the past.

The Pros of a Private Mortgage

Private mortgages are popular with lenders and borrowers alike for a myriad of reasons, including the following!

For the Lender

Private mortgages come with higher-than-average interest rates. As such, private lenders can more easily make money off of their investments.

For the Borrower

Borrowers may have specific benefits, too, which include shorter approval times and the ability to buy a house with the intention of flipping it.

Shorter Approval Times

While private mortgage lenders will still want to consider a borrower’s credit score and pay-back history, the loan approval rates between family and friends tend to be a lot faster than when you apply for loans through banks.

Banks and public lenders require a significant amount of documentation before they will approve a mortgage. With a borrower’s loved ones, their relationship with the borrower will be enough of a character reference for them to base their decision off of.

Flip That House

Buying a house with the intention of flipping it is easier with a private mortgage than with a bank. If borrowers can sell the homes that they finance and flip them for more than the cost of their private mortgage, then they can make a profit on their work without worrying about the limitations and regulations set by a traditional bank.

The Cons of a Private Mortgage

Banks and public mortgage lenders have risen in popularity for a reason. These institutions have established, federally-directed policies that protect both themselves and their borrowers.

Parties that pursue a private mortgage, both as lenders and borrowers, may subsequently face challenges that the world of public financing doesn’t experience.

For the Lender

There are several drawbacks to choosing a private mortgage as a lender. These downsides include a short payback period and the potential to default on the loan.

Short Payback Period

One of the greatest private mortgage lender benefits is the chance to arrange for a substantial interest rate. However, the mortgage’s short payback period means that lenders won’t have the chance to benefit from the additional income for too long.

Lenders need to plan out their future finances with care if they want to make the most of a borrower’s interest.

The Potential to Default

There is always a chance that, despite the financial support that a lender offers, the borrower may default on their mortgage. While the borrower has the opportunity to declare bankruptcy, lenders who are interested in regaining the investments they lost may have to undergo a complicated and costly legal process.

For the Borrower

Likewise, there are several drawbacks of a private mortgage for borrowers. These include an even shorter payback period and higher interest rates.

Shorter Payback Period

Traditional mortgages often allow the borrower to pay back the loan and the interest over a term of thirty years or more. But this isn’t the case with private mortgages which have a notably shorter payback period.

As such, borrowers will need to manage their finances carefully to prevent bankruptcy as the result of taking out a substantial loan.

Higher Interest Rates

Even though they are established in an informal environment, private mortgages still require paperwork in order to protect a private mortgage lender’s interest. As such, these loans will also likely include interest.

While borrowers can avoid the complexity of working with a bank or other institution, they’ll face interest rates that are substantially higher if they choose to go the route of a private mortgage. This cost can transform a borrower’s financial plans both for the immediate future and for life down the road.

Tips for Your Private Mortgage

Borrowers and lenders alike can use private mortgages to their advantage. To ensure a mutually beneficial arrangement, both parties may want to establish an interest rate in writing and plan for things to go awry.

Establish an Interest Rate in Writing

All lenders establishing private loans must require their borrowers to pay interest equal to the IRS Applicable Federal Rate. Many lenders are encouraged to charge more, both for the borrower’s tax benefits and for their own financial gain. With that being said, the exact amount of interest that a private mortgage lender charges is up to the individual.

Both the borrower and the lender will then want to establish their fixed tax rate in writing to ensure that it’s easier to report on legal financial documents. It will also prevent either party from attempting to change the fixed rate later on down the road.

Plan for Things to Go Awry

Lenders and borrowers alike face a distinct risk of financial disaster if they improperly handle a private mortgage. That’s why both parties will want to establish contingency plans during their initial conversations.

Writing in provisions for borrower defaults and missed payments can keep the relationship between a borrower and lender civil without compromising either party’s financial standing.

Buying a House with a Private Mortgage: Your Next Steps

Private mortgages benefit lenders and borrowers alike. As long as all parties involved in the process make financially-sound decisions, you won’t need to ask yourself, “Should I buy a house now?” for long. Sit down with your friends, family, or a private institution to determine whether a private mortgage lender agreement can help you purchase the property of your dreams.

Take the First Step to a New Home Today!

Buying a house for the first time can be hard, so we've created an ultimate loan guide for first-time home buyers here.

What Is a Mortgage?

If you’re looking to buy a house, and do not have a mountain of cash saved up, you’ll need to consider getting a mortgage to help you finance this large expense.

But what exactly is a mortgage? Simply put, a mortgage is a debt instrument used to purchase real estate. A lender will loan a borrower money, and the borrower is obligated to pay the lender back.

An agreed upon repayment plan is established between both parties, and various terms and conditions must be met.

How Does A Mortgage Work?

If you're wondering, how does a mortgage work - we’ll start at a high level and break it down step by step. A borrower borrows money from a mortgage lender and agrees to pay the mortgage lender back the full amount of the loan, plus any interest expense. The lender conducts their own research on the borrower before agreeing to lend them money.

There’s a lot of parties and terminology involved in the process.

Who Is Involved?

The first step in getting a mortgage is to work with a licensed loan officer. Be sure whoever you are working with is licensed and registered to sell mortgages.

Loan officers help answer how to get a mortgage, and they’ll assist you with a variety of tasks. They’ll help you determine which mortgage works best for you, will shop for the best interest rate, and will even assist you with all the paperwork you need to complete. We’ll get into more of these details below.

Mortgage Terms

You can select from a variety of mortgage options, each of them serves a purpose. A common option is a fixed-rate 30-year mortgage. This means for the duration of the loan, 30 years, the borrower will pay a fixed interest rate and payment each month. This fixed rate concept can also be applied to other mortgage options, such as a 15-year mortgage.

Basic Mortgage Terminology

The following are some common words associated with mortgages and mortgage transactions.

Down Payment

A down payment is simply the amount of money you put down on your home. If the price of the home is $300,000 and you put down $30,000 as your down payment, you put down 10%. Various mortgage types will require a specific percentage for a down payment.

Interest Rate

The interest rate is what the lender charges you for borrowing their money, in addition to the principal balance. This rate is referenced as a percentage. For example, a borrower with a fixed interest rate of 3.5% will pay that flat borrowing fee for the life of their loan.

Your loan can have a fixed interest rate, meaning it doesn’t change for the duration of the loan. Or, your loan may have an adjustable interest rate, meaning it can change over time. The lower the rate, the more favorable borrowing money is.

What's the difference between an interest rate and an annual percentage rate (APR)? Find out here!

Amortization

This is a trickier concept, but amortization is the process of gradually writing off the initial cost of an asset. Remember, someone gets a mortgage for a given period of time. In the early years of the mortgage, the borrower’s payments fund mostly interest expenses.

As the years progress, the borrowers interest expense lessens, and more of their monthly mortgage payment is allocated to the principal balance. Visually seeing this may help paint a clearer picture.

Escrow

Escrow is another common term used in the mortgage or real estate industry. Escrow is a contractual arrangement where a legal third party receives, holds, and distributes property or money for two parties. Escrow is essentially an unbiased middleman between the buyer and seller, or the buyer and an insurance company.

A buyer gives the escrow agent money to hold, and the homeowner selling their home gives the escrow agent the home. When the sale is finalized, the escrow agent gives the new homebuyer the home and the former owner the money. If the deal doesn't go through, the escrow agent is obligated to give the buyer back their money and the home goes back to the seller.

What Is a Mortgage Payment Comprised Of?

If you’re curious how to calculate a mortgage payment, there are a few components that give you the final monthly number.

Principal

The principal balance is the initial balance of the loan. Using the same example as above, if the home was $300,000 and your down payment was $30,000, or 10 percent, you borrowed a total of $270,000 from the lender - which is the principal balance. Each mortgage payment reduces the outstanding principal balance. The more principal balance you reduce, the more equity you have in your home.

Interest

Interest is the fee a lender charges you for borrowing the principal balance. The lower the fee is, the less money you pay. If you have a great credit score, a low debt to income ratio, and put down a sizable down payment, you’ll likely have a more favorable, or lower, interest rate. If your credit score is less than average, and you’re not putting down a large down payment, you may have a higher interest rate.

The interest rate changes with various government involvement and economic conditions. But if you have a fixed rate interest rate, you’re locked into that rate for the life of the loan. Only when your mortgage is an adjustable rate mortgage do you have to worry about your payments being volatile.

Property Tax

Taxes vary by state, county or even on a town level. The tax rate is also referred to as a mill rate. Some mortgage companies allow you to roll your tax expense into the monthly mortgage payment, utilizing the escrow system we discussed above. If your taxes aren’t rolled into the monthly payment, you’ll be responsible for paying your town directly.

Insurance

Similar to car insurance, you must carry insurance on your home. How much you pay in insurance will vary, just as it does on a car. Variables that impact the insurance expense include; crime rate in the area, if the house has a pool, if the house is in a flood zone, and the value of the property.

Mortgages come with all sorts of costs, even some you may not expect; that's why we created this list of unexpected mortgage expenses.

Types Of Mortgages

Mortgages are not one size fits all. There are various types of mortgages you can choose from. Each one has a purpose; your goals, financial situation and comfort level will dictate which loan is right for you.

Conventional

A conventional mortgage is a loan that is not secured by a government agency. Conventional mortgages are common, but they typically come with a higher interest rate as they are not insured by the federal government. A private lender, or Fannie and Freddie Mac issue conventional mortgages.

Government Insured

There are three government agencies that can issue a mortgage.

Department of Veterans Affairs, also known as a VA mortgage. Veterans who served in the United States Armed Services can receive preferential mortgage terms and conditions if they elect to use a VA mortgage.
The FHA, or Federal Housing Administration, is a government agency that makes obtaining a home possible for millions of Americans. The government agency insures these loans for the lender, which means a lender is more willing to lend money to those who have lower credit scores or those who cannot put together a large down payment.
The USDA, or United States Department of Agriculture provides specific loans to those living in specific geographical regions of the United States, typically in rural areas. There is an income limit to obtain these loans, along with other qualifying factors.

Jumbo

A jumbo loan is used to purchase homes that cost more than what a conforming loan allows. This amount is variable depending on where you live, and can change year over year.

Fixed Rate

A fixed rate mortgage is when the interest rate on the loan remains the same throughout the duration of the loan. This can be a fixed rate 15 year mortgage, 20 year mortgage, or even 30 years. The interest rate will not change, which makes budgeting easier.

Adjustable Rate

An adjustable rate mortgage is the opposite of fixed rate. When you have an adjustable rate mortgage, your interest expense can go up or down throughout the life of the mortgage. Considering the rate can fluctuate, it makes budgeting a bit more difficult.

How Much Can I Afford?

Now with a better understanding of the various types of mortgages, how much mortgage can I afford may be the next question on your mind! Remember, the mortgage payment consists of; principal, interest, taxes and insurance. Let’s visit the qualification process.

What Can I Qualify For?

A lender (or bank) takes a lot of financial variables into consideration when determining your maximum monthly mortgage payment including: your debt to income ratio; credit score; annual household income; and your income potential. Two people with the exact same income can qualify for different mortgage amounts.

Person A makes $80,000/year, has no debt and a high credit score. Person B makes $80,000/year, has a high debt-to-income ratio, and a lower credit score. The lender is likely more inclined to lend person A more money, as they have more confidence person A has the ability to pay them back.

How To Calculate My Mortgage Payment

Your lender, and various financial calculators, can figure out what your monthly mortgage payment is. But, it’s important to fully understand what that number is made up of.

Remember, your mortgage payment consists of; principal, interest, taxes, homeowners insurance, and potentially mortgage insurance. You’ll have to understand what the annual amount of each of those expenses are and divide by 12 to get your monthly rate.

The formula can get a bit complex considering the math you’ll have to do on the interest rate. It’s best to know what variables make up your mortgage amount and leverage an online calculator to get the final amount.

Wondering what fees and costs you'll have to pay at closing? Find out here.

How To Get A Mortgage

Getting a mortgage doesn’t need to be complicated. In fact, in today’s modern world, you can get a mortgage right from the comfort of your own home.

