Quicken Loan’s 1% Down Mortgage Program

It seems just about everyone is lowering mortgage down payment requirements to deal with rising home prices, this despite the near-record low mortgage rates still widely available.

You see, down payment is still the biggest hurdle to homeownership, and I suppose it was during the previous boom as well. That would explain why zero down mortgages were the norm back in 2006.

The major problem then was that you could also state your income, your assets, and not disclose your job, so long as you had a decent credit score. No skin in the game and no disclosure equals no good.

We’ve learned from those mistakes, I hope, and now underwriting is a lot more sound. Still, people want to buy homes, whether they’ve saved up a large down payment or not. And that would explain why Fannie and Freddie began offering 97% LTV mortgages.


Building off those programs are mortgages with grants that still give the homeowner a 3% down payment, but without the borrower actually having to come up with the three percent in funds.

Instead, many lenders are providing a 2% grant to homeowners and asking that they come up with the remaining one percent, which seems pretty fair.

The use of a grant is allowed under both Fannie’s HomeReady program and Freddie’s Home Possible Advantage, and some banks dole outs funds in accordance with the Community Reinvestment Act.


Quicken Loans 1% Down Payment Option

Interestingly, the largest non-bank mortgage lender in the country, Quicken Loans, quietly rolled out their 1% down payment option back in March, but there wasn’t a press release or any fanfare. There certainly wasn’t a Super Bowl commercial.

I don’t know why that is; I’m just here to tell you about the loan program in case you lack a down payment and are interested. If I had to guess, I’d say that it’s limited to certain types of buyers and thus a national rollout or major ad campaign might be misleading and/or a waste of money.

Anyway, let’s talk about Quicken’s 1% down loan program to see if you might qualify based on what I know about it.

First off, this program can only be used for the purchase of a home, no refinances are permitted. Quicken Loans provides a 2% grant and the borrower brings in the remaining 1% to make it a 97% LTV loan.

I’m not sure if the grant has to be paid back if the borrower sells or refis before a certain period of times passes. Inquire with Quicken about that.

Secondly, the property must be a one-unit owner-occupied property, which includes single-family homes and condos (and townhomes), but not co-ops.

When it comes to credit, the minimum FICO score required is 680, which is considered average (or perhaps a bit below average). So it’s pretty flexible in terms of creditworthiness.

Perhaps more importantly, you must make less than or equal to the median income for the county in which you’re purchasing the home. If the income limit is $75,000, you must earn that or less to qualify for the 1% down payment program.

Speaking of income, the maximum DTI ratio is 45%, which is standard.


Quicken’s 1% Down Might Not Require Any Funds from the Borrower

If there aren’t any additional overlays on this program versus the ones offered by Fannie and Freddie, no minimum borrower contribution is required, meaning the down payment funds and any reserves can be gifted.

The Quicken program also comes with a free “introduction to homeownership” course that is required for first-time home buyers, but available to everyone at no cost.

When it comes to loan types, you’re likely going to be limited to fixed products with a 30-year amortization. Put simply, probably the 30-year fixed unless you can afford and desire a 15-year fixed. That wouldn’t really make sense for someone lacking a down payment.

There will be mortgage insurance, seeing that the loan is well north of 80% LTV, but it might be at a reduced rate as it is via the Fannie/Freddie 97 programs.

I have no idea what the mortgage rates are like, but I assume higher than what you see advertised to account for the higher risk of putting just one percent down. But seeing that rates are so low at the moment, they’ll probably still look pretty favorable.

For the record, Quicken is just one of many lenders out there offering grants to home buyers to push the down payment requirement down to just 1%, so you can always shop around to compare different interest rates and program requirements by lender.

Recently, Guaranteed Rate launched a similar program, as did United Wholesale Mortgage (if you’re using a mortgage broker).

Other regional lenders, such as Fifth Third and BancorpSouth, have introduced zero down offerings.

The mortgage market is changing rapidly to account for higher home prices. So take the time to compare all options, including FHA loans, to see what the best fit is for your situation.

source:  thetruthaboutmortgage.com

Two Simple Ways to Boost Your Credit Score Before Applying for a Mortgage

About a month ago, I cautioned readers to avoid swiping the credit card before applying for a mortgage.

In short, the more you charge, the higher your outstanding balances. And the higher your balances, the lower your available credit and credit score will be.

That’s pretty straightforward stuff, but it may not apply to everyone because some folks may want a higher credit score despite making very few credit purchases.

However, there’s yet another way to give your credit scores a boost without simply doing nothing.

Increase Your Credit Limits

I’m talking about increasing credit card limits, something that is very easy (and fast) to accomplish thanks to the many credit card management tools now at our fingertips.

If you visit just about any credit card issuer’s website, you should be able to find an area to increase your credit limit online.

Put simply, you enter the desired amount you’d like (e.g. $10,000 if your current limit is $5,000) or you simply ask for an increase and get what you get and don’t get upset.

When it comes to credit card issuer Discover, you simply enter your gross annual income, employer name, and monthly housing/rent payment. Then they present you with your new credit line. It can take as little as a few seconds to get your new line of credit.

With other issuers, such as American Express, you are asked to enter your desired credit limit and then hope they extend it to you. Apparently you can get 3x your starting limit with little trouble.

So if you started with $5,000, you could get it increased to $15,000 simply by visiting the American Express website and filling out an online form.

The underlying goal of such moves is to lower your credit utilization, which is the percentage of credit you’re actively using at any given time.

A lower utilization, similar to a lower debt-to-income ratio, is viewed favorably.

So imagine you have that American Express credit card with a $5,000 limit.

If you currently have a $2,500 balance, even if it’ll be paid off on time and not revolved, you’re essentially using 50% of your available credit. This isn’t a good thing when it comes to credit.

You may actually want to keep your utilization below 25%, in this case, no more than $1,250, again, even if you pay it off in full by the due date.

But what if you naturally charge a lot on your credit cards each month, despite paying all of them off every month? What can you do to keep utilization low?

Well, if your credit limit happened to be $10,000 instead of $5,000, that $2,500 balance would only represent 25% utilization.

In other words, all you have to do is ask for higher credit limits, instead of spending less. Of course, spending less will sweeten the deal and ideally push your credit score even higher.

Tip: It’s easier to get credit limit increases approved if your balances are low because you’re viewed as a lower risk customer.

Pay Off Your Existing Balances

In conjunction with this tip, you can pay down any balances you may have, assuming you don’t pay your credit cards in full each month.

If implemented together, you can get higher limits and reduce balances, which will be a one-two punch in the credit utilization department.

So using our same example, if the person with the $2,500 balance lets it float from month to month and only has a $5,000 credit limit, imagine if they got a higher limit and started paying it down.

They could push their utilization down from 50% to say 15% if they got the limit increased to $10,000 and paid $1,000 off the balance.

These actions should result in a higher credit score, which generally means a better mortgage rate if you apply for a home loan.

Additionally, smaller credit card balances mean you’ll have more of your income available to use toward a mortgage payment. So you may actually be able to qualify for a larger mortgage and/or buy more house.

The only caveat here is that a credit limit increase request could result in a hard inquiry on your credit report, which could ding your credit slightly. It’s temporary, but could offset some of the expected gains of a higher limit.

