If you’ve been eyeing interest rates and waiting for an opportunity to refinance, your time has come! Refinancing is an excellent way to make your home work for you, and we’re answering the top five questions people have about refinancing.
Refinancing is when your original loan is replaced with a new loan with different terms. It can be a smart move if you plan to stay in your home for a while; use a refinance mortgage calculator and speak with a lender to know your breakeven point. Many people refinance to lower their monthly payment, but it can also be used to access home equity, remove someone from the mortgage, get rid of private mortgage insurance (PMI), or change your loan type. Work with a loan originator to find out what refinance option is right for your needs.
Much like purchase loans, there’s no one-size-fits-all refinance. There are several types of refinances that can help you achieve your financial goals:
Rate and term refinance: This is the most common type of refinance because it allows you to lower your monthly payment or shorten the loan’s term. When interest rates drop, it’s a great time to take advantage of a rate and term refi, especially if you bought your home at a higher rate. You can also use this type of refinance to change your loan type (like going from an adjustable-rate to a fixed-rate mortgage) or remove PMI. Be aware that lowering your payment can lead to a longer term and more payments for the life of the loan, while choosing to shorten the repayment period can lead to a higher monthly payment.
Cash-out refi: A cash-out refinance leverages your existing home equity by replacing your first loan with a higher mortgage and giving you the difference in cash. There’s no limit to how you can use your newfound funds—they can be used to pay off debt, make home repairs, take a vacation, or to pay for tuition. Since a cash-out refinance is riskier, the rates can be slightly higher than other refinance types. Cash-out refinances are also available for VA and FHA loans. You’ve put so much love and labor into your home, and a cash-out refi lets you reap those rewards!
Streamline or Interest Rate Reduction Refinance (IRRRL): A streamline refinance could be a good option for you if you have a FHA, USDA, or VA loan. Streamlined refinances and IRRRLs reduce how many items (such as an appraisal or credit check) are needed for eligibility, shortening the process.
Renovation Loans: The Fannie Mae Homestyle Renovation Loan, FHA 203(k), and VA Renovation are specifically for people who want to make home repairs or upgrades. One benefit of these options is that the renovation costs are rolled into the new loan amount, so there’s only one closing and one interest rate. Instead of using your home’s current value for the loan amount, your lender will use the detailed project proposal submitted by your contractor to determine your home’s “as-completed” appraised value.
Additionally, some lenders offer incentives that allow you to refinance with little-to-no fees when rates drop, making refinancing even more attractive.
Depending on the refinance program you choose, there may be a minimum requirement for the number of payments made or length of homeownership, though this is more often the case for loans backed by the federal government. Some conventional loans don’t have a wait time, but cash-out refis usually have a six-month waiting period. Wait times vary depending on your lender, your current mortgage, and your refinance plan. Your current equity is also a major determining factor. For example, 20% in home equity is required for most cash-out transactions. There’s also no limit to how many times you can refinance the same property if you meet eligibility requirements.
Even though you already own your home, you may be surprised to know there can be closing costs when refinancing. Closing costs can be 2-5% of the loan amount, though this can vary. Much like the closing costs associated with buying a home, the fees for a refinance may include an origination fee, recording fee, appraisal fee, and more. Note that some refinances require an additional fee in addition to closing costs: the FHA Streamline refinances come with a mortgage insurance premium (MIP) and an upfront mortgage insurance premium (UFMIP); VA Streamline refinances mandate a funding fee of 0.5% for most cases.
On average, it takes 30 days to refinance a home. The process is similar to buying a home in it involves submitting an application, providing any needed documents, going through a home appraisal in (some instances), getting underwriting approval, and attending closing. Sending correct information to your lending team on time will go a long way in speeding up the process.
No matter your reason for refinancing, it’s important to understand your goals and what’s involved with the process. Working with an experienced lending team will ensure your refi goes smoothly.
If you have any questions about refinancing, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!
For informational purposes only. Refinancing an existing loan may result in the total finance charges being higher over the life of the loan. Veterans Affairs loans require a funding fee, which is based on various loan characteristics. LTVs can be as high as 96.5% for FHA loans. FHA minimum FICO score required. Fixed-rate loans only. W2 transcript option not permitted. Minimum required credit score of 620 for conventional loans.