Pre-approval

The first step is to get pre approved for a loan. To do this, find a trustworthy lender you’re comfortable working with. All lenders will require a bit of paperwork from you. This includes bank records, pay stubs, insight into your expenses, identification, etc. Supply the lender with accurate records, and within a few days you’ll be pre approved for a specific mortgage amount. You’re now ready to start shopping for a home!

Did you know pre-qualification and pre-approval aren't the same thing? Find out how they differ here.

Shop For Your Home

Armed with the pre approval letter, real estate agents will be willing to take you on as a client. The pre approved letter helps you and the real estate agent determine what homes are in your price range.

You can look for homes in your desired price range and area from just about anywhere. Zillow and Trulia are popular real estate sites that will show you homes based on whatever criteria you give them.

Final Approval

Once you find the right place to call home, it's now time to finalize your loan. You’ll submit an offer to the seller, and if they accept, you’re ready to progress to the next step. Pending approval, you’ll go back to your lender and begin the loan finalization process. This includes getting the home appraised, inspected, and one final review of your financials.

The lender wants to be certain your debt to income, and credit score, remains aligned with what they saw when you were pre approved.

Closing

If everything aligns, you’ll be ready to close. Generally speaking, there is a bit of a waiting period between submitting your offer, getting it accepted, and officially closing on the loan. Both the buyer and the seller will agree to a closing date at some point in the near future. Once that day comes, you’ll do one final walk through of the home before officially closing.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Wrap It All Up

A mortgage is a debt instrument used to help finance real estate purchases. Everyone has a different financial history, and various financial goals, so there are many different mortgage options you can choose from. Some mortgages have an adjustable rate, whereas some mortgages have a fixed interest rate. The duration of the loan can vary as well.

Buying a house and obtaining a mortgage is a huge financial decision. It’s best to work with a professional throughout each process. They’ll help answer any questions that come up along the way, and will provide guidance where appropriate. Be sure to only work with licensed mortgage brokers when applying for a loan.

Get Started Buying Your New Home!

What Is a Bridge Loan? Everything You Need to Know

A bridge loan is a short-term loan a borrower may use while a more long-term financing contract is finalized. Bridge loans are common in real estate when someone needs to buy a new house before their existing house has sold.

These short term loans typically come with a higher interest rate. Additionally, many banks will require some sort of collateral from the borrower before the loan is issued.

We’ll cover everything you need to know about bridge loans below.

How Does a Bridge Loan Work?

Although bridge loans may also apply to the business world, they are more commonly associated with real estate transactions. As the name suggests, these loans are designed to bridge the gap, and fill the cash constraints, someone may feel when they are both buying and selling a home at the same time.

How to Get a Bridge Loan

Someone wishing to get a bridge loan first needs to find a lender who offers this financing program. The first place to check would be with your existing mortgage company.

Once you find a lender who offers bridge loan financing options, it’s time to get all the paperwork needed for the lender. Lenders will want to know the details of your existing property. For example, lenders will want to know how much you owe on your existing property, when you plan on selling it, and what price you plan on selling it for. Additionally, they’ll want to know the details on the property you’re looking to purchase.

Lenders will of course pull an up to date credit report, and will require you to provide them with proof of income. With all of this information, a lender can successfully calculate the financial ratios they use to determine if you qualify for a bridge loan, and how much loan you qualify for.

How Long Does It Take to Get a Bridge Loan?

Securing financing via a bridge loan doesn’t take too long! Generally speaking, you should be able to have your loan finalized within 30 days. Hard money lenders can typically finalize a loan even quicker

We wrote a whole blog explaining ways to speed up the mortgage process, read it here.

Is It Hard to Qualify for a Bridge Loan?

Bridge loans can be more challenging to qualify for since you typically need to have a good to excellent credit score (740+ credit score) to qualify - but all lenders have their own unique qualifications. One of the most important variables a bank will review during your application process is your debt to income ratio.

This variable is increasingly more important on bridge loans as the borrower will be paying for two mortgages at the same time.

Banks want to be fully confident adding another mortgage payment to the borrower will not cause them to default on any existing loans. One's income needs to be high enough to provide them with the financial breathing room and stability through the double financing period.

Below is a comparison table of bridge loan qualifiers vs a traditional home loan.

Loan TypeCredit Score NeededDTI (Debt-to-Income) PercentageInterest RateBridge LoanGood to excellent - 740+ credit score is ideal, but all lenders can have different requirements.Because a person taking out a bridge loan is considered a temporary loan until their home sells, many bridge loan lenders will allow applicants with a DTI of 50% or less to be considered.Rates vary by applicants and timing, but are usually higher than the current mortgage rate.

Applicants can expect rates of 8.5-10.5% or more.MortgageVarying credit score is needed depending on your loan type.

Some mortgage loans can accept applicants in the 580 range while most conventional loan lenders prefer a credit score of 620 or higher.Depending on their mortgage you apply for, the DTI requirement can change by several percentage points.

Preferred DTI is around 43%, but some lenders can provide financing for applicants with DTI up to 50%Mortgage rates vary by time and applicant.

The current mortgage rate is between 4.9% - 6.5%+

What Are Bridge Loan Rates?

Bridge loans provide the borrower with a great deal of convenience. In the finance or lending world, convenience comes at a premium. The interest rate on a bridge loan is directionally aligned with the interest rate on conventional lending, however, bridge loans will have a higher interest rate by a few percentage points.

The higher interest rate makes sense from a banking perspective. Banks need to take on risk to issue these loans, and they are short term in nature. In order for a bank to make as much money back as possible, and justify the risk in lending, they simply need to charge a higher interest rate

What's the difference between an interest rate and APR? Don't know? Read our blog all about it here.

How Much Can You Borrow on a Bridge Loan?

The actual borrowing amount may vary between different lenders, however, as a rule of thumb most bridge loans will allow one to borrow up to 80% of the home’s value.

What Are the Pros & Cons of Bridge Loans?

Bridge loans are certainly a powerful tool made available to the real estate industry. Now with a better understanding of what this tool is and how it works, let’s dive into some pros and cons.

Benefits of Bridge Loans

Many borrowers appreciate a bridge loan for the following reasons.

Bridge loans provide individuals with flexibility. They can buy a new house before their existing house sells. This not only adds convenience, it can also help someone move into their dream home. In a competitive real estate market, that dream home may not be available for long.

Some bridge loans do not require the monthly payment for a few months. If you happen to secure lending from a lender who doesn’t require immediate monthly payments, you’re in luck. You’ll be able to buy the house you want without the immediate financial pressure two loans could have on your finances.

Generally speaking, securing financing via a bridge loan can be done in a shorter period of time. Instead of waiting on a HELOC, or other financing options, lenders who issue bridge loans are well aware the borrower needs the loan now and plans accordingly. This urgency comes at a premium, which we’ll discuss below.

Drawbacks of Bridge Loans

There are three major drawbacks of a bridge loan.

First and foremost, bridge loans come at a premium. A bridge loan will be more expensive than traditional lending, or even a home equity line of credit. Not only is the interest rate more expensive, but closing costs are often inflated.
Secondly, one must be able to qualify to own two homes, even if it’s just for a short period of time. Taking on more debt can be a stressful financial decision, and it may be difficult to juggle additional debt with your current lifestyle.
Last but not least, the risks associated with bridge loans. When you are applying for a bridge loan, nothing is set in stone with your existing property. In the event it does not sell, or something happens to the existing property, you’ll find yourself in a messy situation.

Are Bridge Loans a Good Idea?

You may be wondering, are bridge loans a good idea? Unfortunately the answer isn’t yes or no. A bridge loan is a great financial tool to have in your tool chest, but it certainly comes at an increased cost and risk. If you need the money quickly to move into your dream house, a bridge loan may be the only option.

However, a bridge loan is not the only option when it comes to buying a new home while you wait on your existing home to sell.

What Are the Alternatives to Bridge Loans?

Is there an alternative to a bridge loan? Absolutely. Instead of choosing a bridge loan, many people choose to go with a home equity line of credit, a home equity loan, or even a 80-10-10 loan.

A home equity line of credit, also known as a HELOC, is very similar to a credit card in how they function. A borrower is approved for a specific amount or credit limit, but the borrower does not need to use the full amount. A borrower will only pay interest on the debt they used, and they can draw against their credit line in various increments.

Another common option would be a home equity loan. This is very similar to a home equity line of credit, however, the money is given in one lump sum. Some of the major advantages are; there are lower closing costs associated with home equity loans. Additionally, home equity loans have lower interest rates and even offer extended repayment terms.

A 80-10-10 loan option is when someone has enough cash to cover a 10% down payment. Instead of financing 90% of the home in one mortgage, the buyer will choose to take out two mortgages. The first mortgage is for 80% of the home value, and the second mortgage is for 10%. Therefore, the buyer is able to avoid paying private mortgage insurance, and can use this option if they are unable to make a larger down payment as their existing home hasn’t sold yet.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Is a Bridge Loan Right for You?

A bridge loan is a financial instrument that provides financing to individuals as they secure a longer term financing option. In the real estate world, these loans are common when someone is selling their existing house, and buying a new house, simultaneously.

Bridge loans provide the borrower with money in as little as a few days, resulting in tremendous flexibility. This flexibility comes at a premium, and one should expect to pay a high closing cost, and interest rate, on this short term loan.

There are other financing options available in the marketplace. Home equity lines of credit, home equity loans, and even 80-10-10 loans should all be considered before deciding if a bridge loan is the right option.

Start the Pre-Approval Process Today!

What Is A Balloon Mortgage?

Ultimate Guides

Have you decided this is the year to buy a new home? Good for you! When you begin your research for the right mortgage loan for you, you’re going to be focused on finding the lowest terms and interest rates for which you qualify. It’s no surprise, then, that for many soon to be homeowners, the lower payments available with a balloon mortgage are alluring. Balloon mortgages have some great benefits for the buyer, but they also come with significant risks as well. Before you become convinced that a balloon mortgage is the right option, it’s important to do your homework.

Balloon mortgages get their name from the fact they include a lump sum payment - or “balloon” payment - at the end of the loan. Balloon mortgages also differ from traditional mortgages in that they are a shorter loan; usually no more than 10 years, unlike a traditional loan of 15 to 30 years. The monthly payments are smaller for balloon mortgages than in traditional loans because they are either partially or entirely comprised of interest payments only, rather than the combination of interest and principal payments one makes on a traditional mortgage loan. While the interest-only payments alone can be very appealing, it’s important to look at all the angels on a balloon mortgage before determining if it is the right solution for you.

How Does A Balloon Mortgage Work?

In a traditional mortgage, the loan is amortized over the length of the loan (typically a 15- or 30-year term), which is a fancy word for saying that the principal and the interest of the loan will be paid in full at the end of the loan’s term. With a balloon mortgage, there is no amortization.

The borrower makes a small monthly payment, based upon the fact they are only paying the interest due on the loan or a small amount of the principal and a majority of interest. While small payments may sound like a great benefit, they can amount to one big drawback; a large sum payment due at the end, typically tens or even hundreds of thousands of dollars. While there’s typically no penalty for making payments toward the balloon amount early, the large sum can make it challenging for home owners to meet the terms of the loan, and so they usually sell the home to pay back the amount due.

What Is A Balloon Payment Example?

So how does a balloon mortgage work? Balloon payments can function in a couple of different ways. The two varieties include interest only balloon mortgages and interest with small principal payment balloon mortgages.

Let’s say you are interested in a 10-year fixed-rate, interest-only balloon mortgage for an amount of $150,000 at an interest rate of 5%, and you have a down payment of $5,000. In this scenario, you would be looking at a monthly mortgage payment of around $780.00. That’s a reasonable payment, right? It certainly is, but don’t forget, all you’re paying is interest; none of that amount goes to principal, and when the 10 years is over, you still have to pay all that untouched principal back to the tune of roughly $120,000.

Even with a balloon mortgage where you had the same terms as above but were paying an additional amount of $500 a month toward the principal, you’d still be looking at a balloon payment amount of approximately $40,000 at the end. That’s a significant amount of money to come up with for anyone. This is why most borrowers typically end up selling the property at the end of the loan.

What Happens When A Balloon Mortgage Is Due?

