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Mortgage
Mortgage, Mortgage Rates, Quick Cash

Rising mortgage rates push applications lower

For the second week in a row, mortgage applications decreased – this time, down 4.1% for the week ending Jan. 22, according to data from the Mortgage Bankers Association. The 30-year-fixed rate rose to 2.95%, its highest level since November 2020, according to Joel Kan, MBA associate vice president of economic and industry forecasting.

All other mortgage rates in the survey posted a decline.

“In a sign that borrowers are increasingly more sensitive to higher rates, large declines in government purchase applications and refinance applications pulled overall activity lower,” Kan said. “Purchase applications also decreased last week, but the impressive trend of year-over-year growth since the second half of 2020 has continued in early 2021.”

The seasonally adjusted purchase index decreased 4% from one week earlier, while the unadjusted purchase index increased 3 % compared with the previous week.

The refinance index has now declined two straight weeks, but is still 83% higher than last year.


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Kan noted that the unadjusted purchase index was still 16% higher than the same week one year ago.

“Since hitting a recent low in April 2020, the average purchase loan amount has steadily risen – in line with the accelerating home-price appreciation occurring in most of the country because of strong demand and extremely low inventory levels,” he said.

The FHA share of total mortgage applications increased to 9.4% from 9.3% the week prior. The VA share of total mortgage applications decreased to 12.4% from 13.8% the week prior.

Here is a more detailed breakdown of this week’s mortgage application data:

  • The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 2.95% from 2.92%
  • The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400) decreased to 3.17% from 3.19%
  • The average contract interest rate for 30-year fixed-rate mortgages decreased to 2.88% from 3.01%
  • The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.43% from 2.48%
  • The average contract interest rate for 5/1 ARMs decreased to 2.60% from 2.76%

The post Rising mortgage rates push applications lower appeared first on HousingWire.

Source: housingwire.com

Money Management, Mortgage

It’s still really difficult to get a mortgage, but getting easier

Mortgage credit is still the tightest it has been in more than six years, but steady loosening in January revealed lenders are preparing for a rebounding economy, the Mortgage Bankers Association said in a report on Tuesday.

The group’s Mortgage Credit Availability Index rose 2% to 124.6 last month, still hovering near levels previously seen in 2014, though it is the third month in the past four that credit availability has picked up as supply eases out. The index plunged from record highs seen in late 2019 after the COVID-19 pandemic caused the worst economic contraction since the Great Depression.

Measuring credit availability by loan type, the Conforming MCAI that tracks loans backed by Fannie Mae and Freddie Mac rose 7.7% while the Jumbo MCAI measuring high-balance loans rose 2.2%, and the Conventional MCAI that measures loans not backed by the government rose 4.8%.

The Government MCAI that includes mortgages backed by the Federal Housing Administration, the Veterans Administration and the U.S. Department of Agriculture fell by .1%, MBA said.

A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.


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According to Joel Kan, MBA’s associate vice president of economic and industry forecasting, an uptick in credit availability coincides with a housing market that is poised for a strong start to the year.

“Improvements were driven by the conventional segment of the mortgage market, as lenders added ARM loans with lower credit score and higher LTV requirements,” Kan said.

Despite ARM loans accounting for a very small share of loan applications in recent months, Kan noted lenders are likely looking ahead to a strong home buying season by expanding their product offerings.

And even with tighter standards throughout the pandemic, the lowest mortgage rates on record still pushed $4 trillion in originations, insane year-over-year compensation for LO’s and opened the gate for several lenders to finally go public in 2020.

Fannie Mae’s economic and strategic group also upgraded its 2021 forecast in January setting expectations higher for GDP, increased home sale growth in the beginning of the year and even more purchase originations than the year prior.

“Ongoing strength in home-purchase applications and home sales continue to signal robust housing demand, even as low housing inventory remains a constraint,” Kan said.

motgage-credit-January

The post It’s still really difficult to get a mortgage, but getting easier appeared first on HousingWire.

Source: housingwire.com

Money Management, Mortgage

Should You Get an FHA or Conventional Loan?

FHA or conventional loan

A Federal Housing Administration (FHA) loan or FHA loan is insured by the federal government. First-time home buyers and those with lower credit scores and lower down payments are more likely to qualify for an FHA loan. A conventional loan isn’t insured by the government. It’s instead backed by a private mortgage lender and the borrower usually pays the insurance. Conventional loans can be harder to qualify for and require that the borrower have a higher credit score.

FHA and conventional mortgage loans are the most common financing options for today’s mortgage borrowers. In 2018, 74% of all mortgage loans were conventional loans.1 But, should you get an FHA or conventional loan and which program makes the most sense for you?

FHA Loan vs. Conventional Loan

The key to deciding which loan you should get is understanding the characteristics of both programs and how they relate to your financial situation. You may be a good candidate for either program. If so, you want to select the loan that aligns with your payment and cash flow needs.