In life, sometimes you need help getting from Point A to Point B. When it comes to buying a home, bridge loans are one way to, well, bridge that gap. NFM Lending and the Family of Lenders have partnered with Knock to offer borrowers a streamlined way to sell and buy a home. Learn how their unique HomeSwap™ program works and whether it’s right for you.
What is HomeSwap™?
HomeSwap™ is a bridge loan offered by Knock through NFM Lending and its divisions. A bridge loan is a short-term loan that provides temporary financing until more permanent funds can be acquired. Also called swing or gap loans, bridge loans often last from 6 months to a year. They’re frequently used by home buyers who want to purchase their next home without having to wait for their current home to sell, and HomeSwap™ was designed exactly for such scenarios.
How Does HomeSwap™ Work?
When you’re trying to buy and sell a home simultaneously, sometimes the timing doesn’t align, and you end up “between homes.” Many homebuyers worry they’ll temporarily be without permanent housing until their first home sells, and adding a selling contingency to an offer could reduce the chances of it being accepted. Using the HomeSwap™ loan helps prevent both from happening. First, make sure you’re already working with NFM or one of our divisions for mortgage pre-approval. Your loan originator will assess whether you’re eligible for the HomeSwap™ program, and the Knock team will check if your current residence qualifies for their services. If you have at least 30% equity in your existing home, you can leverage up to $650,000 of it, interest-free for up to six months, to put towards the purchase of your new home. This gives you the advantage of preserving more of your savings simply by using the equity you’ve already built! The more equity you’re able to access, the lower your interest rate can be.
Once you’ve been determined eligible, the Knock team will get started on pre-approving you for a fully underwritten, interest-free* bridge loan. One benefit of the HomeSwap™ loan (and bridge loans in general) is that the underwriting process happens much faster than for a regular mortgage. Since the short-term loan will be based on the value of your current home, you’ll need to take numerous photos of the inside and outside of the property so the Knock team can judge the property’s condition.
After the bridge loan is pre-approved, go out and find a new home! Because you’re pre-approved for a mortgage and the HomeSwap™ loan, you can shop with confidence. When you’ve found a home you love, you can make a competitive offer without tacking on a sales contingency. Don’t worry about selling your existing home now—that will come later. HomeSwap™ gives you breathing room to buy and move into your new home without also going through the stress of showing your old home, finding and moving into temporary housing, or having the buyer’s financing fall through.
Now that you’re more settled in your new place, you’re ready to sell your old house! To help sell your home faster, and ideally, for more money, HomeSwap™ offers up to $35,000** in Pre-Imbursement to help with repairs, upgrades, or staging costs. These funds are already factored into the loan cost, saving you additional money on such expenses. Another stressor that’s off your plate? Paying the mortgage on your former home while waiting for it to sell. HomeSwap™ can cover up to 6 months of your old mortgage payments so you’re only paying the one mortgage of your new home! After your home sells, you use the profit to pay off the HomeSwap™ loan. Any leftovers can be used towards your new home’s mortgage or debt payoff.
Is it Right for You?
HomeSwap™ streamlines the buying and selling process for homebuyers, especially in a seller’s market. It works well in a seller’s market because there’s a higher likelihood that your current property will sell quickly. Be sure to speak with your lender and real estate agent so they can gauge the health of your local housing market and discuss your options. In addition to regular closing costs, there is a contract fee based on the estimated list price of your old home for using Knock’s services. This cost can be paid at closing or rolled into your HomeSwap™ loan. Additionally, it will be easier to be approved if you have a strong credit score and low debt-to-income (DTI) ratio.
Don’t have to let market uncertainty keep you from selling your current home and moving into a new one! The Knock HomeSwap™ loan offers you peace of mind that you can cover the expenses of your new home while waiting for your old one to sell.
If you have any questions about the Knock HomeSwap™ advantage, contact one of our licensed Mortgage Loan Originators. If you’re ready to begin the home buying process, click here to get started!