When it’s time to pay the piper, the borrower is expected to pay the balloon payment amount to settle the mortgage, and as we’ve seen, that can be a hefty bill. However, there are a few other options available to settle the mortgage other than writing a large check.

One of the more common solutions to dealing with a large payment is refinancing the remaining balloon payment into a new mortgage either with the original lender, or with a new one. If you were diligent about making your payments on time, have maintained a healthy credit score, and the home itself is of greater value than the amount owed, chances are good you would be able to utilize this option.

It’s also possible your balloon mortgage might include an option to delay the payment provided there is no additional mortgage on the property and you’ve been diligent about making all your previous payments on time.

Can You Pay Off A Balloon Mortgage Early?

You can, but you’ll want to check the terms of your mortgage and see if there is a penalty for doing so before you do. When you make the balloon payment early, the mortgage lender loses out on the interest they would have made on your monthly payments, so it’s possible they could have a penalty clause for early payment.

If your mortgage does have a penalty clause, however, it’s still worth getting out your calculator and doing some math. Depending on where you are in the mortgage schedule, it’s possible that the penalty charge might be a better savings for you than continuing to pay the remaining interest payments, so weigh the difference when determining your actions.

What Is A Disadvantage Of A Balloon Payment?

Prior to the mortgage crisis of 2008, balloon mortgages were much more prevalent, in part because of more lax qualifying processes that led to borrowers seeking homes that would normally be out of their price range. While balloon mortgages are still available and even make sense in some circumstances, there are drawbacks, and it’s important to take a look at these when deciding if a balloon mortgage is for you.

High Risk For Both Buyers & Lenders

Balloon mortgages seem like an ideal scenario going in, but they can be very difficult to get out of. Many borrowers who decide to pursue a balloon mortgage go into the loan thinking they will have years of low monthly payments and then easily convert to a standard fixed-rate or adjustable rate mortgage prior to the lump sum payment coming due. Unfortunately, this isn’t always the case. If the value of your home has depleted since you purchased it or if your financial circumstances have changed, refinancing can be a difficult proposition.

These potential hiccups create real risks of foreclosure for both borrowers and lenders. While qualifying for a balloon mortgage is easy, extricating yourself from one can be troublesome.

Difficult To Refinance

If you go into a balloon mortgage thinking it will be a cinch to refinance your loan to a standard mortgage prior to the lump sum coming due, think again. Just like traditional mortgages, refinancing rules have become more rigid since the subprime mortgage crisis, and most expect the borrower to have at least 20% equity in their home in order to qualify. If you had a small down payment and have been paying an interest only balloon mortgage for years, you won’t be anywhere close to having 20% equity in your property. While programs like HARP (Home Affordable Refinance Program) might be able to offer some assistance, this program also has some specific qualifying standards.

Market Changes

While some groups warned about the impending subprime mortgage crisis, many borrowers were caught completely unprepared when the bottom fell out. Changes in the market and fluctuating property values can happen quickly, and if you have an interest only balloon mortgage, you can end up being upside down on your loan because of them. Refinancing a loan can prove exceptionally challenging in these circumstances.

Cannot Build Equity

Building equity is a valuable part of home ownership as is building your own investment in the property. One of the biggest drawbacks of an interest only mortgage is that if you’re not paying any principal on your loan, you’re not building any equity in your home. This makes refinancing or qualifying for a different mortgage difficult, and does little to boost your own financial position.

Are There Any Benefits Of A Balloon Payment?

While there are many drawbacks to a balloon mortgage, they exist for a reason, and can be a very smart choice for someone in the right position to make the most of their benefits.

Able To Afford A Home Faster

If you’ve grown tired of renting and don’t have a significant downpayment saved, a balloon mortgage can be a smart way to get into the home you’ve always wanted. It’s also a valid choice if you’re working on getting your finances in order, as balloon mortgages don’t have the same stringent credit requirements that more traditional loan programs have.

Lower Monthly Payments

The feature that attracts most people to balloon mortgages is that they offer considerably lower monthly payments than traditional mortgages. If you’re working on getting other bills paid down or the house you purchased needs some significant renovations and upgrades, paying smaller mortgage payments for several years can free up the cash flow needed to achieve these goals while still providing the luxury of being a homeowner.

Short Loan Terms

Another draw of a balloon mortgage? Their shorter loan terms. Most balloon mortgages are for five, seven, or ten years at most. If you know you’re only going to be in a home for a few years, having small monthly payments and selling the home before the balloon amount comes due could be a winning solution for you. If you’re confident you will be able to pay the balloon payment at the end of the loan, balloon mortgages also make sense, because you will own your home free and clear within a relatively short time.

A Balloon Payment Mortgage Makes The Best Sense For Borrowers Who Are...

While balloon mortgages are certainly not for everyone, they can be a great fit for people in specialized circumstances and for those who are confident the large balloon payment won’t be an issue.

For real estate investors, balloon mortgages can be a great solution. They allow for small monthly payments, a short-term loan, and the bandwidth to pay off the remainder of the mortgage once they’ve sold or “flipped” the house.

Buyers who plan to receive a large sum of money from an inheritance or an investment in the near future and are looking for a shorter term commitment to a house will also likely find that balloon mortgages could be the golden ticket to home ownership, as they can plan the terms of the large sum payment to coincide with their windfall.

Is a Balloon Mortgage Right for You?

Ultimately, balloon loans are like a pair of running shoes: wonderful when they fit perfectly, troublesome when the fit is just a little off. There is no doubt that they are a great deal riskier than traditional loans, but if you’re ideally looking to have the lowest payments possible and are comfortable with either paying the large balloon payment or finding a way to refinance it, it could be the ideal solution for you.

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Pre-Foreclosure? What Does It Mean & What To Do

A home doesn’t just fall into foreclosure status. There are stages and processes that take place behind the scenes before a home is sold via foreclosure. One of those steps is known as pre-foreclosure.

No one ever wants to experience foreclosure. Understanding the pre-foreclosure processes and which options are available to you as a homeowner is important. We’ll be covering everything you need to know below.

What Does Pre-Foreclosure Mean?

What does a pre-foreclosure mean? Before unpacking that question, let’s take a step back and review what a foreclosure is.

A foreclosure is when a lender enters the legal process of seizing property because the owner has not lived up to their contract by paying the mortgage. This is a legal right that the lender holds, and this right can be found within the original closing documents.

A pre-foreclosure is what occurs before the house actually goes into full legal foreclosure. If a homeowner were to ever fall behind on the mortgage, the mortgage company would likely make numerous efforts to collect their money.

This includes sending letters to the homeowner and contacting them by phone to discuss payment options. If their communication efforts are left unanswered, the lender will have little choice but to move forward with the pre-foreclosure and foreclosure processes.

How Pre-Foreclosure Works

If you are late on a single payment, generally speaking, your home will not move into the pre-foreclosure status. Depending on which state a home is in, lenders are unlikely to move forward with this process until the homeowner has fallen behind on their mortgage by about three to six months.

If or when that occurs, the lender executes the first steps of the pre-foreclosure process. The pre-foreclosure status is essentially a time clock between the homeowner and the lender. If the outstanding balance isn’t paid in full within a specific period of time, the lender moves forward with the foreclosure and reclaims the property.

What To Do If Your Home is in Pre-Foreclosure

If you own a home and it’s in pre-foreclosure, you still have options. There are measures you can take to avoid your home going into foreclosure. Let’s take a look at some of them.

Consider Loan Modification

One of the first options you can try is modifying your existing mortgage, especially if you purchased your home years ago when interest rates were higher. Refinancing your home with a lower interest rate can save you money each month.

Try a Short Sale

A short sale is another option you may want to consider if your home is in pre-foreclosure. Many mortgage lenders do not like to hold onto or sell physical real estate themselves. Therefore, they may be inclined to do a short sale.

A short sale is when the homeowner sells their home at market value, typically for less than what they owe on it. For example, if the outstanding mortgage balance is $280,000, the lender and homeowner can join together to sell the property for $250,000.

The homeowner isn’t responsible for the $30,000 difference, but it is very likely to negatively impact the homeowner’s credit score as well as their ability to buy another home in the near future.

Get a Deed in Lieu of Foreclosure

A deed in lieu of foreclosure is when the homeowner signs the deed over to a mortgage company. In exchange, the mortgage company will forgive the debt. Like a short sale, this will result in the loss of the home and subsequently require the homeowner to move.

Explore Forbearance

Forbearance is when the mortgage company agrees to stop collecting monthly payments for a specific period of time. However, once the period of time has elapsed, the mortgage company can require the homeowner to pay the outstanding balance in full in the form of a one-time payment or in combination with another repayment plan such as a loan modification.

For example, if your mortgage is $2,000 per month and your forbearance period was 4 months, the mortgage company would expect $8,000 at the end of the 4 months

COVID-19 opened the door for a lot of homeowners to request forbearance, read our blog about it here.

Talk To Your Lender About Repayment Plans

Lenders are also often open to talking about repayment plans. If you temporarily fall behind with your finances due to an unforeseen circumstance, a mortgage company may be willing to work with you in this way.

For example, if you were injured and your injury made it impossible for you to work, then that situation would prevent you from earning an income. A mortgage company may be willing to accept smaller payments or interest-only payments for a set period of time until you are able to return to work

We put together a checklist of actions you will need to undertake to complete a refinance, read it here.

Should You Buy Pre-Foreclosure Homes?

Pre-foreclosure is not only on the homeowner’s mind. It can also be something a homebuyer is looking for. If you’ve ever shopped for homes online, you’ve likely seen homes in pre-foreclosure. But should you buy them?

Let’s explore what it means to purchase a pre-foreclosure home.

Getting a Deal

Pre-foreclosure homes, or homes soon to be in foreclosure, are generally priced below their market value. The reasoning is simple: the lender likely wants to get back at least what is owed on the home. Remember, lenders are typically in the business of buying and selling physical real estate properties.

If the home was initially purchased for $400,000, and the existing mortgage value is $250,000, the lender may just be interested in recovering $250,000, rather than trying to get the current market value of the home. In such cases, you may be able to get a great deal on a house you couldn’t otherwise afford.

Be Mindful

Even though the house may be priced well below market, it might not be in your best interest to purchase the property. If the homeowner fell behind on their mortgage payment, they may not have had the money to maintain the home.

There could be mechanical issues with various appliances, the roof may be in terrible condition, and any repairs that were done to the home may have been done incorrectly or unsafely just to save money. This is not true for all homes with a pre-foreclosure or foreclosure status, but it can certainly apply to many of them

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Know Your Options

Whether you're a homeowner facing a pre-foreclosure situation or a homebuyer looking to purchase a home in foreclosure, you should be aware of your options. A real estate transaction on both the buying and selling side can have lingering side effects. Knowledge is power, and knowing your options can help you avoid making costly mistakes.

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What is a 5/1 ARM Loan? | Ultimate 5/1 ARM Guide

What is a 5/1 ARM loan? When it comes to different financing types, you can score for buying or refinancing homes. Mortgage lenders can choose between a plethora of other options. On top of that, you may choose between a fixed-rate loan, an adjustable mortgage loan, or a variable-rate mortgage. However, keep in mind that nowadays, ‘adjustable’ and ‘variable’ are used interchangeably.

One type of adjustable-rate mortgage boasting a fixed initial rate is 5/1 ARM. During the initial loan period of the first five years, the interest is typically fixed at a rate lower than other fixed-rate mortgages, making them a popular option. Let’s delve into the details of 5/1 ARM loans.

5/1 ARM Mortgage Rates Explained

Adjustable rates typically change over time but always begin with an introductory rate that remains constant over five years. These may go up as much as 2 percent points per year depending on different factors. Let’s discuss what these rates are:

Adjustable-Rate Mortgage

An adjustable-rate mortgage, also known as ARM, refers to a type of mortgage in which the interest rate applied on balance may vary across the loan life.

Typically in adjustable-rate mortgages, the initial interest is fixed for a specific period. After this time period, the interest rate may go up or down annually or monthly.

Adjustable-rate mortgages may also be referred to as floating mortgages or variable-rate mortgages. The interest rate for ARMs generally rests based on an index, benchmark, or ARM margin.

What is a 5/1 ARM?