So either request the higher limits several months in advance of applying for a mortgage, or ask the credit card issuer if it will result in a hard or soft pull before making the request. If it’s the latter, it won’t harm your credit score.

In any case, you’ll want to approach mortgage lenders with the highest credit score possible to ensure you have the best chance of approval and obtain the lowest interest rate.

source: thetruthaboutmortgage.com

Qualifying for a Mortgage When You’re Self-Employed

When John Kennedy observed that “life is unfair,” at a press conference in 1962 he wasn’t referring to the challenges self-employed workers would face getting a mortgage fifty years later—but he would have been right.

If you are one of the 14.6 million people in the US[1] who make a living working for yourself—about 10 percent of the total workforce—you don’t fit neatly into the profile of borrowers whose income can be easily documented for a mortgage application.

Tax returns don’t tell the whole story

It’s not impossible to get a mortgage if you are your own boss, but you’ve got to jump through some extra hoops to qualify.  That’s because self-employed borrowers typically have to provide two years’ worth of tax returns, which lenders will want to obtain directly from the IRS.

Yet tax returns often don’t accurately reflect their take-home pay.  Self-employed people typically take advantage of a slew of tax deductions related to their businesses, from retirement plans to home offices.  These reduce their taxable income, but they also reduce their adjusted gross income, which is what lenders look at for proof of income.

In some cases, mortgage lenders will allow certain deductions to be added back to the income such as depletion, depreciation or a large, nonrecurring item.

Plan ahead if you can

One solution is to plan ahead and write off fewer expenses for the two years leading up to applying for a mortgage, a strategy that could either cost you significantly at tax time or require you to refile you taxes after your mortgage is approved.

Another suggestion is to separate your personal funds from your business by using a credit card devoted to your business expenses, then convince a lender that the debt isn’t against you because it belongs to the business.  Finding the right lender could still be difficult, and you could still miss some of the most popular deductions, such as home businesses and cars used for business.

Timing is also important.  Self-employed workers typically have highly volatile businesses.  By using income averaging over 24 months, borrowers can avoid declines in income from one year to the next.

Reduce debt to improve your chances

The reason lenders want to see your income is because they need it to determine whether you have enough income to make you monthly debt obligations, a calculation expressed as your debt to income ratio. The median DTI for recurring debt on closed conventional purchase loans today is about 35 percent for recurring debt payments.[2]

By reducing or eliminating your recurrent debt payments, such as your car or student loans, you can reduce your DTI ratio, which will help you qualify for a larger mortgage.

source: totalmortgage.com

All You Need to Know About Rapid Rescore

Upon first hearing about Rapid Rescore, you might be quick to lump it with all those other credit fix companies vying for your attention. However, Rapid Rescore is not just another company–it is actually a service provided by mortgage lenders and brokers. It is designed to help you improve your credit score within a very short timeframe so that you can secure a home loan at more favorable rates.

What is Rapid Rescore and how does it work?

When you first apply for a home loan, the bank, financial institution or mortgage broker of your choosing will check your credit. If your credit is excellent, then you normally have nothing to worry about.

But if your credit does not meet a certain minimum requirement, which varies by lender, you may receive a home loan at a higher interest rate, or you may be denied one. Sometimes, even a difference of 20 points can mean the difference between securing a home loan and being denied.

There are many things you can do to improve your credit over time, but credit bureaus often don’t make the appropriate adjustments for several months. Positive changes to your credit score may not be immediately apparent to those checking your credit for the purpose of securing a loan. However, utilizing the Rapid Rescore service may help you get an improved credit score within just a few days time.

When you use Rapid Service, you will receive a list of possible actions you can take to improve your credit score quickly, such as disputing certain items that appear to be incorrect, like a balance that still shows even though it was paid. Paying off balances can also make a big improvement in your score.

Once you have completed some of the actions, the Rapid Rescore service will submit proof to the credit reporting agencies, enabling the score adjustment to be reflected quickly.

Are there fees involved?

Although Rapid Rescore is a service provided by your mortgage broker or lender, there may sometimes be a small fee involved in using the service. However, some lenders may not require you to pay the fee, and even if they do, the service can often save you much more money in the long run.

How is Rapid Rescore different from a credit repair service?

Credit repair services more often than not attempt simply to eliminate damaging criteria from your credit report, regardless of whether the information is accurate. This is often done without your involvement, and typically takes longer than just a few days. Rapid Rescore works with you in a more beneficial manner, helping you to raise your credit score by 20 to 150 points.

The Rapid Rescore service might even help with a bankruptcy note by acquiring favorable notes from creditors, which will help mortgage lenders better make their decision.

When seeking a home loan, remember that only legitimate mortgage lenders and brokers can provide you with the Rapid Rescore service. If you are successful in raising your credit score, you may even be able to afford a higher mortgage.

source: totalmortgage.com

How Much Equity Do You Have?

When people talk about housing being a good investment, they are referring to the profit that accumulates over time as home values rise. It’s called equity, and it’s easily calculated by subtracting the principal that you owe on your mortgage from the value of your home.

Your principal is easy to determine. Every month with your mortgage invoice, your lender sends you an accounting of the principal you still owe. Finding out what your house is worth is the tricky part.

Prices vs Values

Unlike other assets you own, such as securities or commodities, every home is unique. Location, condition, age, bedrooms, and lot size are some of the major factors that affect value. On the other hand, market forces like foreclosures, inventory shortages, or high levels of demand that create multi-bid situations have a huge impact on prices, but a limited impact on values.

Prices, like the numbers you see reported in the news, are from recent sales—only on about 3 to 4 percent of all single family homes in a given market. The other 97 percent of homes are also changing value based on market trends, but each home changes value at a different rate. Also, sales price reports cover large areas and hyperlocal trends resulting from the local factors like the construction of a new highway, the opening of a new shopping center or a rising crime rate are often below their radar.

Despite the old adage, houses are not necessarily worth what someone will pay for them. Lenders require appraisals to determine the value of a home and they limit the amount of the mortgage they will approve based on the appraisals.

Appraisers base their valuations on “comps”—recent sales of comparable properties. Sales contracts between buyers and sellers often are often higher than the appraisal, especially when sales prices in a market are rising, causing buyers to scramble for additional cash or risk losing their chance to buy the home.

At the end of the day, for the majority of buyers who finance their purchases, valuations based on appraisals rather than local sales prices determine what a house is worth

How to Determine Your Home’s Value

Web site AVMs. A number of sites offer services that give you a value when you enter your address. These are based on algorithms called “automated valuation models, or AVMs. Like any other computer model, the results they deliver are only as good as the data they access.

Try several of them. The results will vary by tens of thousands of dollars. AVMs are good for getting a start on valuing your home by giving a sense of the range that the actual value might fall.

More importantly, use the AVMs over time to get a sense of the direction that your home’s value is moving. Houses don’t change direction frequently—perhaps every 18 months or so. Discovering whether it is appreciating or depreciation help you anticipate its value months into the future.

“Big Data” Indexes. Using big data techniques, several real estate analytics firms have actually aggregated valuation data on as many as 100 million homes and developed statistical formulas based on repeat sales and comparable sales to update their valuations. These valuations are based on house-specific data rather than the computer models used by AVMs, so they may be more accurate.

However, even the best index can’t evaluate the condition of your house. Some valuation sites offer you the opportunity to alter your valuation based on condition, but it’s hard to assess how impartial owners are.