*Interest-free for up to six months. **Actual amount is based on client’s individual equity position. This is a co-marketing piece with Knock Lending LLC, NMLS #1958445. You are entitled to shop around for the best lender for you. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice.
Underwriting is one of the most crucial stages your loan application goes through before you are given a final approval to close on your loan. It might sound intimidating, but underwriting isn’t the headache you might think it is. Here’s a look at what happens during underwriting.
What is Underwriting?
Underwriting is the process of evaluating and reviewing a potential borrower’s creditworthiness, ability to repay, financial profile, submitted documents, and collateral to determine whether the lender can fund the loan. Essentially, underwriters have the final say in whether you qualify for a loan. Remember all those financial documents you had to send with your mortgage application? After the paperwork has been compiled into a loan package by the processing team, it goes to underwriting for a comprehensive inspection. During the first underwriting phase, the team reviews loan conditions for credit, income, asset, mortgage insurance, and hazard (disaster) insurance requirements. The second phase of underwriting happens towards the end of the mortgage process, where underwriters do a final check of the conditions from the initial approval. The turnaround time for underwriting is usually two days, after which the loan file goes back to the processing team.
What Happens in Underwriting?
Risk Analysis
To assess your potential risk, underwriters will do a deep dive into your credit score, credit history, income and net worth, and debt-to-income ratio (DTI). A strong credit score is a good indication of how financially responsible you are. Having a solid history of on-time payments increases your score and gives lenders more confidence that you won’t miss payments. Underwriters use your income and assets to determine whether you can afford mortgage payments. DTI measures how much money you have left after paying your existing debts. Having a lower DTI will improve your chances of getting approved.
Asset and Document Verification
Underwriting will review in detail the documentation provided to validate your income and assets being used in the transaction. These documents come from both you and other third parties, such as your employer or a financial institution. An underwriter’s job is to scrutinize and authenticate the documents in your loan file and make sure they meet the guidelines for the loan type you have applied for. Should any questions arise, you may be asked for additional information or an explanation. The underwriter also ensures the files don’t contain suspicious information or raise a red flag for potential discrepancies. For example, a large deposit into a bank account can warrant a request for an additional explanation or documentation to ensure funds you are using for closing costs or a down payment are coming from a valid source allowed by the guidelines set forth by the agencies.
Reviewing Guidelines
Underwriters also check your financial profile and loan details against various lending guidelines before they make a decision. There are lending criteria for different loan types, programs, and promotions, so it’s essential that all underwritten loans adhere to those regulations. Underwriters often have to think creatively when faced with ambiguous situations, which can prompt them to ask for additional details. Underwriters also check that the appraiser’s choice of real estate comparisons (comps) support the appraised value as determined by the appraiser and ensuring the collateral is supported by the appraisal.
How You Can Help During Underwriting
Since your application goes through multiple rounds of underwriting, it can feel stressful wondering whether your loan will be approved or not. To help make things smoother for yourself and your lender, make sure you provide all the needed documents at the start of your application in the correct format. Stay in close communication with your lending team and be prepared to answer any questions and send supplementary paperwork as soon as possible. The sooner you can provide the information, the faster the underwriters can work through your file. It’s crucial to be honest about your finances, as trying to hide things will prolong the process and be discovered nevertheless.
As long as you’re providing clear and concise information and providing necessary documentation in a timely manner, underwriting is nothing to be scared of. Be patient during this time and remember that your lending team is on your side to help you become a homeowner!
If you have any questions or want more information about the mortgage process, contact one of our Licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!
Advancements in artificial intelligence (AI) are taking the world by storm and changing industries across the board, including that of real estate and mortgage lending. AI is an ever-evolving field that uses deep learning algorithms and neural networks to follow human-generated prompts. Here’s how AI might affect how you buy a home in the future.
Virtual Home Staging
Staging is a crucial part of the home selling process, but what if you could stage your home without a single piece of furniture? Virtual staging involves uploading photos of empty rooms of a home and digitally adding photorealistic furniture and decor to enhance it. Some virtual staging companies use human designers to select items and color schemes, but some solely use AI to accelerate the process by generating multiple outputs within minutes. Depending on the software, AI can be used to produce images tailored to the aesthetic of your choice, the style and purpose of the room, create 3D video tours, and even improve natural lighting. Using virtual staging is much more time-saving and cost-effective for home sellers and real estate agents than hiring a staging team. Having attractive listing photos is a huge step up from using poorly staged photos or empty rooms, even if the furnishings are actually nonexistent. Homeowners can also use AI staging as a source of home redecorating inspiration.