A 5/1 adjustable-rate mortgage, otherwise known as 5/1 ARM, refers to an adjustable-rate mortgage. Typically, these boast a fixed interest rate lasting the initial five years that adjusts over the year.

The ‘5’ here expresses the number of years featuring a fixed rate, whereas the ‘1’ refers to how often the mortgage rate will adjust after the initial term.

In 5/1 ARM loans, the initial fixed interest rates boast a low introductory level. As the initial period ends, the adjustable interest rate will change yearly based on various financial and economic market factors.

It means that your interest rate will reset to the indexed rate after the introductory period if the index spikes up. In case it falls, so will your interest rate.

Is a 5/1 ARM Right for You?

ARMs are the ideal option to select when rates are skyrocketing. These first became available to homeowners across the U.S. in 1981 and have continued to grow in popularity ever since.

These are perfect for people planning to refinance their mortgage or sell their home before the introductory rate expires. A 5/1 ARM may also make sense if you think the value of your home will go up suddenly. Moreover, selecting an ARM provides you with the opportunity of qualifying for a larger loan.

The Pros and Cons of a 5/1 ARM

The pros of a 5/1 ARM start from the flexibility and go up to low introductory rates. At the same time, the cons include the potential for substantially bigger payments and complexity:

5/1 ARM Pros

Let’s discuss the top pros of 5/1 ARM loans:

Lower Initial Interest Rate

Since interest rates change in 5/1 ARM loans, these are structured to provide you with a lower interest rate for the initial years of the loan. The lower payment provides you with the financial flexibility necessary for buying things essential for your home.

Potential to Pay Less Overall Interest

One incredible way to save money during the 5/1 ARM loan term is to start putting the money you save from the lower interest rate towards the principal.

As a result, even if the interest goes up during the adjustment period, you’ll be paying less due to a low balance.

May be Better Short-Timers

5/1 ARM is perfect for those living in a starter home; especially if you plan to move out before the interest rate can adjust.

For this, you may have to plan early, but if all goes smoothly, you can enjoy avoiding increasing rates.

5/1 ARM Cons

These are as follows:

Higher Mortgage Payment Long-term Possibility

If interest rates start skyrocketing, there’s a chance you may have to deal with increased mortgage payments once the adjustable period begins.

It may be challenging for borrowers that have trouble making larger payments.

Refinancing to a Fixed Rate Will Lead to Fees

While you have the option of refinancing a fixed-rate mortgage, keep in mind that you’ll also have to pay a closing cost when refinancing.

The closing cost may be paid in the form of upfront fees or paid overtime by taking a higher interest rate. Moreover, the closing price may be between 3% and 6% of the loan amount.

Rate Difference May Not be Worth it

With falling interest rates comes the narrowing of the yield curve, which represents the difference between the fixed and adjustable-rate mortgages.

Therefore, if you’re saving a substantial amount through an ARM, your 5/1 ARM loan is worth it. However, if the difference is simply ten basis points, it may not be worth it.

To Sum it Up

You should consider getting a 5/1 ARM loan if you’re planning to refinance your mortgage or sell your house. If you select an ARM, you can easily qualify for a larger loan due to low introductory rates.

However, remember that interest rates and monthly payments will spike up after the introductory period, i.e., after three, five, seven, or ten years. Besides, they may increase by a considerable amount depending on the terms defined by your loan.

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REO Foreclosure: Understanding Real Estate Owned Foreclosure

REO, or real estate owned, properties can be a great investment. The value of REO foreclosures makes these properties attractive opportunities. However, there are some risks you should know about before purchasing an REO property.

Don’t let the risks of bank-owned properties dissuade you from considering the REO process. The word foreclosure can intimidate potential buyers, but it doesn’t need to. REO properties just require a different negotiation process, and if you take the time to learn about these properties, you’ll find yourself a great deal.

What Is Real Estate Owned (REO)?

Real estate owned (REO) refers to property that is owned by a bank or a lender, like Fannie Mae and Freddie Mac. The property has also not been sold at a foreclosure auction. The bank or lender becomes the foreclosure owner if the property does not sell for enough money to cover the remaining balance of the loan.

When a Foreclosure Property Becomes an REO

For a foreclosure property to become an REO, one of three things must happen.

A borrower misses payments and defaults on the mortgage.
Pre-foreclosure short sales or public auctions take place.
A foreclosure becomes property of a bank or a lender.

Sometimes, banks will sell REO properties. Check out your bank's website and look for their portfolio of REO properties to see the extent of their experience. Additionally, clients who are in the market for a home and are working with a bank can seek out information from the bank's loan department regarding that specific bank's REO inventory.

REO Specialists

If a bank or a lender has an extensive or complicated REO portfolio, they will likely have an REO specialist. A bank's REO specialist manages the REO properties by fulfilling the following needs:

Finding deeds
Marketing
Managing reports
Reviewing offers
Securing the properties

An REO specialist will keep the properties in great condition and ready to sell. The bank benefits from having a supply of properties to match with customers after they’ve secured a loan.

Where to Find REO Properties

To find an REO property, check with your bank's REO specialist. Their main job is to make the property accessible and well known to homebuyers like you. As a result, the REO specialist will negotiate with local real estate agents and have the bank's REO inventory listed in multiple listing services (MLS).

Being in the MLS makes it easy for real estate websites to find and list REO properties, especially for the following sites:

Local real estate agents
Zillow
Realtor.com
Trulia

Real estate agents work with REO specialists to sell the property. The agents work on moving the properties, and they also receive a commission for selling REO properties on behalf of banks or lenders.

REO vs. Foreclosure: Which Is Better?

There are pros and cons of buying both REO properties and foreclosed properties. But in general, REO properties are the safer investment. Let’s take a closer look at the benefits and drawbacks of each!

PROS

REO

FORECLOSURE

Cost
No tax or title liens
Good ROI

Cost
Quick transactions
Less competition

Pros of an REO Property

Cost

REO properties cost less because banks don't want to maintain ownership over dead assets. When an REO property becomes part of the bank's portfolio, the bank becomes a motivated seller. As a homebuyer, you will benefit from the bank's eagerness to get rid of the asset.

Out of convenience, banks will sell REO properties for a major discount. You may find properties that are selling for far below market value. Consequently, intelligent homebuyers, or investors, who are limited by capital can get a great deal on discounted REO properties.

No Tax or Title Liens

One of the challenges of investing in real estate is the question of ownership. From time to time, questions about the legal owner of a property can plague the entire buying process. Unpaid taxes and title liens could prevent you from legally owning the property.

REO properties do not come with tax or title liens. As soon as property becomes real estate owned, the bank will cover any and all liens against the real estate. In most cases, the bank will pay the property’s outstanding taxes. The bank that seizes the property will answer the question of ownership, and from there, the bank will work on selling the property.

Good ROI

Investors benefit greatly from investing in REO properties. For example, an investor can buy the property and convert it into a rental property. The new rental will generate rents and cash flow for the investor. When it comes time to divest ownership, your property will have appreciated, meaning you can sell it for a generous lump sum.

In the event that you are a house flipper, REO properties are a great opportunity for you to make quick money. The cost of buying, remodeling, and relisting the home for sale means you can purchase the property for a cheap price and sell it later on for market price.

Pros of a Foreclosed Property

Cost

Foreclosed properties sell below market value.

Quick Transactions

Instead of spending weeks or months on end negotiating with the property owner, the process is much faster with foreclosed properties. You can make an offer and close on a foreclosed property very quickly.

Less Competition

The cash-only aspect of foreclosed properties can be a barrier for some buyers. Auctions require cash bids, and this restriction lowers the pool of potential buyers, making competition a lot lower.

CONS

REO

FORECLOSURE

Competition
Associated risks

Cash required
Associated risks

Cons of an REO Property

Competition

REO properties sound like a good deal, which are attractive to a lot of people! Many investors and other homebuyers understand that REO properties are good investment opportunities because they are a solid way to make money from real estate.

As such, real estate investors and homebuyers should expect to go against several other offers and competitors. It’s best to work with an experienced REO real estate agent to create an offer that stands out from the competition.

Associated Risks

Banks sell REO properties as is, meaning the property is a risk because the bank will not pay for any repairs. The repair risk does not affect investors who plan to flip the REO property, but an investor seeking to turn the REO property into a rental might need to pay for substantial repairs before moving in tenants.

Property investors or homebuyers can have REO properties inspected before signing any contracts. If the home does not meet an investor’s requirements, then the investor can walk away from the deal. But paying for repairs is not as bad as it seems because those costs should be viewed as investments into a property that will eventually appreciate.

Cons of a Foreclosed Property

Cash-Only Sales

Auctions accept cash-only offers.

Associated Risks

Home inspections are not allowed. The bank won’t offer any property history or assessment of conditions either. As the owner, you’ll be responsible for researching the title and paying back any existing taxes or liens.

Things To Consider When Buying An REO Home

Banks dislike having REO properties in their inventory and cash is a much better payment option in their eyes. The bank's enthusiasm to unload the property results in REO listings that are at or below market value. The attractive price will attract more buyers, too.

Consider Hiring a Buyer’s Agent

Inexperienced buyers may find it stressful and time-consuming to purchase an REO property. As such, it might be worthwhile to hire a buyer's agent who can negotiate with the bank on your behalf.

Remember these tips when searching for a buyer’s agent:

Buyer’s agents have a fiduciary duty to you so they must act in a way that benefits you.
The seller pays the buyer’s agent, so you won’t have to incur that cost.
Ensure that your agent has experience dealing with REO properties.

Get an Appraisal and an Inspection

An appraisal is an objective, independent assessment of the property's worth. When buying a home, a review is critical because banks will refuse to lend money if the appraisal value is less than the selling price.

REO properties are sold as is, meaning that you’ll oversee and pay for repairs. Unlike foreclosures, REO properties allow for a home inspection. An inspection is a vital step in the REO process.

A professional inspector will locate any issues and provide a general idea of how much you will need to spend on repairs. An inspection can reveal a lot of information, like whether or not the anticipated maintenance or repairs are out of your budget.

Do a Title Search

When buying an REO property, you will probably obtain a quitclaim deed instead of a warranty deed. A quitclaim deed does not guarantee that a title is free from liens. Fortunately, liens are public records, meaning you can discover them on your own accord.

That's why it’s important to conduct a title search when buying an REO property. The title search will scan the property's public records and let you know who the legal owner is. The title search will also reveal any claims or liens on the property.

You should conduct a title search because you’ll be able to locate any unpaid debts that will come with the property. These debts may include unpaid taxes, HOA fees, or outstanding home improvement bills. If you overlook the importance of a title search and purchase the property without checking for existing debt, you’ll inherit the debt along with the property.

Decide Whether to Buy an Owner’s Title Policy

If your title search overlooked outstanding liens or unpaid taxes, it might be prudent to get an owner's title policy, which is also known as title insurance. The policy will protect you from ownership problems that happened before you bought the property or were unknown when you purchased the property. Consult with your buyer's agent to see if an owner's title policy is best for you.

Make A Strong Offer

You've found the right real estate. Now, you need to make a solid offer to the lender. Your agent will advise you on an offer that is competitive and likely to get accepted. From there, your agent will submit the offer on your behalf.

It’s important that you don’t lowball the bank. There will likely be several buyers, so the bank will reject your offer and move on to the next buyer. If your offer is successful, the bank will sign a contract, issue a quitclaim deed, and transfer ownership of the property to you.

The bank may require earnest money, which is usually anywhere from 1% to 2% of the purchase price. The funds will be held in escrow until the sale is finalized.

In Conclusion

REO properties can be a valuable option for real estate investors and homebuyers, especially those who are willing to invest in repairs. It's critical for interested buyers to research the property and discuss it with experts before agreeing to deals or making any purchases.

Are you looking to buy an REO property? Get pre-approval for a loan through your bank to make the process easier!

Ready to Buy an REO Foreclosed Home?

Pre-qualified vs. Pre-approved Mortgage: Understanding the Difference

When looking to refinance or buy a house, the pre-qualified vs pre-approved mortgage debate can be confusing. Pre-qualification is usually performed by an independent mortgage lender, and it allows you to make offers on homes, though it might not guarantee that the lender will accept your offer.