FHA Mortgage Loan Conventional Mortgage Loan
Required Credit Score 500+ credit score 620+ credit score
Credit History Impact on Qualification Shorter wait times after negative credit events, such as foreclosure, short sale, bankruptcy and divorce Longer wait times after negative credit events, though some lenders may be flexible depending on circumstances
Typical Down Payment As low as 3.5% As low as 3%, with advantages for a larger down payment
Mortgage Insurance Requires both a 1.75% upfront premium and 0.45%–1.05% annual premium Either a one-time payment or monthly fees from 0.55%–2.25% depending on credit, may be waived with a 20% down payment
Typical Interest Rate Lower interest rates than a conventional loan Higher interest rates than an FHA loan
Required Debt-to-Income Ratio Higher debt-to-income ratio than a conventional loan Lower debt-to-income ratio than an FHA loan
Typical Approval Timeframe Longer Shorter

 

About an FHA Loan

FHA loans are insured by the FHA. Borrowers pay a mortgage insurance premium in addition to monthly payments. An FHA loan requires two mortgage insurance payments:

  1. An up-front premium calculated at 75% of the loan amount
  2. An annual premium of between 0.45% and 1.05% of the loan amount—depending on the length of the loan

These mortgage insurance payments make an FHA loan more costly. However, an FHA loan is accessible to homebuyers with credit scores as low as 500. Additionally, cosigners are allowed. And the wait times for loan approval after a short sale or bankruptcy tend to be shorter than for conventional loans.

When seeking a government loan, you may hear the terms qualified mortgage loans (QM loans) and nonqualified mortgage loans (non-QM loans). QM loans are safer for your lender and protect the lender from legal action if you fail to repay your loan. Non-QM loans are less safe for lenders and carry higher interest rates and costs. For a single-family primary residence, it’s unlikely you’ll need to consider a non-QM loan. They are typically best for less-common property purchases, such as condominiums that don’t conform to government guidelines.

Should You Get an FHA Loan?

A loan through the FHA program makes sense when you are a first-time buyer, have little equity to work with or have a unique financial situation. You’ll also need at least a 3.5% down payment to purchase a home with an FHA loan.

The program does limit the size of loans it offers. Loans amounts are roughly limited to a maximum loan limit for the county where the home is located. Upper limits are also capped nationally. The upper limit on homes in low-cost counties is capped at $294,515 in 2018. The cap in high-cost counties is $679,650 in 2018. For example, in Sonoma County, California, you can get an FHA loan of up to $648,600 for a single-family home in 2018 while in Napa the limit is the national limit of $679,650.2

About a Conventional Loan

Conventional loans represent the lion’s share of the mortgage market. These loans, while the most popular, also have stricter qualifying guidelines than FHA loans, including a minimum credit score of 620. You also need a minimum down payment of 3%. However, if you can make a 20% down payment, you can avoid paying for private mortgage insurance (PMI). Even if you can’t make the 20% down payment, as long as you have a good credit history, you’ll pay less for PMI on a conventional loan than you will on an FHA loan. And with a conventional loan, wait times after a short sale or bankruptcy tend to be longer than for FHA loans.

The trade-off for these stricter guidelines is that if you don’t have to pay for private mortgage insurance, even with a higher interest rate, you can actually save more over the life of the loan.

There loan limits on the amount you can borrow with a conventional loan. Limits for 2018 are $424,100 for a single-family home.

There are also different types of conventional mortgage loans:

  • A conventional mortgage is, as already described, a private loan not backed by the government.
  • Conforming loans can be sold to other lenders, typically government-sponsored entities (GSEs) Fannie Mae and Freddie Mac because the loan “conforms” to their guidelines.
  • Nonconforming loans don’t conform to GSE guidelines and may be sold to other lenders, but GSEs wont’ buy them. Nonconforming loans are typically large loans, called “jumbo” mortgages.

Should You Get a Conventional Loan?

If you have a credit score of more than 620 and can make a 5% down payment or more, you have the bare minimum needed to apply for a conventional loan. Combine those criteria with a strong employment history and a lower debt-to-income ratio (at a maximum of 40 to 50%) and payment-to-income ratio, and you’re a good candidate for a conventional loan.

Before You Apply for Either an FHA or Conventional Loan

If you’re considering applying for a mortgage loan, it helps to know not only how much house you can afford, but where your credit stands before you begin the process. That’s because your credit scores help determine what types of rates and terms you can qualify for. Get your Experian credit score for free and get an updated score every 14 days on Credit.com.

This article was last published December 1,2017, and has been updated by a different author.

Image: Ridofranz

1 US.S Census Bureau, https://www.census.gov/construction/nrs/pdf/quarterly_sales.pdf

2 U.S. Department of Housing and Urban Development, https://entp.hud.gov/idapp/html/hicost1.cfm

The post Should You Get an FHA or Conventional Loan? appeared first on Credit.com.

Source: credit.com

Money Management, Mortgage

8 Types of Home Loans Available for Homebuyers

Many people mistakenly believe they can’t afford to buy a home because they don’t really know what their options are. Fortunately, home loans are not one-size-fits-all. There are a variety of different mortgages available to…

The post 8 Types of Home Loans Available for Homebuyers appeared first on Crediful.

Source: crediful.com

Money Management, Mortgage

Home Equity Loan vs Line of Credit

If you need a quick cash injection and own sizeable equity in your home, equity loans can help. Home equity loans and home equity lines of credit are low-interest rate loans taken out against your home. Also known as second mortgages, they allow homeowners to tap into their equity, and offer a plethora of benefits, as well as a few downsides.