Appraisals. If you really want to know what your house is worth, the best way to find out is still to have it appraised by a licensed professional. If you are planning to refinance or to sell, a professional appraisal is worth the $500 or so that It will cost.

A tip: have your house appraised when you need the information, since appraisals begin to lose their accuracy in six months, or even less in volatile markets. Also, even if you have your own appraisal done, your buyer’s lender will probably order their own.

source: totalmortgage.com

Mortgage Pre-approval: Why You Want It & What to Do if You Can’t Get It

When you’re searching for a new home, few steps are as important as getting pre-approved for a mortgage loan.

Not only does it help you as a buyer, but sellers will view you as a better candidate. And if you get involved in a bidding war for your dream home, it helps to be the kind of buyer that sellers consider reliable.

How a mortgage pre-approval works:

First, you send documents proving your income to a mortgage lender. These documents can include your last two paycheck stubs, last two months of bank statements and last two years or income-tax returns. Your lender then studies these documents to verify your monthly income. Your lender will also run your credit to determine your credit score.

Once your lender has this information, it will tell you how much mortgage money it is willing to lend you. It will also give you a pre-approval letter stating this amount.

Why is a mortgage pre-approval important?

1. Streamlines Your Search

By pre-arranging financing, you can save a considerable amount of time. Because a lender will examine your credit report, pay stubs, bank statements, etc., they can tell you exactly what you’re qualified to borrow. That way you know what your price range is so you only look at homes you can afford. Rather than looking at a myriad of properties, you can narrow your search down to a handful and examine those in great detail.

You’re also less likely to be let down or become disillusioned when you fall in love with a property, only to find that it’s out of your price range. This can save you from a lot of frustration and expedite your search.

2. Sellers Take You More Seriously

When a seller has multiple buyers interested in their property, it’s important to stand out from everyone else. In the event that there were three other buyers, and you were the only one with a pre-approval letter, you would have a much better chance of getting the seller’s attention.

That’s because you have direct evidence of your ability to obtain financing. It also shows that you’ve put in the effort to get pre-approved, which proves you have a genuine interest in buying. This should reduce any skepticism or anxiety that a seller may have, and they’re likely to give you more consideration than other candidates.

3. Increased Leverage When Negotiating

Because of the effort you’ve put forth and tangible proof of your financial backing, this can really work to your advantage when making negotiations. According to Ray Mignone, a certified financial planner in Queens, New York, “pre-approval carries more weight when you go to negotiate a deal. It gives you bargaining power.”

Being pre-approved means that it’s basically a done deal, and you don’t have to go through the process of applying for a mortgage in the future. If a seller is faced with your offer and a slightly higher one from another buyer who hasn’t been pre-approved, this can often persuade them to go ahead and accept your offer. If the seller has no other offers, then you may be able to buy their property at a reduced price, and they may be more flexible with their terms.

Taking the time to go through the pre-approval process for a mortgage has some distinct advantages. Once a lender gives you the green light, it can help you find a great property at a fair price while eliminating a lot of hassle.

What if I can’t get pre-approved for a mortgage?
 

Getting denied for pre-approval should not discourage your efforts, although you may need more time to prepare for this large purchase. Therefore, here are five things you can do if you can’t get pre-approved for a mortgage loan.

1. Ask for an explanation

Mortgage lenders are helpful and they’ll provide a reason for the rejection, plus advice on how to proceed. Several factors can disqualify you for a mortgage loan, such as inadequate income, a low credit score and questionable employment. However, if you take a lender’s advice and make the necessary improvements, you might qualify for financing in the future.

2. Build your bank account

When applying for a home loan, the lender will ask for copies of your bank statements. This is to ensure that you have enough cash for your down payment and closing costs. In addition, some lenders want to see a 2 to 3-month cash reserve after paying mortgage-related expenses. If you will not have a cash reserve after paying closing costs and the down payment, the lender may recommend that you postpone buying a house until you’ve saved additional money.

3. Add points to your credit score

A conventional mortgage loan requires a minimum credit score of 650 or higher. Therefore, if you’re turned down for a mortgage due to a low credit score, take steps to build your credit. This can be as simple as paying all your bills on time over the next 6 to 12 months, or paying off a credit card to decrease your credit utilization ratio, which will subsequently raise your FICO score.

4. Increase your income

On the other hand, you might have excellent credit, but not enough income to qualify for a mortgage loan. There are several ways to approach this dilemma. Speak with your lender to see if you can qualify for a lesser amount; or if your spouse works, perhaps you can apply for a joint mortgage, at which time the lender uses your combined income to determine affordability. And if too much debt prevents a pre-approval, paying off credit cards and other loans — student loans, auto loans and personal loans — can increase purchasing power and help you qualify for the desired amount.

5. Wait until the two-year mark

Employment gaps can be the kiss of death when applying for a mortgage loan. For the most part, mortgage lenders require 24 months of consecutive income. Therefore, if you’re just entering the job market, or if you were unemployed in recent months, the lender may reject your application and require that you wait at least two years before re-applying for a mortgage loan.

Bottom line

Applying for a mortgage loan will have its share of obstacles, especially since lenders have tightened their requirements. However, if you carefully prepare for a purchase, you can successfully meet a lender’s qualifications and get the keys to your new home.

source: totalmortgage.com

Preparing for a Mortgage 101

You’ve paid rent year after year and what do you have to show for it? Zilch. Zero. Nothing.

If you’re starting to dream about building equity, now is a great time to make the leap. Interest rates are still low, and real estate prices haven’t started to spike yet. Before you apply to a lender, though, there are a few things you should know.

Applying won’t damage your credit

“If you are shopping around for a mortgage and worried that the inquiries will ding your credit score, don’t worry,” said Roman Shteyn, co-founder of Credit-Land.com. “The credit bureaus know that people may go to different providers to check interest rates especially for a big purchase like a house. Loan inquiries within 30 to 45 days of each other for the same thing are lumped together and treated as a single request, and your credit score should not be impacted.”

Your past matters to lenders

They will look at previous mortgages on your credit report to determine your creditworthiness

“We all know a foreclosure has a negative impact on your credit score,” says Shteyn “but many people don’t realize a short sale can be damaging as well. It can knock your score down 85 to 160 points depending on your score at the time and how it was reported to the credit bureau.” Occasionally, a lender will agree to report a short sale as paid which will not negatively affect a credit score. But this is rare.

A short sale is not as bad as a foreclosure, which will make it more difficult to get a loan. It will remain on your credit score for seven years, and lenders will see this black mark whenever you apply for credit during this period.

Lenders handle couples with different credit scores in a special way

If you’re applying for a mortgage loan as a couple, the mortgage lender will check both of your credit reports and credit scores. The bank reviews your debt, the length of your credit history and current credit activity.

Paying bills late and too much debt can negatively impact a mortgage approval, plus influence the mortgage rate. However, some couples believe that they’ll receive a low interest rate as long as one person has excellent credit — but this isn’t always the case.

Typically mortgage lenders use the lowest credit score to determine the mortgage rate. Therefore, if you have a 790 credit score and your partner has a 670 credit score, you’re not likely to receive the most favorable rate due to your partner’s less-than-perfect credit history.