However, the bank can facilitate the pre-approval process on your behalf, meaning that the bank will hold your mortgage and guarantee that the lender will accept your offer as long as certain conditions are met. This article discusses how these two different types of mortgages work and what each type means for people in different situations.

Read our beginners' guide to buying a home here.

What is Mortgage Pre-qualification?

Mortgage pre-qualification is the process of determining how much you can afford to spend on a home. When you are shopping for homes, it can be helpful to know what your monthly payments will look like before going into contract, making an offer, or signing official paperwork.

Mortgage pre-qualification is a service that lenders provide to potential homebuyers who are looking for the perfect house but don’t have enough money to put towards a down payment. It’s also helpful for people whose credit scores are not good enough to qualify for any of the loans available through mainstream lenders.

Mortgage brokers will first ask you for a variety of personal information and financial details to determine how much they can offer you as far as loans go. They may also need proof that you have a steady income, which they will then share with the banks to show that you are able to repay the loan.

Some mortgage brokers will offer pre-qualification based on your income alone, while others may require information about assets and liabilities as well. The broker will then prepare an estimate for what type of monthly payment they can provide you before submission to the bank or lender.

Mortgage brokers offer this service because they want to ensure that you can get a loan. They will do everything in their power to make sure that you qualify for financing so as not to lose the sale. The process can be a bit frustrating for some people, but it is worth the time if you want to get into your dream home.

What is Mortgage Pre-approval?

Mortgage pre-approval is the process of determining how much money can be borrowed before you take out a mortgage. This process usually requires an application, credit check, appraisal, property valuation, and loan terms to be agreed upon before any funds are advanced.

The mortgage pre-approval process also establishes a benchmark for determining how much the interest rate will be when the time comes to purchase your home or investment property. Pre-approved mortgages typically have more competitive rates than standard mortgage rates, and they can lead to a savings of hundreds or thousands of dollars on your loan over time.

Read our blog explaining the full home appraisal process here.

Difference Between Pre-approval & Pre-qualifying

Not everyone can qualify for a mortgage. Income levels, credit scores, and a lot of other factors can all play into whether people are approved or not. Some people may be pre-qualified before they apply for a home loan, while others will go through the process of being pre-approved first.

The two terms sound very similar, but there are important distinctions between them that you need to know about before you can make an educated decision about which one is best for your situation. Plus, it’ll help you understand the benefits that each option can provide you with when it comes time to buy a house.

Pre-approval means that someone has been evaluated by their lender and given the green light on how much money they can borrow from lenders. This value is based on various criteria like income levels, payment histories, and credit scores.

Some lenders will even provide a specific interest rate for the borrower to consider when looking at homes that are for sale or constructing them and other specifics about mortgage payments like monthly principal and interest, closing costs, taxes, and insurance premiums.

Pre-qualification is an evaluation process during which you input your financial information. This process allows the lender to screen you and inform you of the products that you qualify for. Income levels, credit scores, debt loads, and required down payment amounts are major determinants during the screening process.

For example, let's say someone is pre-approved for $250,000 and they qualify for a loan of only $110,000. The individual doesn't have to go through the process of being pre-qualified again once this discrepancy is discovered because they already know that there is no way they can be approved in their current situation. Thus, the process of buying a home will be sped up.

The difference between pre-approval and being pre-qualified is that the former gives you an idea of your best options when it comes to interest rates, closing costs, and other details. At the same time, the latter only tells you if the lender will consider you for these products based on your financial information, which could change at any time.

Moreover, when you're pre-approved, the lender has done some of the work for you by providing you with information about what your mortgage payments might look like and how much money will be needed to close on a home when it's time to make an offer.

Conversely, when you're pre-qualified, the lender will tell you whether or not they think your current financial situation is suitable for consideration of a loan. The lender will also notify you of what can happen if anything changes

We wrote a whole blog about mortgage fees and closing costs, read it here.

Pre-approved

A pre-approved mortgage is an application that a lender has already approved. The applicant qualifies for the loan by either meeting or exceeding all of the requirements necessary to be approved for said loan through the given lending institution.

Although this type of financing can be used as collateral, it cannot be used in the future if the person looking to buy a home turns down the loan yet requests loans again later on. Lenders will typically need at least two years' worth of bank statements before they will approve individuals with high debt balances.

This additional request takes place when lenders want to see how much money is coming into the potential homebuyer’s account on a regular basis. Once approved, these mortgages may not have any conditions or restrictions placed upon them outside of what was agreed upon when originally applying, unless other changes are requested.

Pre-qualified

Pre-qualified mortgage applications require less stringent credit checks than pre-approved ones, so the applicant won't be approved until after an appraisal has been completed. In this case, a mortgage lender will have to consider how much money they can lend out and at what interest rate, which will depend on each person’s individual credit score.

They also need to make sure that lending laws in their state or jurisdiction allow them to offer loans with these conditions to potential applicants before making any decisions on the loan request's approval.

Pre-qualified mortgages are based on the information you provide. They take only a few minutes to fill out, and no one will ask for any documentation. Pre-qualified mortgages provide an estimate of how much you can afford to buy a house.

Which One Should You Get?

Pre-qualified mortgages are typically easier to obtain than pre-approved mortgages. If you're looking at a house and the seller will only accept one type of mortgage, it is usually much more likely that they'll require an applicant to be pre-approved rather than approved.

That being said, a lender may not have any problem with approvals. However, it might not be worth the time or effort to go through all of the paperwork associated with an approval when they could go with someone who has already been pre-approved.

Pre-approval mortgages are a much better choice for people with poor credit scores. This is because lenders will often require applicants to have an excellent score before they can qualify for or receive a pre-qualified mortgage.

A major difference between these two types of mortgages is that people who are approved for the loan are obligated to take the loan from their lender, while pre-approved people can choose to go with whichever company offers them the best deal. For this reason, lenders and other companies will often offer incentives to pre-approved people, like a lower interest rate or better loan terms.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Final Thoughts

If you're looking to buy a house, understanding the difference between pre-qualified and pre-approved mortgages can save you a lot of time and money. Lenders use pre-qualification as an initial step in determining your eligibility for a loan, but it's not binding for either party.

However, pre-approval is more formal than pre-qualification. With pre-approval, once you are approved for a home, there will be specific guidelines set up around your financial situation. This makes everything easier when the time comes to make offers on properties or prepare for closing day!

Apply for Pre-qualification Today!

Understanding HOA Fees | Homeowner’s 2022 Ultimate Guide

Research indicates that 58% of homeowners in HOA communities and single-family homes pay an average monthly fee of $250. Despite this substantial number, homeowners lack adequate information about HOA fees and why they have to pay for them in the first place.

Typically, properties in homeowners' association communities come with the requirement that the homeowners will pay a certain amount of money per month. These costs are generally used to provide additional amenities like gym equipment, swimming pools, and security.

All in all, HOA fees are a way of ensuring that both current and future homeowners can enjoy all of the features and components of the neighborhood for years. Let's take a deeper dive into what HOA fees are and how they affect your finances.

Do you know what the differences between a COA, HOA, and POA are? Read all about them here.

What Are HOA Fees?

An HOA fee is the amount of money homeowners are required to pay their association. These funds go directly to a management company that schedules maintenance and improvement within the community.

HOA fees are usually levied on condominium owners. However, they may also be applicable to homeowners of single-family homes. Let's take a closer look at what HOA fees are.

What Does an HOA Do?

HOA fees are used to pay expenses related to the upkeep of a condominium community’s common areas. Communities often include lobbies, swimming pools, patios, and elevators, among other features. Plus, there are usually services offered as amenities, like landscaping or standard utilities such as water, sewage, and garbage disposal.

The homeowner’s association may even impose specific assessments intended to take care of major repairs like roofing or elevator replacement. At the same time, HOA fees that apply to single-family homes in various neighborhoods are put towards neighborhood amenities such as clubhouses, tennis courts, or parks

In addition to HOA fees, some buyers end up paying unexpected fees when buying a home. Read all about hidden costs here.

How Much Are HOA Fees?

Depending on the association, HOA fees may vary drastically. However, some experts believe that an accurate range of HOA fees is anywhere from $100 to $700 per month. Keep in mind that the exact costs of your homeowner’s association fees will be dependent on what your HOA provides you.

Oftentimes the more services and amenities in your community, the higher your HOA fees will be. Moreover, you may have to deal with even higher costs if the reserve funds are not managed adequately.

Are HOA Fees Tax Deductible?

HOA dues are not deductible for your personal residence. But keep in mind that if you rent out your property and pay on-time HOA fees, you can reap the benefits of a tax break.

Moreover, a home office deduction may also be possible if you work from your place of residence. Reach out to a tax accountant to learn more about your tax break options.

What Do HOA Fees Cover?

These dues cover many amenities and services, including but not limited to the following:

Lobbies
Patios
Landscaping
Swimming pools
Tennis courts
Community clubhouses
Elevators
Water and sewage
Pest Control inspection
Garbage disposal

Want to increase the value of your home, but worried about breaking the bank? That's why we wrote a whole blog about low-cost, DIY projects you can get started on today!

Six Ways HOA Dues Affect Your Finances

Before purchasing a home that requires HOA fees, you should first thoroughly understand these payment processes. Let's discuss the different ways HOA dues can affect your monthly finances.

1. HOA Fees Can Change

Before you purchase a home that is part of an HOA, you and your lender need to spend some time evaluating the property's monthly HOA costs. This way, you can determine whether you can afford the dues in addition to your mortgage.

One major caveat of HOA fees is that they can change over time. The fees can spike up when home projects require additional financing or as the result of automatic inflation adjustments. In some cases, housing payments can become unaffordable for homeowners strictly because of the HOA fees, so make sure you ask your lender about the HOA's history of increasing fees.

2. They Don't Cover Everything

HOA fees cover routine costs as well as occasional expenses. However, in some cases, critical projects and emergency repairs will require unexpected out-of-pocket fees for homeowners. In these cases, homeowners will have to pay an additional assessment which can cost several hundreds or thousands of dollars.

3. There Could Be Legal Consequences

If you live in a multi-unit property, HOA fees go towards a premium insurance policy that doesn't cover your personal property, your unit's interior, the home you reside in, damage originating from your unit, or your personal liability.

Discuss the risks associated with an HOA with your insurance provider to find out which policy will match your needs the best. Make sure you fully understand the prices of the policy before you purchase an HOA property to ensure that you are aware of its future costs.

4. Your Credit Can Be Affected

Purchasing a home in an HOA community means you've agreed to pay these monthly fees. If you fail to pay the costs, you'll owe money to your HOA. Plus, your HOA has the power to send past-due accounts to collections.

They may even put a lien on your home or initiate a foreclosure. From there, collection accounts and public records will start appearing on your credit reports. These negative marks on your credit reports will make it harder for you to secure other loans or find affordable housing in the future.

5. You Pay for Things You Don't Own

HOA fees cover the costs of various repairs and renovations in your neighborhood. But the fact of the matter is that you may not need everything that you pay fees for.
That is the major downside of living in a shared space. For instance, you may not ever use the pool or the rooftop patio but you'll still have to help pay for them anyway.

6. Pay Dues at Closing

When you purchase a property that boasts as an HOA community, you'll have to pay dues for every day you live there. On the brighter side, you only have to pay a prorated amount once you’ve sold your home

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

What Happens if I Don't Pay My HOA Fees?

If homeowners fail to pay the requisitory assessments, the homeowner’s association can collect the dues with the help of various conventional collection processes. From sending demand letters and making collection calls, to initiating foreclosures and filing a civil suit, homeowner’s associations will pursue legal action against homeowners who don’t pay their HOA fees.

Understanding Your HOA

Homeowner’s association fees refer to monthly dues that homeowner’s associations collect. Typically, HOA fees are used to pay for costs of repairs, maintenance, and other amenities in the community.

Overall, it is important to understand HOA fees and what these fees entail prior to purchasing a property. To make sure this property’s community is in your best interest, further investigate what the community’s amenities are and how these payments contribute to your neighborhood.

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Do You Have to Have Mortgage Insurance?

Ultimate Guides

Private mortgage insurance is something millions of homeowners pay for each year. However, this type of insurance does not protect the homeowner.