But which option is best for you and your needs, how do they differ, and what can they be used for?

Home Equity Loan vs Home Equity Line of Credit

Home equity loans and lines of credit are types of second mortgages, which means they often exist in addition to your primary mortgage. They are secured against the equity that you own, and the size of that equity will dictate how much you’re offered and what sort of rate you’re provided with.

A home equity loan gives you a lump-sum payment in exchange for securing your equity. A home equity line of equity, also known simply as a HELOC, is a line of credit that works a lot like a credit card.

In both cases, you are not selling your home or any part of it. You’ll still technically own all the equity that you secure against the loan, but if you ever default on it then the lender may seek to initiate foreclosure.

Of course, because they are second mortgages, the primary lender will take priority in the event of a complete mortgage default, but once they have secured their share then the second mortgage lender will take theirs.

Home Equity Loan Details

  • Payment Type: Cash paid upfront 
  • Interest Rate: Fixed-rate of interest 
  • Interest Charges: Pay interest on the entire balance
  • Closing Costs and Fees: Closing costs and fees charged
  • Repayment: Fixed monthly payments that never change

Home Equity Line of Credit Details (HELOC)

  • Payment Type: Money paid as a line of credit during a draw period
  • Interest Rate: Variable interest rate.
  • Interest Charges: Only pay on what you withdraw from the credit line
  • Closing Costs and Fees: Closing costs and fees tend to be lower
  • Repayment: Interest-only payments possible

When to Consider a Home Equity Loan

Towards the end of this article, we’ll discuss some of the ways you can use a home equity loan or HELOC, covering both the positive and the negative. But for now, it’s important to understand which of these options is best for you based on your current situation.

A home equity loan may be the better option if:

You Need A Lot of Money Now

The main reason to opt for a home equity loan is if you need a lot of money and you need it sooner rather than later. This is generally the better option is you have a specific amount in mind, such as if you have a vacation planned or medical bills to pay and have been given a specific quote.

That way, you know how much to borrow and can use the money straightaway, before focusing on making repayments.

It gives you some clarity and certainty, as you’ll be told how big your monthly payments will be, how long they will last, and how much money you’ll get in return for your home’s equity.

It’s important to take a little as possible, but to make sure you have more than you need. That seems like a contradictory statement, but for example, if you are planning a cruise around the Mediterranean and have been quoted $15,000 for you and your family, you should consider taking $20,000 instead. 

That way, you’ll be covered for spending money and unforeseen expenses and won’t need to resort to taking out personal loans, cashing savings or putting everything on your credit card when you realize you’re short.

You Want a Fixed Interest Rate

A home equity loan will typically cost you much less than a HELOC over the life of the loan. It also charges a fixed monthly amount, one that doesn’t change regardless of the prime rate and your accumulated equity.

Understanding how much you will be expected to pay over the loan term can help you to prepare and keep nasty surprises at bay.

You Have Debt to Repay

One of the best uses of a home equity loan is debt consolidation, whereby you use the loan to pay off your current debt. If you have a lot of debt tied up in credit card balances and personal loans, chances are you’re paying a much higher rate of interest than with a home equity loan.

Therefore, by swapping one big secured, low-interest debt for lots of small, unsecured, high-interest debts, you could pay much less interest over the loan term. 

Calculate how much debt you have; how much it is costing you every month (and over the term) and make sure you consider prepayment penalties as well. You can then calculate the same projected costs for a home equity loan and will likely discover that the latter will save you thousands when used to clear your debt.

Of course, for this to work, the home equity loan needs to provide you with a sufficient amount of money to cover all of your existing debts, which is reliant on your home’s value and your loan-to-value ratio.

When to Consider a HELOC

On the surface, a HELOC can seem like a better option. The loan amount isn’t as high and the money is released over a period of time, as opposed to a single lump-sum. But that could provide some huge benefits for certain types of homeowners.

You Don’t Know How Much You Will Need

If you have a couple of big events coming up, such as a wedding and honeymoon, and you don’t know how much money will be needed, a HELOC may be the better option. With a HELOC, you can draw money as you need it, paying interest only on the amount that you draw.

You will typically be charged a higher interest rate for this type of loan, but it means you can use the money to make staggered payments, such as a debt clearance this month, a wedding in a few months, and a vacation at the end of the year.

Your Income Rises and Falls

If you’re self-employed and don’t have a consistent or reliable income, a HELOC may be better than a home equity loan. With a lump-sum loan, the money typically goes quickly and then, if you encounter a slow period at work or you’re hit with a major bill, you don’t have many options for repayment.

But if you have a HELOC, you also have a line of credit waiting for you, one that can get you out of trouble when you need it.

​Pros and Cons of a Home Equity Loan

  • Pro = Large cash lump-sum (based on home value) to spend as you please.
  • Pro = A fixed interest rate is charged.
  • Pro = The repayment period and the monthly payment is fixed and remain the same.
  • Cons = Interest payments may be higher than your first mortgage.
  • Cons = Your home equity is at risk.