To ensure the best rate, both of you need to maintain good credit before applying for a loan. This includes paying bills on time, paying off debt and checking your credit reports for errors.

For a lender, there’s nothing like responsibility 

Make other loan and debt payments on time, especially over the months leading up to the filing of your mortgage application. Every 30-, 60- or 90-day delinquency on a loan or credit card is going to reduce the credit score the lender considers as part of the loan file. That score, in turn, will determine how good a loan you get — if you get one at all.

You need to be strategic about your personal finances

Consider paying off more debt and putting down a smaller amount at closing. This move leaves borrowers with larger mortgages, but it will allow them to replace non tax-deductible, high-interest rate debt (like credit card debt) with lower-rate mortgage debt that features deductible interest.

If you have a financial setback and need to miss a payment on your other debts, miss the credit card payment first, followed by the payment on any installment loan you might have and finally, the payment for an existing mortgage. That’s because credit scoring systems look at the performance of similar loans first when deciding what type of score to assign.

Before you apply, think about the future

If your next few years are full of big life changes and multiple new financial obligations, apply for a mortgage first. Numerous credit inquiries, such as new applications for credit cards, can hurt a borrower’s credit score, especially if they’re filed in the months prior to the home loan review process.

The value of your potential home can make or break the deal

Sometimes it’s not your fault that your mortgage application is denied. If your home isn’t worth enough, lenders might not approve your request for a mortgage. Say you agree to pay $200,000 for a home and are asking for a mortgage loan of $190,000. If an appraiser determines that the home is worth only $160,000, a mortgage lender might not grant you a loan, even if you are willing to pay the higher amount.

The 3 big don’ts

We can talk about the things you should do when applying for a mortgage all day long, but realistically, avoiding the big mistakes should be your first concern. Here are five things you should remember.

1. Don’t make any big purchases over the next couple of months. It makes less money available for the down payment and it might require you to get yet another loan.
2. Don’t upgrade too fast. Lenders consider what’s known in the industry as “payment shock” when approving loans. Somebody who goes from a relatively small monthly housing payment to a huge one either won’t qualify for a mortgage or will end up having to cover too much loan with too little money.
3. Don’t just get pre-qualified for a mortgage, get pre-approved. Home buyers must allow their lenders to pull credit reports, check debt-to-income ratios and perform other underwriting steps. But that puts a borrower much closer to obtaining a loan and locking in a rate and term.

source: totalmortgage.com

Your Mortgage vs. A Cash Offer: What You Can Do

Cash is king in most business transactions, and it’s no different with mortgages. A cash offer can be very tempting for a seller because there is no risk of the buyer defaulting on their payment.

However, all is not lost if you’re going the way of the mortgage. You’ll just want to follow the steps below to make sure your offer is as appealing as possible.


1. Get your lender to back you up

A pre-approval letter from your lender is a must. It will also help if you can get your lender or real estate agent to show the seller financial statements that clearly display you’re a qualified homebuyer.

2. Have an appraisal ready

You don’t want to make the seller wait for your loan to be approved. Talk to your lender and find out exactly how fast they can get an appraisal done on the property, and when the loan will be approved. With some banks and mortgage brokers, it’s even possible to have an appraisal pre-ordered and ready to go.

3. Get inspections done right away

You don’t want to make the seller wait for anything. So as with everything else, get your inspection done as soon as possible.

4. Make a higher offer

When people pay with cash, they usually expect a discount. This provides an opportunity for non-cash buyers to make a higher offer. Paying more isn’t ideal, but if it’s what you have to do to get your dream home, it could be worth it.

5. Put more cash down

If you have some extra cash, consider making a higher down-payment. Instead of getting a mortgage for 70-80% of the purchase price, you could drop the financing down to 60-70% and potentially make your offer more appealing.

6. Make it personal

It’s not uncommon to write a letter to the seller, explaining a little about yourself and why you would love to purchase their home. A seller almost always appreciates knowing more about their potential buyers, and if you can strike an emotional chord, your chances of closing the deal could increase.

Bottom line:
At the end of the day, being flush with cash isn’t what makes the difference; it’s convincing the seller that you are a sound candidate to purchase their home.

If you have your finances straightened out, get things done in a timely manner, and can make a personal connection with the seller, you could very well beat out a cash offer.

source: totalmortgage.com

What is a Piggyback Mortgage?

While mortgages are a good time, private mortgage insurance (PMI) is not. Usually, if you don’t have enough money to make a down payment of at least 20 percent (keeping the loan-to-value ratio (LTV) under 80%), you’re required to get mortgage insurance. Fortunately, clever people figured out a loophole—the piggyback mortgage.

How it works

There are three parts to this solution, dubbed the 80-10-10 format. The first is to make a down payment of 10 percent. Step two is to get a “piggyback mortgage”, possibly in the form of a home equity loan or home equity line of credit, to cover the remaining 10 percent of the down payment. Finally, you will get a mortgage for 80 percent of the purchase price. And there you have it: 20 percent down and no mortgage insurance.


Other types of piggyback mortgages do exist, like the 80-5-15, or the 80-15-5. The middle number stands for the second mortgage and the third the down payment. These formats aren’t as common as the 80-10-10, but they are available and useful for some people.

Are there any possible problems?

Unfortunately, it’s not all rainbows and ponies with a piggyback mortgage. When it comes time to refinance, if the lender that is issuing the piggyback mortgage doesn’t agree to resubordination, you could be forced to re-evaluate your situation and call an audible.

Resubordi-huh??

It’s like this: you have two mortgages, the primary mortgage and the piggyback mortgage. Naturally, the primary mortgage is first, and the piggyback mortgage is second in line, or as they say, subordinate to the primary mortgage.

Resubordination is the process of keeping the primary mortgage in first place. Each lender will want their loan to be first in line, as that loan will have a higher priority and be paid off first, so it’s possible that the lender will not agree to remain in second place when you refinance.

This creates a problem because conventional first mortgage lenders require that their loan is in the first position in order to refinance. Usually, this isn’t a problem, as resubordination is a fairly common practice.


They won’t resubordinate! What do I do?!?!

If your second lender won’t agree to resubordination, you could get a cash-out refinance, and then use that cash to pay off the piggyback mortgage. You could also get a cash-in refinance, which would reduce your loan-to-value ratio. After you talk it out with your lenders, a solution will usually become clear.

Bottom Line

If you want to avoid paying private mortgage insurance, getting a piggyback mortgage is one way to make that happen. Just make sure you talk through the refinancing process with your lenders so you know what your options will be when that time comes.

source: totalmortgage.com

Do You Really Need Owners’ Title Insurance?

Many home buyers are surprised to learn that the title insurance they are required to buy during the closing process doesn’t protect them if there’s a problem with their title. Even though the home buyer pays for the policy, it only protects the lender.

So it’s no surprise that after they have saved for their down payments and put a deposit in escrow, the last thing most buyers probably want to do is spend even more money on title insurance than they had planned.

Before making a decision, however, it’s a good idea to learn more about the risks involved should you have a challenge to your title.

What does a title challenge look like?
Title searches can uncover problems that consumers never see. Examples include forgeries in the chain of title, a claim by a previously undisclosed relative of a former owner, or a mistake in the records. Searches reveal liens that have not be cleared, disputed easements and rights-of-way, life estates, conveyance of air and subsurface rights, and future interests that the home seller may not even have known about.