Mortgage insurance is designed to protect the lender. If the homeowner were to default on the loan, the mortgage insurance would pay off the loan to the lender, but the homeowner would still lose their home.

So, is mortgage insurance a requirement? Believe it or not, mortgage insurance is only required for specific types of mortgages.

For a complete listing, we've broken down all the fees and closing costs commonly associated with a mortgage for you in this blog.

What is Mortgage Insurance?

If you don’t have a lot of money saved up to put towards a home, you can still secure a mortgage. In fact, with an FHA mortgage, you can qualify by putting down 3.5% of the home's value in the form of a down payment, so long as you meet the current requirements.

However, the less money you put down on a home, the riskier lenders tend to consider you to be. To make a lender comfortable with lending you money, they may require you to purchase mortgage insurance. This insurance is often referred to as private mortgage insurance, or PMI.

Even though you’ll be paying for mortgage insurance on a monthly basis, you are not the beneficiary. You’ll be paying this expense on behalf of the bank, making the bank the beneficiary.

If you default on your loan, you will still lose your house. However, the bank will receive the money they are due thanks to the mortgage insurance.

How Much Does Mortgage Insurance Cost?

Unfortunately, there is not a one-size-fits-all approach to mortgage insurance. Your monthly mortgage insurance payment will depend on how much money you put down on your home and what type of mortgage you originally used to finance your home.

For example, FHA loans have a different PMI rate compared to conventional mortgages. On average, mortgage insurance will cost you anywhere from 0.35% to 2.25% of your loan amount.

If you'd like to read more about hidden and unexpected home buying expenses, you may find this blog useful!

Pros and Cons of Mortgage Insurance

Let’s review the pros and cons of mortgage insurance.

Pros

By paying mortgage insurance, a homeowner can likely purchase a home with a less substantial down payment. For example, saving up for a 20% down payment on a $300,000 home is difficult, whereas saving up for a 3.5% down payment on the same home is probably easier.

If there wasn’t mortgage insurance, banks would not likely be comfortable lending money to a homebuyer who just puts down a 3.5% down payment. In this way, mortgage insurance has helped people secure loans that they previously would not qualify for.

Cons

Mortgage insurance does not protect the homeowner, it protects the lender. Depending on the type of loan you purchased, mortgage insurance can be with you for the life of the loan.

This can add up to a great deal of money, and again, the homeowner does not get the protection. Mortgage insurance takes money out of your pocket each month, increasing the cost of owning a home.

Needless to say, most people would prefer to save $100-$200 per month, instead of paying for insurance that does not protect them.

Do Conventional Mortgage Loans Require Insurance?

Conventional mortgages do not always require mortgage insurance. In fact, you’ll just pay PMI on a conventional mortgage if your down payment isn’t at least 20%. If your down payment is less than 20%, you will be paying mortgage insurance on a conventional loan.

If you are financing via a conventional mortgage and do in fact need PMI, you can request the lender drops the PMI once you reach 20% equity in your home.

What About FHA Loans?

FHA loans require mortgage insurance. Generally speaking, an FHA loan is used in the following situations:

The homeowner does not have the best financial picture, such as a low credit score.
The home buyer does not have enough money to meet a conventional mortgage requirement.
The home buyer is a first time home buyer, and just starting out professionally.

FHA loans are guaranteed by the United States Government, and require mortgage insurance in case the homeowner defaults on their loan

If you are in an FHA loan, you can always refinance to a conventional loan once you build equity in your home. By refinancing your mortgage you may be able to save quite a bit of money on mortgage insurance.

What About VA Loans?

VA loans do not require PMI. This is one of the greatest benefits of a VA loan. The government still backs VA loans, but as a thank you to our veterans, the government and lenders do not require the individual or family to carry mortgage insurance.

How to Avoid Paying for Mortgage Insurance

There are several ways to avoid paying for mortgage insurance. The most common options include:

Be prepared to put down a down payment of 20% or more.
Consider using a piggyback mortgage. This is more challenging to qualify for, but is essentially a second mortgage. Your first mortgage covers 80% of the home's value, the second mortgage covers 10% of the home's value, and you are required to put down 10%

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Know Your Options

Without question, mortgage insurance has helped millions of people qualify for homes they otherwise would not be able to. However, beyond the initial qualification, mortgage insurance feels more like a financial drain than a benefit.

Remember, PMI does not protect the homeowner, but rather protects the bank if the homeowner defaults on their mortgage. PMI is a requirement for specific loans, but not all of them. Be sure to review all the various loan options available to you before deciding which loan is right for you.

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30-Year Mortgage: Everything You Need to Know

When you first set out to buy a home, it can feel like you’re taking an exam you forgot to study for. You have to make quick decisions that can have ramifications on your finances for years and years to come, and while you'll probably get no shortage of advice from friends and family, it can be a headache to make sense of all the information.

The type of mortgage you pick is one example of a crucial decision you’ll need to make.

In this article, we’ll talk about what it means to get a 30-year mortgage, how it differs from a 15-year mortgage, why you might want to consider paying off your mortgage early, and more.

Read our complete beginner's guide to buying a house here.

What Is the Definition of a 30-Year Mortgage?

30-year mortgage, 15-year mortgage, fixed-rate, adjustable-rate—as you’re in the process of buying a house or researching the home buying process, you’ll hear a lot of terms being used to describe home mortgages. A 30-year mortgage is one example of a common term and mortgage type.

A 30-year mortgage is a loan that will be paid off completely in 30 years if you make every payment as scheduled over a 30-year payback timeline. Each month you’ll pay a mortgage payment that comprises a mix of principal (the amount of money you borrowgoasdfasdfsadfed), interest, and if you escrow, insurance, and taxes. If you opt for a fixed-rate home loan, your total payment amount and interest rate will remain constant throughout the loan. Keep in mind, however, that if escrow for taxes and insurance are taken as part of the payment, it can vary especially considering property taxes tend to increase every year.

Generally, if you put 30- and 15-year mortgages side-by-side, the 30-year mortgage will look like a better deal upfront since your monthly payment will likely be lower. However, smaller payments in the short term can also mean a hefty amount of additional interest paid in the long term.

The Mechanics of a 30-Year Mortgage

Let's unpack what a 30-year mortgage means and how it works.

First, the monthly payments will likely be lower than a mortgage with a shorter term, like a 15-year. Second, longer loan terms mean you’ll pay more interest - often much more. Third, when you pay your mortgage payment on a 30-year loan each month, not all of your money will actually go toward paying off the principle of the loan; at first, very little of it is. We’ll discuss each one of those in a little more depth:

Lower payments: Many people opt for a 30-year mortgage because the monthly payments are less—sometimes by a considerable amount—than mortgages with shorter terms. Especially after dropping a large amount of money on a down payment, this lower monthly payment can be attractive. Depending on the situation, lower payments can free you up to make smart financial decisions with the extra money. For example, if you were to invest the difference between a 15-year monthly payment and a 30-year monthly payment, you could make enough money to outweigh the cost of additional interest. However, most people will choose to spend that money instead.
More interest: There’s a tradeoff for the lower monthly payment that a 30-year mortgage affords you: more interest paid over the duration of the loan. For a loan of the same amount and interest rate, the total interest paid could be over twice as much on a 30-year home loan compared to one with a 15-year term. This is, of course, if you completed all the payments on a loan and didn't move before it was paid off.
Mortgage payment breakdown: It can be a hard realization when you find out that much of your mortgage payment isn’t actually paying down the money you own on your house. Mortgage payments contain four key elements: principal, interest, taxes, and insurance—also referred to as PITI. At the beginning of your mortgage, you will pay more interest than principal. Over time as the outstanding amount on your house goes down, you’ll eventually pay more principal than interest, though the amount of your mortgage payment will remain constant.

30-Year Term vs. 15-Year Term

For some of the reasons we discussed above, namely, less interest over the length of the loan, 15-year mortgages are growing in popularity—but are they right for you? We’ll compare and contrast the two loan types below.

The cost of interest: If you complete the entire loan term, you'll spend less in interest on a 15-year home loan than you would on a 30-year loan.
Monthly payments: Your monthly payment will be higher with a 15-year loan because you’re paying off the cost of your house in an accelerated time frame. If you’re not in the financial place to handle the extra cost, a higher payment could be taxing.
Interest rates: Wondering what are 30-year mortgage rates? The actual interest rate on a 15-year mortgage tends to be lower than 30-year mortgage rates since you’re not as risky to the lender if you opt for a shorter term.
Total home price: With a 30-year mortgage, you might be able to afford more house than would be possible with a 15-year mortgage since the payments are less every month spread out over more time.
Home equity: Since you’re putting more money toward the principal of your house in a 15-year mortgage, you’ll accumulate more equity in it faster. If you want to take a loan out on the value of your house later, this can be beneficial.

The Pros & Cons of a 30-Year Mortgage

You’ve probably realized this by now, but there’s not always a clear-cut answer as to what type of mortgage you should choose. A 30-year mortgage might be right for you, but it comes with its own set of pros and cons.

The Pros

First, let’s discuss the reasons a 30-year mortgage can make smart financial sense:

Your monthly payments will be lower, meaning you can invest that extra money now.
If you have a fixed-rate mortgage, your payments will stay the same for the time span of the loan.
You can get the pricier house of your dreams because each individual monthly payment is lower.
Life changes fast. If something changes with your financial situation, such as a job loss, you won’t be responsible for a potentially higher monthly payment you’d have with a 15-year mortgage.
If you choose, you can still pay down your mortgage balance faster by putting extra money toward the principal each month. A 30-year mortgage could ultimately be a 20- or 15-year mortgage if you add enough extra payments.

The Cons

So what about the downsides of a 30-year mortgage? We’ve already alluded to several, but we’ll summarize them here:

You may have a higher interest rate and a higher total interest amount to pay across the timespan of a 30-year loan.
While you might be able to purchase a more expensive home on a 30-year mortgage, it doesn't mean you should buy one. Homes with a higher price tag can bring additional costs in the form of taxes, utilities, and more.
With a 30-year loan, it will take longer to pay down the principal, meaning your equity won’t increase as quickly as it could with a shorter loan.

Is a 30-Year Mortgage Right for You?

More interest, but lower monthly payments. Slow equity accumulation, but you could get the house you really want. A 30-year mortgage has downsides, but it also has real benefits because it frees up your money in the short term. Also, a 30-year mortgage could end much quicker than planned if you make extra mortgage payments, which we’ll discuss next.

Can You Pay off Your 30-Year Mortgage Early?

You’ve probably seen bloggers, social media influencers, and financial consultants bringing up the idea of paying off your mortgage ahead of schedule. If you’re in the right financial situation, an early payoff can make sense. A mortgage payment is one of the largest and most regular financial burdens a person will ever commit to in their life. Paying off a mortgage and getting rid of a monthly payment can free you up to use your money in different ways or even become less reliant on a regular paycheck altogether.

That said, if you’re considering trying to pay down your mortgage faster, you should first attend to your savings and other debts. If you don’t already have around 3 to 6 months of income saved up in an emergency fund, you should divert any extra money toward building that up first before putting more money toward your house. Also, if you have any outstanding debts, such as student loans or credit card balances, it’s probably smart to tackle those first, as they may have even heftier interest rates than your home loan.

When you’ve covered those bases and ensured you’re able to contribute enough money to other important buckets such as your children’s education fund and your own retirement, you can consider diverting any extra money toward your mortgage. While you may see a lot of examples of extreme mortgage payoffs, you can add whatever amount of money works for you. Even an extra $100 per month will make a difference in the length of your loan.

One final caveat is that you should always ensure with your lender that there is no penalty for early payoff. The last thing you want to find out is that you have to pay a large fee just when you're about to eliminate your mortgage.

The Downside of Paying Your Mortgage Early

Paying off your mortgage early may sound amazing, but as we mentioned above, it’s not always the best choice. One of the most notable reasons experts cite is that you could, in theory, make better financial decisions with the extra money you'd be putting into your mortgage.

Many financial pros cite investing or contributing to retirement accounts as better uses of extra money due to the potential returns you could get. However, investing goes hand-in-hand with risk, and depending on the health of the market, you could end up losing money with this approach.