​Pros and Cons of a Home Equity Line of Credit

  • Pro = Interest is only charged on the amount you withdraw.
  • Pro = Borrow money as and when you need it during the draw period.
  • Pro = Can be used to make multiple small payments.
  • Pro = Large credit limit, depending on the value of your home and the size of your equity.
  • Cons = Only offered by credit unions and traditional banks.
  • Cons = Your home equity is at risk.
  • Cons = Interest rate is variable, and the loan is open ended, making it difficult to judge how much you will pay over the life of the loan.

How to Use Home Equity Home Loans 

There are many reasons you may want to consider a home equity loan or a HELOC, some more preferable to others, but all viable and all allowed. In fact, as long as you have the equity and meet your payments on time, the lender won’t care how you spend the money.

Education

College tuition is expensive and student loans don’t always cover everything that you need, especially if you’re studying for an advanced degree or you’re a mature student.

You need to think about living expenses as well as college tuition fees and equipment, and a HELOC or revolving line of credit can provide you with more options, more variety, and potentially a lower rate.

Major Expense

Major expenses like funerals and medical bills can arise unexpectedly and hit you hard, taking savings or leaving you with few options. If you have a significant share in your own home, however, then a home equity loan could help.

These loans can give you a cash sum to be used on everything from weddings to funerals and medical bills, helping you to dig yourself out of trouble.

Vacations

Spending your home equity loans or credit on a vacation is risky, as you’re using a secured expense tied to your most important asset to purchase something that is fleeting and won’t give you any tangible assets. 

However, we all need to live a little and while vacations can’t pay you interest or dividends and won’t appreciate in time, they will give you memories that last for a lifetime and allow you to place one extra tick on your bucket list.

Home Improvements

One of the most common uses for equity loans is to remodel, renovate or complete a major home improvement project. The costs of this project may be tax-deductible and could help to significantly boost the market value of your home.

Debt Consolidation

As discussed already, this is probably the best way that you can use a home equity loan as it’s one of the few options (along with home renovation) that may actually result in you saving/gaining money over the long term due to the lower interest rate offered by these loans when compared to unsecured debts.

Bottom Line

Home equity loans are ideal if you have some equity in your home and need some fast and easy cash. However, simply having a house isn’t enough to get these types of loans.

Your debt-to-income ratio and credit score will both be considered to make sure you can afford to meet the repayment schedule. And even if you do qualify, they may not be the best options available to you.

You can also look into a cash-out refinance, which gives you a larger mortgage than you need and lets you collect the remaining cash, or a reverse mortgage, which is only available to older homeowners who control a large equity stake.

In any case, the more of your house that you own, the more loan options you have and the better the rates and fees will become. So, if you get rejected, keep building that equity and try again in a few years.

Home Equity Loan vs Line of Credit is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

Money, Money Management, Mortgage, Real Estate

One Important Phone Call You Should Make Before You Buy A House

Any house that you buy “used” has a history to it, and that history may affect your finances. Here’s one key call you can make to check out your new home.

The post One Important Phone Call You Should Make Before You Buy A House appeared first on Bible Money Matters and was written by Melissa. Copyright © Bible Money Matters – please visit biblemoneymatters.com for more great content.

Source: biblemoneymatters.com

Home Buying, Money Management, Mortgage

Where More Young Residents Are Buying Homes – 2021 Study

Image shows two relatively young people changing the sign outside their home from "For Sale" to "Sold. SmartAsset found the places where more young residents are buying homes, based on 2009 and 2019 homeownership rates among residents younger than 35.

The homeownership rate in America peaked at a little more than 69% in 2004 before falling to 63.7% in 2016, according to U.S. Census data. Despite the fact that it has rebounded to a little more than 65% in 2019 overall, only 36.4% of Americans younger than 35 own their homes. It may be easier in some places, though, for this young cohort to buy homes. To that end, SmartAsset crunched the numbers to find the cities where people younger than the age of 35 are most likely to own their own home – and to see where this number has gone up in recent years.

To find the cities where more under-35 residents are buying homes, we compared the homeownership rate for this demographic in 2009 with the homeownership rate in 2019 for 200 of the largest U.S. cities. For details on our data sources and how we put all the information together to create our final rankings, check out the Data and Methodology section below.

Key Findings

  • Young homeownership has decreased overall since 2009. While there are plenty of cities where homeownership among younger residents has increased, over the past decade the under-35 homeownership rate decreased by 3.71%, on average, across the 200 cities we analyzed.
  • Under-35 homeownership lags compared to that of older generations, particularly in large cities. Though some two-thirds of all Americans owned their homes in 2019, just one-fourth (26.15%) of residents younger than 35 did in the 200 cities we analyzed. Homeownership rates are particularly low for the under-35 set in America’s largest cities: of the 10 with the highest populations, nine are in the bottom half of the study for 2019 homeownership rate (only Phoenix cracks the top half at No. 67), and all 10 had decreasing homeownership rates from 2009 to 2019, with six out of 10 — Phoenix, San Jose, Philadelphia, Dallas, Houston, Chicago — ranking in the bottom half of the study for change in homeownership rate from 2009 to 2019.

1. Midland, TX

Midland, Texas has seen a 10-year increase of 17.11 percentage points in the homeownership rate among people younger than 35, the largest growth seen in this study. The total homeownership for that age cohort in 2019 was 52.42%, the fourth-highest rate we analyzed for that metric. Together, this makes Midland the top place where more young residents are buying homes.