Unknown to the lender or buyer, title companies find and fix problems with titles in 25 percent of their searches. However they are not perfect, which is why lenders insist on coverage.

Even when a property is resold quickly, or refinanced within a short period of time from the original purchase or most recent refinance, a new title search and title policy are needed because the owner could have taken actions that had an impact on his claim to the title, such as taking out a second mortgage or incurred a lien from unpaid taxes.

Is coverage worth it?
If there’s a problem with your title and you don’t have coverage, you could easily lose your home. It happens infrequently, but often enough to make the small cost of owners’ coverage worth it to many home buyers.

According to the American Land Title Association, in 2014 a Missouri family purchased a home for more than $400,000. The title search missed a lien on the property. When the lien was discovered, the title insurer paid off the lender, but since the family wasn’t covered, they lost their home.

In another recent case, a homebuilder sold and financed a home to a first-time buyer, but because the builder financed the sale and didn’t require title insurance, neither the lender nor the homeowner had title insurance. When there was a lien on the property, the family lost the home and the builder went under.

The bottom line?

Whether or not you get owners’ title insurance is your choice, but it can cost much less than lender’s insurance. When you select a title insurer for the lender’s policy, ask for the “simultaneous issue rate.” Usually title companies will write you an owners’ rate at the same time they prepare the lenders rate but tor considerably less. You can save as much as 50 percent of the cost of the second policy, if you shop around.

source: totalmortgage.com

How to Get Rid of Your PMI

Private mortgage insurance (PMI) can help you buy a home without a big down payment, but it’s expensive in the long run. An online PMI calculator reveals that a $300,000 house purchased with a $10,000 down payment can stick you with an extra $277 in PMI payments each month. That adds up quickly: in five years, you’ll have shelled out an extra $16,620.

Fortunately, there are ways to save on PMI costs. Before you buy your dream home, consider your PMI exit strategy to save big in the long run.

1. Avoid an FHA

The best way to avoid paying PMI is to make a 20 percent down payment on your home so that you don’t need it at all. Failing that, you should do your best to stay away from FHAs. Because they’re intended for riskier borrowers, you end up paying PMI for the life of the loan, regardless of how much equity you’ve built.

If you’re an otherwise well-qualified borrower looking for a low down payment option, take a look at a conventional loan. Recent changes over the last year have made it possible for borrowers to put as little as 3% down, and once you have built up enough equity (generally 22% of the loan) you can cancel the PMI.

2. Make Extra Mortgage Payments

By paying extra on your mortgage each month, you’ll be increasing your equity at a faster rate than if you just paid the minimum. Any extra payment you make goes directly to paying down your principal, and you’ll save by not owing additional interest on that portion of your mortgage. Once you owe less than 78-80% of the original value of your home, you can call your bank and request they cancel the PMI charges. The sooner you can pay down your debt, the sooner you can get rid of PMI payments.

3. Re-Financing Your Mortgage

Keep an eye on the housing market in your neighborhood and on mortgage rates from other lenders. If home values have gone up since you bought your house, you may have more equity than you think. Think of it this way: if your $300,000 home is now worth $400,000, you have an extra $100,000 in equity. If the amount you owe on your mortgage comes to under 80 percent of the new appraised value, you can refinance your mortgage to get a new loan with no PMI. Just make sure your new interest rate isn’t too high and you’ll come out ahead.

With a little planning and discipline, you can take advantage of these tips to reduce or even eliminate your PMI costs. The savings can be enormous, so it pays to crunch the numbers and get focused on the goal of kissing your PMI goodbye.

source: totalmortgage.com

Negotiating Tips for Homebuyers

So you’ve found the perfect house. It’s got all the room you want for your family and it only needs a little bit of work here and there. There’s just one problem—it’s 15 grand over your budget.

Luckily, the bigger the purchase, the more negotiating room you usually have. Here are a few things to keep in mind when it comes to negotiating a lower price with the seller.


Get pre-approved. Getting pre-approved by a mortgage lender shows buyers that you’re good for your offer, and since deals often fall apart because the buyer can’t get financing, that counts for a lot. Make sure you look like as desirable a buyer as possible.

Use the inspection to your advantage. A home inspection has the potential to be your biggest bargaining chip. If it turns out there is something wrong with the house, sellers are often much more willing to open a dialogue and make concessions.

That being said, don’t count too much on the inspection. It could easily come back clean, or the problems could be bad enough that you think twice about buying in the first place.

Know if you’re in a buyers’ or a sellers’ market. In a buyers’ market, where there are more homes available than there are buyers, you have the advantage. Since homes are more likely to sit on the market for a long time, you likely won’t have a lot of competition. That means the sellers are more likely to accept a significantly lower offer, so if you want to low-ball, this is the time to do it.

In a sellers’ market, where the supply of for-sale homes is low, you will probably face a lot of competition for the property. In this case, your best strategy will be to work fast and prove to the sellers that you are the best buyer.

Don’t worry about going a little over your budget. Provided you’re not paying cash and you can get approved for the amount, don’t spend too much time angsting about a few thousand dollars. With the fairly low interest rates available at the moment, paying a little bit more might actually end up costing you around $10 or $20 extra each month.

Pay attention to your realtor. Your real estate agent is going to be invaluable when you get down to the nitty gritty of negotiation. Not only will he or she have experience with sellers to draw upon, but he or she will also know how the local market is doing and how that comes into play with the listed price.

source: totalmortgage.com

6 Ways to Fight Rising Interest Rates

Mortgage interest rates have been hovering between 3.5 and 4 percent for the past 18 months, refusing to rise as quickly as many forecasters had predicted. That means many have been able to lock down favorable rates without the threat of a drastic increase hanging over their heads.

However, later this year, the Federal Reserve is expected to raise its benchmark rate, which has held near zero since December 2008. This can happen as soon as its next policy meeting in mid-September or, more likely, in December.

The long awaited increase is a good sign for the economy as a whole; it’s continuing to expand at a moderate pace, driving solid job gains and declining unemployment. For real estate markets, though, the news isn’t so great.


Likely, the rate hike will be enough to drive rates on 30-year fixed mortgages to well over 4 percent and perhaps closer to 5. With this hike looming, now is a good time for buyers and refinancers to consider their options. These include:

1. Adjustable Rate Mortgages (ARMs). ARMs are a great way to keep rising rates from busting your budget, at least for the first five years of the loan, when you pay little or no interest. When it resets, you can take sell or take your chances on a refi if you have enough equity. ARMs are a good idea if you don’t plan to own the house a long time.

2. Fix up Your FICO. When they get loan terms from their lender, many buyers wonder what happed to the super low teaser rates their lender promised in its advertisements. Those “bait” rates are real, but they’re just not available to everyone—just those with fantastic FICOs and moderate-sized loans.

Lower FICO scores translate into higher risk for lenders and their investors, so they raise rates to compensate for the risk. By working hard to improve your credit score—reviewing your history, paying bills on time, avoiding taking too much credit, keeping credit card balances down—you can raise your FICO and lower the interest rate on your mortgage.

3. Increase Your Down Payment. By increasing your down payment, you fight rising rates two ways. First, you reduce the amount you will have to borrow and, in turn, the amount of interest you will have to pay. With a smaller loan you may also get a lower interest rate; smaller loans reduce lenders’ risk and a lower rate can result.