Another risky market is real estate. If you pay off the cost of your home before you need to but its value dips below what you paid for it, you could even lose money on your house if you tried to sell it.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

The Bottom Line

By now, the whole issue of 30-year vs. 15-year mortgages should be much clearer. Both methods have their pros and cons, and you should consider all the facts before you pick the one that’s right for you.

If you value lower payments so you can allocate your money to retirement, debt payoff, or an emergency fund and can handle potentially higher 30-year mortgage rates, a 30-year mortgage may be better for you. If you’re fine with higher monthly payments so you can pay off your mortgage faster and pay less interest overall, a 15-year mortgage may be the right choice.

Speak with a financial professional about both options to decide which method is better in light of your own personal financial situation.

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Zero-Down: Is It Bad to Put No Payment Down on a Mortgage?

The vast majority of mortgage loans require you to put down a certain percentage of the selling price upfront. However, not everyone can afford to put down that much cash at once. Thankfully, there are many options for home loans that don’t require a down payment.

These loans usually come with strict specifications depending on your eligibility and the property’s location. These loans also often have additional fees or higher rates attached to them. In this article, we’ll cover some of the options available to you as well as the requirements you must meet and whether or not any of them are a good fit for you.

What Is a Down Payment?

First, let’s be clear about what a down payment is. Let’s say the home you’re looking to buy has a sale price of $250,000 and you’ve qualified for an FHA loan at 3.5% down. This is one of the most accessible and popular loans for first-time homebuyers.

In this instance, your down payment would be 3.5% of the total sale price, which would amount to a down payment of $8,750. This down payment would also come along with additional closing costs that often have to be paid right away as well, further increasing your costs upfront.

We also wrote an entire blog dedicated to answering the question, "What is a down payment?" Read it here now!

Can You Get a Mortgage for No Down Payment?

If you meet certain qualifications, you could potentially qualify for a mortgage loan with either a low down payment amount or no down payment at all. These no-down-payment options come from government organizations, like the Veterans’ Association or from credit unions that offer limited mortgage loans without a down payment.

When Is a Zero-Down-Payment Mortgage a Good Idea?

If you can’t come up with the thousands of dollars that are needed to finance a home, a zero-down-payment mortgage sounds like a great idea. However, it’s not for everyone.

While financing without a down payment will help you find a home faster without needing to come up with cash right away, you’ll most likely end up paying additional fees or have a higher interest rate on the loan. However, the circumstances will be different if you can qualify for a VA or USDA loan, both of which we’ll cover below.

This means that most, if not all, of the money you would save by not making a down payment will eventually be charged to you over time as part of your mortgage payments. In fact, the total sum of fees and added interest rate over time may end up being greater than the amount you would have paid for a down payment in the first place.

If you need to get into a home quickly and know that you’ll be able to afford slightly higher monthly payments over the term of your loan each month, a zero-down-payment mortgage may be a good option. On the other hand, if you think you might struggle to make larger monthly mortgage payments, it might be a good idea to agree to a down payment instead. You can either save up for an FHA loan or consider other options for low-income mortgage loans.

Mortgages come with a lot of fees, even some you may not know about. Read our blog all about hidden mortgage fees here.

4 No Down Payment Mortgage Options

Here are the most widely-accessible options for mortgage loans that don’t have a down payment. While having no down payment does save you money as a buyer, it’s important to note that each option will come with additional fees and eligibility requirements.

1. VA Home Loans

The VA home loan is offered by the U.S. Department of Veterans Affairs. It is accessible to any and all retired or active military members. This home loan offers low interest rates and low to no down payment options.

It also comes with more lenient credit score requirements and mortgage insurance options than other loans. Because the VA loan is government-sponsored just like the FHA loan, it also comes with property livability requirements, and it must be put towards the borrower's primary residence.

While a VA loan can be secured without a down payment, there is a funding fee required at closing, and that fee can cost up to several percentage points of the total cost of the home. The funding fee is typically less than the amount a down payment would be on a house through an FHA loan, but it still requires the buyer to present a few thousand dollars in cash at closing.

Asking yourself what the differences between an interest rate and APR are? Find answers to your important questions here!

2. USDA Home Loans

The USDA loan is made available by the United States Department of Agriculture. It offers low-interest, zero-down-payment loans for borrowers who are open to living in more rural or undeveloped areas. These areas are pre-determined in every state, and they include both rural land and suburban neighborhoods.

For residents willing to live in predetermined “rural” areas across the United States., USDA home loans are some of the most accessible options, but there are a few specific requirements. The home must be a primary residence. As such, it can’t be a working farm, vacation home, or rental. Also, most lenders offering a USDA loan require that the borrower pay for several months of expenses upfront, including insurance and property tax.

3. Credit Unions

Certain credit unions offer zero-down-payment options, but typically, they require interested borrowers to apply so that the credit unions can ensure that people meet the strict income, debt, and credit score requirements. Credit unions offering these low to no down payment options include Alliance Credit Union and Navy Federal Credit Union, to name a couple of examples.

4. Physician Loans

Many lenders offer loans through the Doctor Loan Program, which applies to early career doctors, dentists, and med school students who are facing large student loan debt or don’t have the funds for a sizable down payment. These loan programs have their own sets of requirements which differ by state, but they are great mortgage options for eligible borrowers in the medical field. Plus, there are no private mortgage insurance fees!

2 Alternatives to No Down Payment Mortgages

If you want to try to save up for a smaller down payment or you aren’t eligible for some of the options above, there are still many accessible mortgage loans for you to consider! The following alternatives are offered nationwide and they come with low down payment options.

1. FHA Programs

FHA loans typically require 3.5% down, but government regulations require lenders to allow, in certain circumstances, gift funds from friends or family members as part of that down payment.

2. Piggy-back Mortgages

Using a piggy-back mortgage strategy, a borrower can occasionally take out two separate loans: one for 80% of the mortgage, and the other for up to 15% of the mortgage, which leaves you responsible for a 5% down payment. While this might make it easier for you to come up with cash for a down payment, it can cause an equivalent amount of stress to your bank account over time.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Looking for Zero-Down-Payment Mortgages?

For those who can’t save up for a down payment on a home, there are certain options available that might lower or completely eliminate the down payment altogether. However, be aware of the additional fees involved, as these can offset the benefit of financing without putting any money down. If you’re able to pay slightly higher monthly payments or pay these fees at closing, a zero-down-payment mortgage may be the best option for you!

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Ultimate Homeowners Insurance 2022 Guide: Mortgages 101

When you buy a house and start making mortgage payments, your payment consists of four different components, known by the acronym PITI, which refers to Principal, Interest, Taxes, and Insurance. The insurance component can include PMI (private mortgage insurance) and homeowners insurance. Each of these concepts would take an entire article to explain, but we’ll be focusing on homeowners insurance in this blog post. If you’ve bought a house or are preparing to buy one, this article will provide a thorough overview of what homeowners insurance is, why you have to have it, what it covers, and ways to bring the costs associated with it down.

What’s the Definition of Homeowners Insurance?

What is homeowners insurance, and why is it necessary that you pay for it? Essentially, homeowners insurance protects you if your home or possessions in the house are put in jeopardy by a natural disaster, robbery, or some other unexpected event. In addition, homeowners insurance protects lenders by allowing you to continue to make mortgage payments in the event of a crisis and protecting the property for which they have a financial interest in until the mortgage is satisfied. In most cases, proof of homeowners insurance is a mandatory requirement from mortgage companies.

How Homeowners Insurance Works

Homeowners insurance includes property insurance, which protects your actual home and property in the event of a fire, theft, or other unexpected events, but it also includes liability insurance. Liability insurance protects you legally if someone who’s not on your policy is affected by your property or while on your land. Examples of this could include someone falling and getting hurt on your property or a tree planted on your land falling on someone else’s house—though the liability in both of these examples would depend on the exact details of the event and is determined on a case by case analysis. Because home insurance includes two types of insurance bundled together, it’s known as multi-line.

What Are Different Types of Homeowner’s Insurance?

Not all homeowners insurance policies look the same. Depending on your situation and needs, your policy could look completely different from someone else’s. Here, we’ll go over several different types you might encounter and what they cover.

Basic Homeowners Policy, HO-1: A basic homeowners policy is, as it sounds, one of the simpler policies, covering a total of 10 events, including fire, lightning, hail, theft, and others.
Broad Form Policy, HO-2:A broad form option covers you against additional events beyond what’s included with the basic policy. These could include things like electrical current and steam discharge damage.
Special Form Policy, HO-3:>HO-3 policies go beyond basic and broad, covering 16 total incidents.
Tenant’s Form, HO-4:HO-4 policies are also called renter’s insurance and apply to people who are tenants in a dwelling place as opposed to owners.
Comprehensive Form, HO-5:For those who need additional coverage beyond the HO-3, the HO-5 offers this.Typically, HO-5 policies cover high-value homes, with>a market value of $750,000 or more and provides the most superior protection.
Condominium Unit Owners Form, HO-6: The HO-6 insurance type is specifically geared toward people who live in or own condos. It’s also known as “walls-in” because of the areas that it protects which is within your specific unit and does not cover the entire building.
Mobile Home Form, HO-7: You may have noticed that some types of residences and living situations require specific coverage. The HO-7 covers you if you live in a mobile home.
Older Home Form, HO-8: Old homes have unique needs and thus have a dedicated insurance type.
Dwelling Fire Form: In some cases, such as with vacation homes, you may want less coverage. The dwelling fire form meets this need, only offering coverage for the actual residence and not providing liability coverage or protection for the contents of the space.

What Does Homeowners Insurance Cover?

Homeowners insurance is just as much a protection for you as it is for your lender, so it’s natural to want to know what exactly it covers. While the exact coverage will depend on your policy, there are some common things that you can expect to see home insurance guarding you against.

First, homeowners insurance, depending on the policy, may protect your house, inside and out, from disasters like fires and smoke damage, explosions, falling trees, aircraft damage, and even destruction from a burst pipe. If you neglect the upkeep of your home and experience damage due to that, homeowners insurance may find you at fault and this can affect your coverage. Homeowners insurance also generally covers not just you but the property in your house. This can be comforting if you worry about the possibility of a burglary. Depending on your policy, homeowners insurance may also cover damages for injury to people on your property in the event of an accident. Finally, if a disaster happens to displace you temporarily, your insurance might also cover day-to-day expenses, including lodging and food, within reason.

Homeowners Insurance Breakdown

We’ve discussed what home insurance covers in brief, but let’s break it down even further so you can understand exactly what to expect.

Section I — Property Coverage

The first section in your policy is all about you—your house, your possessions, and your well being when disaster strikes.

Section A — Dwelling:

Dwelling refers to the actual physical makeup of your home. Insurance companies will want to consider how expensive it would be to repair or entirely rebuild your residence in the event of a disaster.

Section B — Personal Property:

The items in your house can carry substantial value, which is why many homeowners insurance policies cover them as well. For people with especially high-value items, such as jewelry or rare collector items that they own and treasure, extra coverage might be a good idea.

Section C — Loss of Use:

As we discussed before, some disasters can drive you out of your home for an extended period. Luckily you won’t have to pay for lodging costs during this time if you have the right coverage.

Section II — Liability

Many potential accidents could happen on your property or as a result of something on your property: your pet could harm someone, a tree branch could break off and damage your neighbor’s car, and the list goes on. The liability section exists to safeguard you from the financial burden of any repairs or payments that arise because of such events.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

How to Purchase Homeowners Insurance

When you’re ready to buy homeowners insurance, do your research. Determine what type of insurance you need, your home-rebuilding price, the items in your home that need to be insured and how you want them to be covered, and more. Consult with an insurance agent or a realtor as needed. If you live in a place that’s likely to flood or have earthquakes, you may want to ask about buying additional insurance just for this eventuality.

Before binding yourself on a policy, be sure to compare prices from several different companies to ensure you’re getting the best homeowners insurance premiums and coverage.

How Are Homeowners Insurance Rates Determined?