2. Cape Coral, FL

The homeownership for younger Cape Coral, Florida residents in 2019 was 55.54%, the third-highest rate in the study for this metric. That’s an increase of 8.71 percentage points compared to 2009, the fourth-highest increase for this metric across all 200 cities we considered.

3. Joliet, IL

Joliet, Illinois, located about 30 miles southwest of Chicago, had a homeownership rate of 63.48% for under-35 residents in 2019, the highest rate of all the cities we studied. Joliet ranks ninth for the 10-year change in homeownership, increasing 5.48 percentage points from its 2009 rate of 58.00%.

4. Mesquite, TX

Mesquite, Texas is part of the Dallas metro area, and in 2019, the homeownership rate among residents younger than 35 was 45.46%. That ranks 11th in our study, but in 2009 the rate was just 35.47%, meaning the increase over 10 years was 9.99 percentage points, third place for this metric.

5. Bakersfield, CA

Bakersfield, in central California, ranks 20th for homeownership rate among younger people in 2019, at 39.75%. That’s a 10.01 percentage point increase over the 10-year period from 2009 to 2019, the second-highest jump for this metric in the study.

6. Aurora, CO (tied)

Aurora, Colorado ranks 15th for the 2019 homeownership rate among people younger than 35, at 42.28%. That is an increase of 5.29 percentage points from 2009, the 10th-largest jump we observed in the study.

6. Port St. Lucie, FL (tied)

Port St. Lucie, Florida has the fifth-highest homeownership rate among younger people in 2019, at 51.93%. It ranks 20th for its increase in that percentage from 2009, at 2.70 percentage points.

8. Gilbert, AZ

Gilbert, Arizona, located near Phoenix, has the eighth-highest homeownership rate among residents younger than 35, at 50.08%. That increased 2.69 percentage points since 2009, good enough for 21st place in that metric.

9. Fort Wayne, IN

Fort Wayne, Indiana ranked 17th in both of the metrics we measured for this study. The homeownership rate among those younger than 35 was 41.24% in 2019, a 3.32 percentage point increase over the previous 10 years.

10. Rancho Cucamonga, CA

The final city in the top 10 of this study is Rancho Cucamonga, California, which ranked 21st for under-35 homeownership in 2019, at 39.39%. That is a 3.77 percentage point jump since 2009, the 14th-biggest increase we observed across all 200 cities in the study.

Data and Methodology

To find the cities where more young Americans are buying homes, SmartAsset examined data for 200 of the largest cities in the U.S. We considered two metrics:

  • 2019 homeownership rate for those under 35. This is the homeownership rate among 18- to 34-year-olds. Data comes from the U.S. Census Bureau’s 2019 1-year American Community Survey.
  • 10-year change in homeownership rate for those under 35. This compares the homeownership rate among 18- to 34-year-olds in 2009 and 2019. Data comes from the U.S. Census Bureau’s 2009 and 2019 1-year American Community Surveys.

First, we ranked each city in both metrics. Then we found each city’s average ranking and used the average to determine a final score. The city with the highest average ranking received a score of 100. The city with the lowest average ranking received a score of 0.

Tips for Buying a Home

  • Never too old for some expert guidance. No matter what age you are, buying a home is a big step, and a financial advisor can help you get ready to take it. Finding the right financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • Meticulous mortgage management. Chances are you’ll need a mortgage to facilitate buying your home. Use SmartAsset’s free mortgage calculator to see what your monthly payments might be based on your financing rate and down payment.
  • Taxes don’t always have to be taxing. If you’re moving to one of the cities on this list, your tax burden might change. Use SmartAsset’s free income tax calculator to see what you’d owe the government each year if you pick up stakes and move.

Questions about our study? Contact press@smartasset.com.

Photo Credit: © iStock/valentinrussanov

The post Where More Young Residents Are Buying Homes – 2021 Study appeared first on SmartAsset Blog.

Source: smartasset.com

Home, Mortgage

How Much Cash Do You Really Need to Buy a Home?

Are you ready to buy a home? You’re not alone—in 2019, more than five million people bought an existing home. And that doesn’t even include the number of people who purchased new construction.

The point is, the housing market is always bustling and busy. And if it’s your first time buying a home, it might seem a bit daunting. You might have a couple of questions—how much money do you need to buy a home? And how can you even get those funds?

Overwhelmed? Don’t be. We’re here to guide you towards saving up, so hopefully you’ll be able to afford your dream home. Keep reading to learn more!

How Much Do You Need for a Down Payment?

Let’s start with one of the first payments you might have to make—a down payment. When someone takes out a mortgage loan, they’ll put down a percentage of the home’s price. That’s the down payment.

You might’ve heard that down payments are about 20% of the total cost of your new home. That can be true, but it really just depends on your mortgage. There are mortgage options that require little to no down payment, and how much you need often depends on your eligibility for different programs. Here are some different loan options:

1. USDA Mortgage

The USDA guarantees mortgages for eligible buyers primarily in rural areas. These loans do not have down payment requirements. To qualify for a USDA loan:

  • The property must meet eligibility requirements as to where it’s located.
  • Your household must fall within the income requirements, which depend on your state.
  • You must meet credit, income and other requirements of the lender, though they may be less rigorous than loans not backed by a government entity.