4. Lock Your Best Rate. Rates change every day and they vary slightly by location. You can improve your chances of getting the best possible rate during the time that passes between your loan approval and closing by asking your lender for the right lock your rate, usually within a 30 day period. Follow mortgage rates as closely as you can and time your lock to coincide with a low point.

5. Buy a Cheaper House. If the house costs less, your loan is going to be smaller. With a less expensive house, you may also be able to put more down, reducing your principal even more. With a smaller loan, you should also realize a lower rate.

6. Shop for Rates. Lenders compete aggressively by the rates they offer. Like any business, some will offer more favorable rates than others to bring in more business. Also, lenders with access to capital at lower cost can afford to charge lower rates. Shop around for the best rates by sharing your FICO score with the lender so that they don’t quote you a “bait” rate you will never see.

source: totalmortgage.com

What to know about APR & Mortgage Fees

Mortgage terms can be confusing. But when you break them down into digestible pieces of information, they actually make sense. And the more informed you are, the greater the chance you’ll make a wise home-buying decision.

One term guilty of constantly confounding hapless homebuyers is APR. It stands for Annual Percentage Rate, and can be spotted in a mortgage rates table (thanks to the Truth in Lending Act) next to its partner in crime, the interest rate. While both terms share the prized percentage sign, they have an important distinction.

APR vs Interest Rate

 

It all has to do with fees. The interest rate is what it costs you to borrow money from your lender without fees. On the other hand, the APR is what it costs to borrow money from your lender with fees. This is why the APR is always higher than the basic interest rate.

So what are the fees?

 

Fees are a tricky beast. Different states, markets, and lenders all have their own variations, which make it harder to discern if you’re getting a good deal. As always, the more you know makes it less likely you’ll get swindled. At the very least, you should be aware of these basic fees.

Closing costs are miscellaneous fees paid to all parties involved with the sale of the home (e.g. lender processing loan, title company for handling the paperwork, a land surveyor, local government offices for recording the deed etc.). These costs can amount from anywhere between 1% and 8% of your loan amount, but usually fall between 2% and 5% of your loan amount.

Broker fees are just what they sound like: a fee charged for the service of a broker. Generally, the fee is between 1% and 2% of the loan amount. There shouldn’t be any surprises either, the broker is required to disclose all fees up front, and should be able to tell you exactly what each fee is for.

One advantage of choosing a direct lender, is you don’t have to pay for broker fees. Because with a direct lender, you are the one doing the labor, and therefore, don’t have to pay for the work the broker would be doing. There are still fees for processing the loan, but a broker may still be more expensive.

Mortgage points

 

There are two types of mortgage points.

Discount points are prepaid interest on the mortgage loan. For every point, your mortgage rate drops down (usually .25%). Typically, borrowers can pay between 0 and 4 points. And because the Annual Percentage Rate is the total cost (mortgage rate + fees) of your mortgage, lowering your mortgage rate translates into a lower APR. Discount points are also tax-deductible.

The main takeaway is that by paying more up front, you get a lower interest rate. This is most useful a) if you have the available cash to put down, and b) if you plan on staying in your home long term. If you’re trying to pay the lowest possible price upfront, then choose the zero-point option.

Origination points exist so the lender can cover the cost of evaluating, processing, and approving your mortgage. They are not set in stone, so depending on your lender, you might be able to negotiate the number of points.

Back to the APR

If two loans are set for the same period of time, the borrower can compare APRs, or interest rates, and find out which loan is the better deal. For example, a loan with a 3 percent interest rate will have a lower monthly payment than with a 5 percent interest rate. Similarly, a loan with a 3 percent APR will have a lower total cost than it would with a 5 percent APR.

It’s important to note that APR assumes you will stay in your home for the full duration of the loan. And since it would be impossible to factor in whether or not a borrower will refinance, it assumes the borrower will not. If that wasn’t enough, it also assumes that the borrower doesn’t make any extra payments toward their mortgage. These assumptions are why some say that APR can be misleading.

Things can also get a little tricky when you take into consideration the fact that most homeowners only end up staying in their home for a relatively short period of time. What’s the big deal? Well, a loan with a higher APR actually has lower costs over the first few years (because you didn’t pay for discount points, which would have lowered your APR).

So if you know you’re only going to stay in a home for a little while, a higher APR would be your best bet. But if you know you’re going to stay in your home for the entire life of the loan, the lower APR is what you want (because over time, paying upfront for the discount points to lower your interest rate will save you money).

It can definitely get complicated when you plan on staying longer than a few years, but not for the whole life of the loan. With situations like that, it pays to have a competent lender who will help you work out which loan is best.

The bottom line:

 

When searching for the best deal on a mortgage, comparing APRs, due to some possibly false assumptions (e.g. not refinancing, no extra mortgage payments, staying for the full life of the loan), might not be as prudent as say, comparing mortgage rates and fees.

But if you still want to exercise all options, and choose to compare APRs, it’s crucial that you take into consideration how long you plan on staying in your home. Also, because some of the calculations can be complex, make sure you choose a lender that is willing to walk you through the math.

source: totalmortgage.com

You Can Get Interest-Only Mortgages from Mortgage Brokers Again

Party like it’s 2006! Mortgage brokers are now able to peddle interest-only mortgages to qualified borrowers nationwide.

Oh wait, that last part about being qualified isn’t really reminiscent of 2006, but I’ll get to that in a moment.

This week, United Wholesale Mortgage announced a new offering, interest-only mortgages, those which happen to fall outside the ever-important Qualified Mortgage (QM) rule.

That means they’re pretty hard to come by these days, especially via a smaller bank that isn’t dealing in jumbo loans to wealthy clientele.


UWM also happens to be a wholesale mortgage lender, meaning they work with mortgage brokers who connect with homeowners.

 Here We Go Again?


Both mortgage brokers and exotic loans types like interest-only mortgages were blamed for the most recent housing crisis, but this time things seem to be a little different, at least for now.

The lender, which claims to be “one of the nation’s largest and fastest-growing wholesale lenders,” has some pretty tough requirements attached to the loans.

For one, you need a minimum FICO score of 720, so there certainly won’t be any subprime interest-only stuff floating around.

And perhaps more significantly, you need to bring at least 20% for a down payment, as the max LTV is 80% on this new program.

That’s certainly important, given the fact that an interest-only loan only pays off interest, no principal. So if home prices are flat, or worse, fall, the borrower could wind up with little to no equity to serve as a buffer for the lender in the case of default.

The program also calls for a max DTI ratio of 42%, strangely one percentage point lower than the max DTI on QM loans.

So one might say it’s quite a bit different this time around, even if it’s still an interest-only mortgage.


Not Your Uncle’s Interest-Only Mortgage


During the lead up to the crisis, it was common to see IO loans with no money down that only required subprime credit scores. Obviously lending like that when home prices were peaking was a recipe for disaster.

Today, UWM sees the offering as a way for “savvy” homeowners “to save additional discretionary income.”

In other words, they can afford a fully amortizing mortgage, but they want to pay interest-only so they can put their money elsewhere.

There’s no problem with that, so long as the borrower is actually savvy and knows what they’re getting into. And also has a way to get out of it if things don’t pan out.

Brokers should get a competitive boost as well by gaining access to a wider product range to offer borrowers.