Your situation isn’t the same as your neighbor’s, so you likely won’t pay the same as they do on their homeowners insurance. If you are wondering, “How much is homeowners insurance going to cost me?” know that insurance businesses consider several details when calculating how much to charge you. Some factors have to do with the home itself, while others take into account your lifestyle choices. Here are some of the main factors that may go into how much your homeowners insurance premium rates:

If your home is made of brick, it might mean you pay a lower premium than you would for a wood home.
If your home is older, your premium may be higher than it would be for a newer home.
If your neighborhood has many claims, this could also affect your premium.
If you own unique pets or notoriously unpredictable breeds of dogs, your premiums could be affected, or insurance could be denied altogether by some companies.

Summary: Tips to Cut Homeowners Insurance

Most people want to cut costs wherever they can, especially when you’re dealing with the already pricy business of buying a house. Some ways that you can keep your premiums as low as possible without skimping on the quality of your insurance include:

Opting for a higher deductible
Bundling your home insurance with other kinds of insurance from the same company
Paying off your home early
Acting on common sense and installing smoke detectors and a burglar alarm, both of which keep you safer and could get you a discount on your premiums

Overall, while homeowners insurance may be a requirement, it’s also a smart thing to purchase to protect you and your property from unexpected events that can cause damage. If you’re looking for the right homeowners insurance company to safeguard your next real estate investment, an insurance agent can help you explore policies and customize them for your needs.

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What Is HOA?: First Time Home Buyers Guide to HOA

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Whether you’re a first-time buyer or you’ve purchased a home before, you’ve likely heard of a homeowner’s association. In fact, an in-depth study has shown that 58% of all homeowners live in HOA communities.

A homeowner’s association refers to an organized group within certain neighborhoods and communities, like planned unit developments, subdivisions, or condominiums. HOAs are made up of a board of directors that local homeowners elect to maintain a framework of regulations and rules in a community. Let’s compare the pros and cons of a homeowner’s association!

Do you know what the differences between an HOA, POA, and COA are? We wrote a whole blog about them, read it here!

What Are the Pros & Cons of HOA?

An HOA comes with many benefits, as well as a few drawbacks. Let’s take a closer look at the pros and cons of an HOA. We hope this makes it easier for you to decide whether you want to purchase a property that is part of a homeowner’s association or not.

HOA Pros

A well-run homeowner’s association will offer several perks. In fact, according to in-depth research, being a member of an HOA can boost the value of your property by 4.2%, which is incredible. This increase in property value is the direct result of the amenities and enhanced aesthetic of an HOA, both of which often create greater appeal when selling your home.

An HOA also creates excellent curb appeal by providing well-maintained community spaces. All of these features can help you market your property for sale because they enhance your home’s attractiveness. In addition, potential buyers can enjoy the financial benefits that an HOA can offer them if they purchased a home within an HOA.

Another great benefit of HOAs is that these organizations can set community rules and regulations. While these rules are often thought to be a con rather than a pro of an HOA, these regulations can actually benefit residents very well.

For instance, people living in popular tourist destinations can enjoy quiet hours as set forth by the HOA. In the same fashion, rules and regulations about speed limits and parking can make your neighborhood safer and easier to navigate. Rules aren’t always a bad thing, especially when it comes to rules formed by a homeowner’s association.

Don't live in an HOA property, but still want to improve the value of your home? Read our blog with DIY ideas for increasing the value of your home here.

HOA Cons

At the same time, HOAs present several downsides to property owners. For instance, some residents may find it inconvenient and costly to have to pay HOA dues every month or quarter.

In addition, an investor purchasing an HOA property that they plan to rent out for additional income may experience lower cash flow than if they purchased a non-HOA property because there aren’t any fees associated with non-HOA homes. In the event that people decide to shift the cost on to their potential tenants by charging their tenants more money to cover the HOA fees, they could end up risking their ability to market the property in the future.

All in all, first-time homebuyers seeking a property within an HOA community may find HOA fees cause their monthly costs to be higher than they are comfortable with. Sometimes, HOA fees can cause costs to exceed people’s budgets.

Some HOAs charge a lot of fees, but what are you paying for? Read our blog all about HOA fees here!

What Are Common HOA Rules?

Once you purchase a home that’s part of a community association, you need to follow all its rules and regulations. These rules primarily focus on protecting your investment, as well as providing neighbors a common framework. Let’s explore some of the most common HOA rules!

Landscaping

The HOA is responsible for ensuring that a community is appealing and looks beautiful. As a result, most HOAs require that individuals maintain a certain level of curb appeal. HOA maintenance requirements typically include walkways, driveways, lawns, facade, and other visible or public areas.

Rental Fees

A common homeowner’s association rule that you need to keep in mind is the policy on rentals. The fact is that not every HOA allows you to rent out your property. Thus, you must verify all the rules regarding rentals to avoid fines.

Additionally, individuals living in an HOA community are expected to pay a monthly or quarterly fee. These fees are put towards amenities and other items that improve the community as a whole.

Noise Restrictions

Some HOAs also implement restrictions on noise pollution. Apart from limiting the time you’re allowed to use power tools and host parties, a lot of HOAs also have set hours where you can’t make a lot of noise. These are known as quiet hours.

Pet Regulations

Most HOAs have rules regarding pets, including the number of animals you can have, the type of breed, pet-related clean-up rules, whether you can walk your pet or not, noise levels, and leash laws.

Respecting Your Neighborhood

HOAs mainly focus on ensuring a family-friendly and happy environment. This means that the focus of their rules and regulations are the overall safety and wellness of everyone who lives in the HOA.

Reduce Trash & Clutter

HOA strives to improve the aesthetic and overall appeal of the neighborhood. So, apart from maintenance rules, they also limit the clutter you can put on display. Your HOA will also require you to abide by rules regarding what you can dispose of in the community's garbage and recycle bins.

Ways HOA Dues Can Affect Your Finances

Before you purchase a home with an HOA, you must learn about the different ways that HOA dues can affect your finances. So, let’s discuss the top 3 ways HOA dues impact your finances!

HOA Dues May Change

With time, it’s possible that your HOA dues will either decrease or increase. In the event that they increase rapidly, you may have trouble paying your home loan if you’re not prepared for this possibility.

HOA fees often increase if and when a certain HOA project requires funding. Fees may increase as a result of inflation as well. To avoid being subjected to sudden increases, read about the HOA’s history in your desired area and inquire about any upcoming projects.

The Dues Won’t Cover Everything

Here’s the thing. Your HOA dues cover planned and routine costs only. So, if there are any large projects on the horizon or emergency repairs that require immediate funding, you may have to pay for the additional special assessment as part of your next round of HOA fees. The total cost of these assessments can vary from hundreds to thousands of dollars.

HOAs Can Affect Your Credit

Purchasing a home in an HOA community means you’re agreeing to pay regular HOA dues. If you don’t pay them, you’ll start to fall behind on your financial responsibilities and jeopardize your ability to still be part of the HOA.

An HOA can take out a lien on your property if you don’t pay your HOA fees, which can lead to foreclosure in some instances. Worst of all, collection accounts and public records can appear on your credit reports, too. All of these possible scenarios can make it harder for you to qualify for other loans to purchase another house in the future.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

It Comes Down to You

Depending on your interests and preferences, there are some regulations that you may find overly restrictive while other rules might not seem strict enough for you. So, taking a look at the rules and regulations of the HOA that the home you want to buy is part of will help you decide if that’s where you want to live after all.

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Understanding Home Appreciation: Home Appreciation Calculator

People buy their homes for a number of reasons. Affordability, stability, and comfort are some of the most important factors. However, appreciation must also be considered when you’re thinking about buying, selling, or refinancing a home.

Understanding home appreciation is essential for homeowners. Knowing how home appreciation rates work and what they are in your neighborhood can help you to make the best choices for your financial security.

We wrote a whole blog on how to buy a house to answer all of your important questions in once place. Read it today!

What Is Home Appreciation?

In real estate, appreciation refers to the increase in value of a piece of property over time. An increase in appreciation for a home can stem from several factors. Some of these factors have nothing to do with the home itself, but instead, they relate to the area around the home.

For example, increased job opportunities and growth in an area can help to increase average home appreciation in an area. When a new factory is opened nearby, there may be increased demand for homes in the area so that workers can enjoy a quick commute. This increased demand can lead to higher sale prices for the neighborhood, even if the homeowners haven’t changed anything about the homes that they’re selling.

However, homeowners can also affect their home’s appreciation. The best way of doing this is by investing in your home and making improvements.

What Are Average Home Appreciation Rates?

Average home appreciation rates are the rates at which homes increase in value for a given period of time. These rates will vary over time, but typically, they do not shoot up drastically. The rate of appreciation depends largely on location.

This is because the land on which your home sits is the one thing that cannot be changed about your home. When there is increased demand for homes in your local area, average home appreciation rates go up.

There is one factor in particular that can affect appreciation rates in locations across the United States: the economy. In a strong economy with greater spending, house prices tend to go up. However, the state of the economy is not the only influencer. Inflation can have the ability to increase and decrease the value of homes, as well.

Because inflation can affect the loans that potential home buyers may qualify for, they can also change the size of the pool of potential buyers, which can affect the balance of supply and demand in the market.

What Is the Average Appreciation Rate for Homes?

In the United States, the average appreciation rate for a home is between 3 - 5%. In the last 25 years, the average appreciation rate for a home in the United States was 3.9%.

There is a limited supply of land in any given area. The land that your home sits on becomes more valuable over time, as there are fewer building sites available. This is especially true when the land around you has been developed into restaurants, retail spaces, suburban tracts, and more. In areas that become more desirable over time, average home appreciation goes up.

How Do Home Appreciation Rates Affect You?

Home appreciation rates inform homeowners about what they can expect to sell their homes for at any given time. Higher appreciation rates mean that a homeowner can expect to sell their home for more than what they bought it for. Lower appreciation rates lead to properties that decrease in value.

A positive appreciation rate is something all homeowners should strive for. When you’re able to sell your home for more than its original purchase price, it can make it possible for you to upgrade to a larger home, pad your savings account, or help you to pay off debts with the excess.

How Do You Calculate Property Appreciation?

Appreciation is best understood as a percentage.

To calculate property appreciation, you must divide the change in value by the initial cost of the property and multiply that by 100.
For example, if your home was worth $200,000 when it was first purchased and is currently valued at $250,000, it would have an appreciation rate of 25%.
The change in value is $50,000.
$50,000 divided by $200,000 is 0.25.
0.25 multiplied by 100 is 25.
Therefore, the home’s value increased by 25%.

If you would rather avoid calculations, the U.S. Federal Housing Finance Agency has a House Price Calculator that can assist you in determining your home appreciation value.

Ways to Keep Home Appreciation Value High

Because you can’t control the local market around you, for homeowners, the only way to keep home appreciation rates high is to maintain your home and keep it up to date.

To enjoy a high appreciation value, homeowners can do projects such as these:

Fix Up the Exterior of the Home

Maintaining your home’s exterior keeps it looking fresh and clean. It may seem simple, but even just a fresh coat of paint can help to enhance your curb appeal and protect your investment.

Redo the Home’s Interior

When they’re looking for a home, buyers usually want something that is updated to modern standards. Keeping the interior of your home clean, operational, and up-to-date can add thousands of dollars in value when it’s time to sell.

Make the Home More Energy Efficient

Energy efficiency is another valuable factor home buyers look for. Increasing your home’s efficiency can lower your gas and electric bills. Homebuyers are often willing to pay more for energy-efficient homes, as they understand that they’ll pay less in monthly utilities with an upgraded home.

Update the Home’s Technology

Smart homes make life easier, which has made them popular among buyers. Adding more advanced technology like newer thermostats and security systems can add value to your home.

Increase Square Footage

Square footage is one of the biggest selling points for a home. Adding square footage is not the easiest way to add value to a home, but adding structures like a deck or a guest house will almost always add thousands of dollars in value to your home.

You cannot always control what goes on around your home, but keeping your home up-to-date, looking good, and functioning properly will add value and increase appreciation.

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Where to Go From Here

So what is home appreciation? It’s the increased property value of your home over time. Because the trend for homes in the United States is currently about 3-5% in appreciation, this means that most homeowners will see their home’s value increase in the long run. However, to maximize home appreciation, homeowners need to do their part.

For more information about home appreciation for your specific property, contact one of our agents today! We can help you to understand the current value of your home and the ways that you can increase that value.

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