2. Conventional Mortgage

Conventional mortgages are financed through traditional lenders and not through a government entity. Depending on your credit and other factors, you may not need to put down 20% on such loans. Some lenders may allow as little as a five percent down payment, for example. But you’ll have to pay private mortgage insurance (PMI) if you put down less than 20%.

3. FHA Mortgage

FHA loans, like USDA loans, are partially guaranteed by a government agency. In this case, it’s the Federal Housing Administration (FHA). A down payment on these loans may be as low as 3.5%. Requirements for an FHA loan can include:

  • You’re purchasing a primary home.
  • The home in question meets certain requirements related to value and cost.
  • A debt-to-income ratio between 43% and 56.9%.
  • You meet other credit requirements, though these may not be as strict as with conventional loans.

How much do you need to make to buy a $200K house?

Given the above information, here’s what your down payment might look like on a home worth $200,000:

  • USDA loan: Potentially $0
  • Conventional loan: From $10,000 to $40,000
  • FHA Loan: As low as $7,000

These are just some options for mortgages with low down payment requirements. Working with a broker or shopping around online can help you find the right mortgage. In addition to the down payment, you do need to ensure that you can afford the mortgage and make the monthly payments.

Don’t Forget the Cash You’ll Need for Closing

Closing costs are typically between three and six percent of your mortgage’s principal. That’s how much you’re borrowing, so the less you put down, the more your closing costs might be.

Here’s a range of closing costs assuming a cost of three percent of the low range home purchase, when buying with less than 20% down:

  • For a home purchase between $500,000 and $600,000, you’ll need at least $15,000 for closing costs
  • Between $300,000 and $500,000, at least $9,000 for closing costs
  • Between $150,000 and $300,000, at least $4,500 for closing costs

Where Can You Get the Money to Buy a Home?

These numbers should give you an idea of how much cash you’ll need for a home purchase. Acceptable sources for procuring cash to close on a house can be one or any of the following:

  • Stocks
  • Bonds
  • IRA
  • 401(k)
  • Checking/ savings
  • A money market account
  • Retirement account
  • Gift money

The key here is that the money needs to be documented. You have to be able to prove you had it and didn’t borrow it simply for the purpose of making your down payment or covering closing costs.

Don’t have cash available from any of the above-mentioned sources? There are other sources you can use as long as they can be paper-trailed, such as your tax refund or a security deposit refund on your current home rental.

Plan for Other Important Costs

While down payments and closing costs are the biggest out-of-pocket expenses involved in buying a home with a mortgage, you may need to cover other costs. There might be some additional home buying and moving-in costs. Those could include inspections, the cost of any necessary repairs not covered by the sellers and moving fees.

Are You Ready to Buy a Home?

Saving up the right amount of money is just one step in buying a home. You must also ensure your credit score is in order. Lenders look at different credit scores when they consider someone for a mortgage. Sign up for ExtraCredit to get a look at 28 of your FICO Scores to understand how lenders might see you as a borrower. Once you check your scores, you can decide whether you need to build your score or start shopping for your mortgage.

Sign up for ExtraCredit today!

The post How Much Cash Do You Really Need to Buy a Home? appeared first on Credit.com.

Source: credit.com

Home Decor, Loans, Mortgage, Personal Finance

How Long Does It Take To Buy A House?

How long does it take to buy a house? The answer is: it depends. You can buy a house in a matter of weeks or it can take you anywhere from 4 to 6 months. The question is how ready are you? It can take a long time, and that’s just learning about various mortgage options or improving your credit score.

So understanding the various factors involved in buying a house can give you an estimate of how long it will take you to buy the house

Check out now: 5 Signs You Are Not Ready To Buy A House

How long does it take to buy a house? A step-by-step guide.

It can take a homebuyer a few weeks to several months to complete the home buying process. But when determining how long it will take you to buy a house, you first have to find out if you will be pre-approved for a mortgage. There is no sense of shopping for a house to then realize you can’t afford it.

If you are interested in comparing the best mortgage rates through LendingTree click here. It’s completely free.

I. How long does it take to get a pre-approved mortgage letter in order to buy a house?

If you’re serious about buying a house, it’s important to get pre-approved for a mortgage. So when it’s time to make an offer, the seller will know you’re serious. If you don’t have one handy, the seller will likely move to the next buyer.

Getting pre-approved for a mortgage in order to buy a house can take longer. That is because you have to make sure your financial situation is in shape. For example, your income-to-debt ratio, your down payment, and your credit score must be good. That’s exactly what a mortgage lender will look at.

Even when these things are in order, shopping and comparing mortgage rates and fees can take several weeks.

Let’s take a look on how long it will take you to get these things in shape before buying a house.

Click here to compare mortgage rates through LendingTree. It’s completely FREE.

A. How good is your credit score?

A low credit score can make buying a house take longer, because it can take months to a year to improve a bad credit score.

A conventional loan will usually require a 640+ credit score.

In fact, your credit score is the number 1 item mortgage lenders look at to decide whether to offer you a mortgage. And if it is not where it’s supposed to be, you might get rejected.

Luckily for you there are other ways to get a loan with much lower credit score: FHA loans.

FHA loans only require a credit score of 580 with 3.5% down payment. You may get qualified with a 500 credit score, but you’ll have to come with a 10% down payment.