For the record, their IO product is just like the stuff that came before it – a 10-year IO period followed by a fully amortizing 20-year payback period.

That means monthly mortgage payments will jump once the initial 10 years are up, though if these borrowers are truly qualified, they should be able to handle it. Or simply refinance or sell before that time is up.

In any case, it’s definitely interesting to see lenders dipping their toes back into the interest-only pool, especially seeing that the Consumer Finance Protection Bureau refers to IO loans as “toxic.”

source: thetruthaboutmortgage.com

Discover to Halt Mortgage Lending

If you’re wondering how difficult it is to enter the business of originating mortgages, just take a look at Discover.

The credit card company turned mortgage lender is exiting the business after just three years.

The departure coincides with a spike in mortgage rates, which should reduce the pool of borrowers eligible to refinance, the bread and butter of Discover Home Loans.

In fact, it was just a few months ago that Discover Financial CEO David Nelms called purchase-money mortgages a difficult nut to crack.

Call it a failed experiment, or perhaps an unexpected breakdown for a company that seems to be making big gains in its primary line of business.

Regardless, they’re done. They made an announcement on their website yesterday, saying they will focus on their “profitable direct banking products for which the company sees greater opportunities for growth.”

They also noted that the mortgage origination business Discover acquired in 2012 from LendingTree is no longer projected to meet their financial expectations as a result of “ongoing challenges” in their operating model.

It’s unclear what that actually means aside from purchase mortgages being more challenging to acquire/originate, but Carlos Minetti, president of consumer banking for Discover, called it a “difficult decision.”

I can tell you from personal experience that a lot of people were unhappy with Discover Home Loans, as evidenced by the many comments on my blog.

This didn’t really come as much of a surprise, given how unique the mortgage industry is. It’s certainly not the same as slinging credit cards.

As I’ve mentioned before, the credit card industry is very accommodating, whereas mortgage lenders are highly regulated and don’t have tons of room to appease borrowers if they aren’t 100% satisfied.

And if a Discover credit card customer decided to work with the company because they enjoyed their other products and customer service, they probably didn’t receive the same treatment via their home loan department.

This divergence in expectations probably resulted in a lot of unhappy customers.

Nearly 500 Will Lose Their Jobs

The closure will result in about 460 layoffs at locations in Irvine, California and Louisville, Kentucky. The affected employees will all receive severance packages.

The Irvine office stopped accepting new applications yesterday but will continue to process and fund loans already in progress.

The Louisville office will accept new applications through July 31st, after which time Atlanta-based AmeriSave Mortgage Corporation will finish processing remaining applications.

AmeriSave seems to be taking over that mortgage office and is expected to offer jobs to 125 existing Discover employees.

The closure of the mortgage business will result in a charge of $0.04 per share of Discover stock, currently priced at just over $58 and valued at nearly $26 billion.

The company plans to continue offering home equity loans through Discover Bank.

source: thetruthaboutmortgage.com

What Does It Mean to Be Pre­-Approved for a Mortgage?

Wouldn’t it be nice to know what you can afford before shopping for a house? With a mortgage pre-­approval, this is exactly what happens. Getting pre­-approved for a mortgage isn’t required to look at properties or bid on a home but there are advantages to meeting with a lender beforehand.

Pre-approvals help eliminate the guesswork when shopping for a property. Mortgage lenders can determine early on whether you qualify for a home loan and how much you can afford. Therefore, you don’t waste time looking at houses outside your budget.

A pre­-approval also tells realtors and sellers that you’re a serious buyer. It might come as a shock, but some sellers will not accept offers from bidders who are not pre-approved. Since sellers are eager to sell their homes and move on, they don’t want to take a chance with someone who might not be able to get financing.

Pre­-Qualification vs. Pre-Approval

It’s important not to confuse a pre-­approval with a pre-­qualification. Both are preliminary steps in the mortgage process, but there are differences.

A pre­-qualification is an initial assessment of whether you meet the qualifications for a mortgage, but it doesn’t guarantee financing. Pre-­qualifications are based on the information you provide on a pre-­qualifying form, which only asks for basic information like monthly income and an estimation of your credit score.

Understand, however, you can’t get a mortgage off a pre-­qualification. A pre-qualification says you might be a good candidate for a mortgage. A pre-approval, on the other hand, goes a step further. Getting pre­-approved for a mortgage involves completing an official loan application with the bank and going through the underwriting process.


Get started with your pre-approval today

What a Mortgage Pre­-Approval Entails?

With a pre-­approval, the mortgage lender will pull your credit and carefully scrutinize your credit activity and debts. You’ll have to submit your recent paycheck stub and tax returns from the past two years, plus provide copies of bank statements and disclose any assets you have.

Based on all of this information, the lender decides whether you’re eligible for a mortgage, and determines how much house you can afford. A pre­approval letter is the official green light to start looking for a house. If you must choose between a pre-­qualification and a pre-­approval, go with the latter. Unlike pre­-qualifications, pre-­approvals are practically written in stone, providing your credit, job status and income doesn’t change prior to closing.

Avoid Jeopardizing a Mortgage Pre­-Approval

It’s important not to make any significant changes to your personal finances after getting pre-­approved for a mortgage. Something as simple as getting store financing or financing a new automobile can jeopardize a mortgage approval.

This mortgage approval is based on your debt and income at the time of applying for the pre-­approval. Getting a new auto loan or acquiring some other type of debt before closing increases your debt­-to-­income ratio. And with a higher debt-to-­income ratio, there’s the risk of being disqualified for the mortgage. So wait until after closing to apply for financing.

The lender will check your credit about one or two days before closing to ensure no changes to your credit history and score. If everything checks out fine, you can proceed with closing and get the keys to your new house.


source: totalmortgage.com

How to Get a Mortgage With Little Savings

If you don’t have a lot of cash in your savings account, you might think you can’t qualify for a mortgage. Between closing costs and down payments, getting a mortgage is expensive. And some first-time homebuyers think every mortgage lender requires a 20 percent down payment. However, many lenders require much less from buyers, which is good news if you have little savings. The truth is, there are several mortgage provisions for people in your situation. Here’s a look at four options for getting a mortgage with little savings.

1. Low down payment mortgage loans

You don’t need a large downpayment for some conventional mortgage or FHA home loans. FHA home loans only require 3.5 percent down, and conventional mortgage lenders recently reduced their minimum down payment from five percent to three percent.

The downside is that you’ll have to pay mortgage insurance with both options. Mortgage insurance protects the bank in case of default and its required on every loan with less than a 20 percent down payment. Since annual premiums are added to your mortgage payment, mortgage insurance increases your monthly payment. FHA mortgage insurance is 0.85 percent of the loan balance, and private mortgage insurance with a conventional mortgage loan is 0.50 percent to one percent of the loan balance.

2. USDA home loan

The U.S. Department of Agriculture encourages growth in rural parts of the country. So if you’re thinking about buying a home in a small town or a rural  area of your city, you might qualify for a no-money down USDA home loan which features low interest rates and flexible credit guidelines.

However, don’t think you have to move to the country or live far from civilization to qualify. Interestingly, many homes in populated areas are eligible for a USDA home loan. Provide your loan officer with the address of the property you’re thinking about purchasing and he can determine whether the address is eligible for USDA financing.