So before you get into the fun part of shopping for a mortgage or visiting homes, it’s best to know what your credit score is and take steps to improve it.

You can get a free credit score at Credit Sesame.

B. Fix errors on your credit report.

Fixing errors on your credit report in order to get pre-approved for a loan in order to buy a house can take 30 days.

According to Transunion, “most investigations are completed within 2 weeks, but some may take up 30 days.”

Again, we recommend you get a free credit report at Credit Sesame. A credit report will give you a detail analysis of your credit history, how much debt you owe, and how creditworthy you are, etc. If there are any errors or inaccuracies, fix them immediately so there’s no surprise when you’re actually applying for a mortgage.

The best way to do that is by filing a Transunion dispute or Equifax dispute.

C. Do you have a down payment for the house?

How long it will take you to buy a house will also depend on whether or not you already have money saved up for a down payment.

Unless you’re going to buy the house with outright cash, you’ll need a down payment. And saving for a down payment can take a long time. Depending on your income and expenses, saving for a down payment on a house can take years.

Assuming, for example, you want to buy a house that will cost you $450,000, and you’re using a conventional loan to finance the house. With a 20% down payment, you will need to come up with $90,000.

Let’s say again, because of other monthly expenses, you can only save $1500 a month for the down payment.

You see how long it will take you to save for a down payment to buy the house? 5 years. And that doesn’t even take into account other upfront costs of buying a house, such as closing cost.

While it’s possible to get a mortgage with a down payment as low as 3.5% of the home purchase price, it’s advisable to put at least 20% down. The reason is because you will avoid paying private mortgage insurance (PMI), which protects the lenders in case you default on your mortgage.

Home buyers with a down payment below 20% are usually charged with PMI.

Another reason for a larger down payment is that it reduces the cost of the mortgage, grows equity much faster, and saves you on interest over the life of the loan.

As you can see, it can take you as much as 5 years from the time you’re thinking about buying the house to the time you’re actually ready to start the process.

But once you have taken care the things above, buying a house can go a lot faster.

II. How long does it take to find a real estate agent?

Average time: 1 day to a month

Once you have been pre-approved for a mortgage, the next step is to find an experienced real estate agent. Finding a good real estate agent can take a day to a month. Websites such as Zillow and Redfin list real estate agents you can use.

III. Shopping for a home.

Average time: a few weeks to a few months

With the help of a real estate agent and your own due diligence, finding a home can can go faster or take longer depending on available homes, the season and your desired location.

But experts say on average it can take a minimum of three weeks to a few months.

IV. Making an offer, negotiation, and inspection.

Average time: 1 to 10 days

Once you have found the home of your dream, the next step is to make an offer. You and the seller can go back and forth negotiating the price.

Once your offer has been accepted, you and the seller sign something called a purchase agreement. Then, the next step is to hire a professional to inspect the home for defects. Depending on your state, a home inspection must be completed within 10 days. And if the inspection finds some defects in the house, that could delay the process.

V. How long does it take to close on a house?

Average time: 30 to 45 days.

Once the inspection is done, your lender will need to officially approve you for the loan. And depending on the lender, it can also affect how long it takes to buy a house. You may need to provide additional documents. But the lender will need to assess the home for its value. And depending on the program (whether it’s conventional loan or FHA loan) it can take anywhere from 30 to 45 days to close on a home.

Bottom line

When asking yourself this question: “how long does it take to buy a house?” The answer is : it depends. If you have your credit score, your down payment, your other finances under control, you can buy your house in two months or less. But if you have to save for a down payment, fix errors on your credit report, raise your credit score, the whole home buying process can take years.

Click here to compare mortgage rates through LendingTree. It’s completely FREE

Still wondering how long it takes to buy a house? Read the following articles:

  • 5 Signs You’re Not Ready To Buy A House
  • 10 First Time Home Buyer Mistakes To Avoid
  • 3 Signs You’re Not Ready to Refinance Your Mortgage
  • The Biggest Mistakes Millennials Make When Buying a House
  • 7 Signs You’re Ready To Buy A House

Work with the Right Financial Advisor

You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc). So, find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post How Long Does It Take To Buy A House? appeared first on GrowthRapidly.

Source: growthrapidly.com

Home Decor, Mortgage, Refinance, Unique Homes

5 Rampant Mortgage Myths You’ll Hear These Days—Completely Debunked

These days, things are changing so fast, it’s tough to keep up. That’s especially true in the mortgage industry, where interest rates and the overall home loan landscape are shifting with such head-spinning speed, it’s easy for outdated information to circulate, leading home buyers and homeowners astray.

You may have heard, for instance, that everyone can score a record-low interest rate, or that refinancing is a no-brainer, or that mortgage forbearance means you don’t have to pay back your loan, ever. Sorry, but none of these rumors is true—and falling for them could cost you dearly.

To help home buyers and homeowners separate fact from fiction, we asked experts to highlight some rampant mortgage mistruths out there today. Whether you’re looking to buy or refinance, these are some reality checks you’ll be glad to know.

Myth No. 1: Everyone qualifies for low interest rates

There’s a lot of buzz about record-low mortgage interest rates lately. Most recently, a 30-year fixed-rate mortgage dropped to 2.88% for the week of Aug. 6, according to Freddie Mac.