3. VA home loan

If you’re active-duty military or a veteran, you might be eligible for a VA home loan. Like a USDA home loan, these loans do not require a down payment. There’s no private mortgage insurance and limitations on buyer’s closing costs, which also saves money.

4. Increase your credit score

A high credit score says you’re responsible with money and you’re most likely to pay your mortgage on time. FHA home loans require 3.5 percent down regardless of your credit score, but some conventional lenders will require a higher down payment if your credit score is lower than 650 to 680. In this case, the down payment can range between 10 percent and 20 percent. You can increase your credit score by paying bills on time and paying off debt before applying for the loan.

You’ll face hurdles when buying a home, but don’t be discouraged if you have little savings. Know your mortgage option and think of ways to build your savings, such as liquidating personal belongings or borrowing cash from a retirement account — as long as you’re committed to repaying these accounts.

You also have to deal with closing costs. Getting multiple mortgage quotes is one way to lower closing costs. You can also wrap closing costs into your mortgage to avoid any out-of-pocket expense or you can negotiate seller paid closing costs.

source: totalmortgage.com

Three Unique Ways to Pay Your Mortgage

If you’re a homeowner, you know the importance of making regular monthly payments. This protects your credit score, and helps maintain a good relationship with your mortgage lender. However, if you start to experience payment problems, or if you want to pay off your mortgage sooner, options are available to you. The truth is, there are many creative, unique ways to pay your mortgage — and most ways are financially beneficial. 

1. Rent a room in your home as office space
Maybe you’re not comfortable with the idea of getting a roommate. However, if you have free space or an empty room on the property, consider renting this space as office space.

Some home-based business owners seek a separate office space for work, especially if they have young children at home and find that it’s too difficult to concentrate. They might not be able to afford space in an office building, but they may have resources to rent space in a converted garage, a finished basement or a detached room on your property that’s suitable for an office.

You can rent your extra space on a monthly basis, and then use funds to help cover your mortgage payment if you’re having difficulties. Since this money counts as rental income, set aside about 20 percent to 25 percent for income taxes.
 
2. Use a credit card to pay your mortgage

The idea of using a credit card to pay your mortgage may sound scary, but this method has its benefits. It’s an opportunity to accumulate credit card reward points faster.

If you have a credit card with a rewards program, then you probably know that you can earn miles or points for every dollar you spend. Once you’ve earned enough points, you can redeem these for flights, hotels, gift cards, merchandise, cash or statement credit. However, to benefit the most from a rewards program, you have to use your card often.

Some banks do not accept credit card payments, such as Bank of America. So, speak with your mortgage lender to see if this is an option. If you use a credit card to pay your mortgage, make sure you immediately pay off this charge. Don’t charge your mortgage and then carry the balance from month-to-month.

3. Pay half your mortgage every two weeks

You might be unable to afford a 15-year or a 20-year mortgage. Even so, if you’re adamant about paying off your home sooner, consider a bi-weekly payment schedule.

Speak with your lender to see if they’ll accept bi-weekly payments. If so, you’ll pay one half of your mortgage payment every two weeks. This is the equivalent of one extra mortgage payment a year — which may not appear to make a difference. However, one extra mortgage payment a year reduces your total interest charges and reduces your mortgage term by seven or eight years.

Bottom Line:
Getting creative with your mortgage is one of the fastest ways to eliminate the debt sooner. And if you’re having payment problems, creativity can help you drum up cash and keep your mortgage loan in good standing.

source: totalmortgage.com

Peer-to-Peer Lender SoFi Now Offering Mortgages to Smart People

A new lender has entered the mortgage space, but this one’s a little unique, and its offerings are too.

You see, they’re a “marketplace lender,” otherwise known as a peer-to-peer lender, meaning everyday investors can provide funds to borrowers seeking mortgages.

The lender in question, San Francisco-based Social Finance, or “SoFi” for short, says individuals and institutional investors have the ability to “create positive social impact on the communities they care about while earning compelling rates of return.”

In other words, you can be the mortgage lender and make some money in the process. Oh yeah, and earn some good karma if you think peer-to-peer lending is an act of goodwill.


Anyway, the company has already doled out over $1 billion in student loans and now has its sights set on the mortgage market, which some seem to think has become too restrictive. Just ask Ben Bernanke…

The idea here is to target early-stage professionals (recent graduates) who need help financing their home purchases (they also offer refinancing).


SoFi Offers Interest-Only and 10% Down Mortgages with No MI


I dug into their website and found some interesting stuff. For one, they offer interest-only mortgages, which are considered non-QM and somewhat harder to come by these days.

Additionally, they offer loans with as little as 10% down without mortgage insurance, which again is slightly unconventional but probably just collected via a higher interest rate.

Still, they offer IO mortgages with loan amounts as high as $3 million, meaning they’re a jumbo peer-to-peer non-QM mortgage lender.

Per their website, they currently offer a 5/1 ARM with a 10-year interest-only option, a 7/1 ARM, and a 30-year fixed.

Sample rates as of October 9th, 2014 were 2.98% to 5.08% for the 5/1 ARM, 3.13% to 3.89% for the 7/1 ARM, and 4.00% to 4.67% for the 30-year fixed.

They seem pretty close to what traditional lenders are offering these days, though keep in mind that SoFi doesn’t charge loan origination fees.

Are you an ambitious professional? If so, you might be the right fit for SoFi. Even more intriguing than their product offerings is their underwriting process.

SoFi claims that they can fund a mortgage in less than 21 days, as opposed to the industry average of 30-45 days. And they promise not to ask for “useless details.”

Part of their speediness be related to the fact that they use AVMs instead of appraisals for loan approval, which can certainly save some time. However, they eventually conduct an in-person appraisal as well.

They also ask applicants to apply and upload documents online, which allows them to complete loan approvals complete with automated valuations in less than 48 hours.


 SoFi Cares Where You Went to School and What You Majored In

Of course, there is a major caveat. In order to qualify for a SoFi mortgage, you need to have graduated from a selection of Title IV accredited universities or graduate programs.

This might have something to do with the fact that they were a student loan lender before jumping into mortgages.

Not sure which schools/degrees qualify, but I think the expectation is that even if you aren’t making much money now, you’re expected to be in the near future.

I went through the beginning of the loan application process online and noticed that only certain degrees were listed. It’s unclear if it’s an exhaustive list, but they certainly take schooling seriously.

However, SoFi refers to their debt-to-income limits “flexible,” so you might be okay if income is a little light as long as you went to Stanford.

They also determine loan eligibility by credit history and employment status, and require that applicants be at least the age of majority in their state. So I take that to mean no child doctors. Sorry Doogie.

At the moment, SoFi mortgages are only available in California, DC, New Jersey, North Carolina, Pennsylvania, Texas, and Washington on owner-occupied properties, but they’re expected to reach other states soon.

For the record, if you want to become an investor in SoFi mortgages, you need to be an accredited investor, which generally means you need to have a net worth of over $1 million (excluding your primary residence) or make $200k per year.

So no, not every Tom, Dick, and Harry can become an individual mortgage lender, but those with money can.

It’ll be interesting to see if P2P lending gets more popular in the mortgage world as prospective homeowners look beyond traditional banks and lenders for financing. Stay tuned.

source: thetruthaboutmortgage.com