This is great news for borrowers, but here’s the rub: “Not everyone will qualify for the lowest rates,” explains Danielle Hale, chief economist at realtor.com®.

So who stands to get the best rates? Namely, borrowers with a good credit score, Hale says. Most lenders require a minimum credit score of about 620. Some lenders might require an even higher threshold (more on that later).

Your credit score isn’t the only factor affecting what interest rate you get. It also depends on the size of your down payment, type of home, type of loan, and much more. So, keep your expectations in check, and make sure to shop around to increase the odds you’ll get a good rate.

Myth No. 2: Getting a mortgage today is easy

Many assume today’s low interest rates mean that getting a mortgage will be a breeze. On the contrary, these low rates mean just about everyone is trying to get a mortgage, or refinance the one they have. This glut of applicants, combined with the uncertain economy, means some lenders may actually tighten loan requirements.

In fact, a realtor.com analysis found that 5% to 20% of potential borrowers may struggle to get a mortgage because of these stricter standards. And getting a mortgage could become even tougher if the recession gets worse.

For example, some lenders may also require higher minimum credit scores and larger down payments. In April, JPMorgan Chase began requiring a 700 minimum credit score and 20% down payment.

Jason Lee, executive vice president and director of capital markets at Flagstar Bank, says some lenders aren’t offering the loans that are considered riskier—such as jumbo loans, which exceed the conforming loan limit (for 2020, that max is $510,400).

“There aren’t as many loan products available,” Lee says.

And even if you do manage to get a loan, it may take longer than you’d typically expect.

“Based on low rates and a high volume of refinances, loans are taking longer to complete from application to closing,” says Staci Titsworth, a regional mortgage manager for PNC Bank.

As such, borrowers should ask their lender how long the process will take to close, and make sure they’re aware of the expiration date on the interest rate they’ve locked in—since with rates this low, they could go up.

“Most lenders are locking in the customer’s interest rate so it’s protected from market fluctuations,” Titsworth adds.

Myth No. 3: Everyone should refinance their mortgage

“With mortgage rates hovering near record lows, a refinance can make sense and can help free up monthly cash flow,” Hale says.

Still, not everyone should refinance. Homeowners should make sure to take a good hard look at their situation to see whether it makes sense for them.

For one, it will depend on your current interest rate. If it’s low already, it may not be worth the trouble—particularly since refinancing comes with fees amounting to around 2% to 6% of your loan amount.

Given these upfront costs, refinancing often makes sense only if you plan to remain in your house for a while.

In general, “refinancing is a good idea for homeowners who plan to live in the same home for several years, because they will reap the monthly savings over a longer time period,” Hale explains.

Myth No. 4: You can apply for a mortgage after you’ve found a home

Many people assume that you can find your dream home first, then apply for the mortgage. But that’s backward—now more than ever. Today, your first stop when shopping for a house should be a mortgage lender or broker, who can get you pre-approved for a home loan.

For “a buyer in a competitive market, it’s typically essential to have pre-approval done in order to submit an offer, so getting it done before you even look at homes is a smart move that will enable a buyer to move fast to put an offer in on the right home,” Hale says.

Mortgage pre-approval is all the more essential in the era of the coronavirus pandemic. Why? Because many home sellers, leery of letting just anyone tour their home, want to know a buyer is serious—and has the cash and financing to make a firm offer. As such, some real estate agents and sellers require a pre-approval letter before a potential buyer can view a home in person.

Nonetheless, according to a realtor.com survey conducted in June of over 2,000 active home shoppers who plan to purchase a home in the next 12 months, only 52% obtained a pre-approval letter before beginning their home search, which means nearly half of home buyers are missing this crucial piece of paperwork.

Aside from getting their foot in the door of homes they want to see, home buyers benefit from pre-approval in other ways. Since pre-approval lets you know exactly how much money a lender will loan you, it also helps you target the right homes within your budget.

After all, as Lee points out, “You don’t want to get your heart set on a home only to find out you can’t afford it.”

Myth No. 5: Mortgage forbearance means you don’t have to pay back your loan

The record unemployment caused by the COVID-19 pandemic means millions of Americans have struggled to pay their mortgages. To get some relief, many have been granted mortgage forbearance.

Nearly 8% of mortgages, or 3.8 million homeowners, were in forbearance as of July 26, according to the Mortgage Bankers Association.

The problem? Many mistakenly assume that mortgage forbearance means you won’t have to pay your loan, period. But forbearance means different things for different homeowners, depending on the terms of the mortgage and what type of arrangement was worked out with the lender.

“Forbearance is not forgiveness,” Lee says. “Rather, it’s a timeout from having to make a mortgage payment where your servicer—the company you send your mortgage payments to—will ensure that negative impacts to your credit report and late fees will not occur. However, because forbearance is not forgiveness, you will need to reach some sort of resolution with your loan servicer about the missed payments.”

The paused payments may be added to the back end of the loan or repaid over time.

“It does not forgive the payments, meaning the borrower still owes the money,” Hale says. “The specifics of when payments need to be made up will vary from borrower to borrower.”

For more smart financial news and advice, head over to MarketWatch.

Source: realtor.com