Automated Valuation Models
Home appraisals are a standard part of the home buying and refinancing process to determine the property value. Appraisals consider the characteristics and condition of your home and compare it against recent sales data of similar homes in your area to see how much it could sell for in the current market. Automated valuation models (AVMs) expedite appraisals by using sales data and property records to calculate value to a high level of accuracy. AVMs aren’t new to the mortgage and real estate industries, but advancements in AI have improved their abilities. For example, the current version of Zestimate, Zillow’s AVM, incorporates neural networks to give users a more accurate value. Some emerging AVMs combine computer vision with property data to assess property value from pictures of the home. This can help real estate agents price homes more accurately and give sellers a realistic expectation for how much their home is worth. Additionally, an increasing number of residential (and commercial) property developers use AVMs to pinpoint the best location for new build sites based on local population data. AVMs provide practical figures quickly and efficiently, benefiting homebuyers, sellers, agents, and lenders who need a home value estimate before an in-person appraisal can be done.
Mortgage Lending
Reviewing mortgage applications and numerous pieces of financial information is an extremely complex task, and AI is quickly becoming an essential tool for mortgage lenders. It enhances the mortgage process for lenders and consumers and is being used for: customer service chatbots, fraud detection, document upload and organization, identifying optimal loan scenarios, underwriting, and cost analysis for buying and refinancing. Automated underwriting systems (AUS) have been around for a while, and they reduce the time it takes to verify and analyze financial information. When an AUS is augmented with AI, it can further reduce human error, improve turnaround time, and use predictive models to indicate lending risk.
Is AI Good for Homebuyers and Sellers?
One of the goals of AI development is to facilitate and optimize processes that would normally be time-consuming, difficult, and expensive. Ideally, the time and money saved by using AI will be reflected in the buyer’s closing costs. Real estate and mortgage professionals can also have more energy to put towards creating a more personalized client experience. As AI’s capabilities expand, so do questions about bias and accuracy. Critics worry about a lack of nuance and bias for AI AUS and AVMs. These sophisticated learning models may have a lot of data to draw from, but they can’t always create a comprehensive picture of someone’s financial situation. It is essential that AI developers continually monitor outputs for traces of algorithmic discrimination and use a wide range of data to train the system. The housing and mortgage industries will need to set standards and best practices to promote equity and accuracy. We can also expect more federal and state regulations to protect consumers in the near future.
The AI landscape is still a new frontier, but it’s clear that it has and will continue to revolutionize how society operates. But even the best-trained AI models cannot replace the creative thinking, knowledge, empathy, and dedication from real-life real estate and lending professionals.
If you have any questions about buying a home, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!
August may be National Wellness Month, but practicing wellness throughout the year benefits you physically and mentally. And with all the craziness of life, your home should be the one place where you can reset and relax. Use these simple tips and tricks to turn your home into a wellness haven (even if it’s not.)
Clean Home, Clean Mind
Have you ever felt at ease in a space with stuff piled everywhere? Probably not. The cleanliness and organization of a room has a larger impact on our wellbeing than we might realize. Cleaning and decluttering your home is the first step to improving your living space. Focus on tackling the most used areas of your home and obvious signs of grime. Declutter by donating or tossing items you don’t need or use frequently—don’t keep things that no longer serve you. Use storage systems to help you maintain organization. Institute daily habits that encourage organization and cleanliness, like leaving shoes by the entryway, hanging up coats on a rack, cleaning up messes as they happen, and always putting things in their proper place. If you have young kids or pets, give them storage containers where they can put their toys.
Zen Aesthetic
Pop of Color Psychology
The color of your walls can strongly influence your mood and even behavior. Giving your home a paint update is a simple way to create a peaceful environment, particularly for bedrooms and bathrooms. Classic soothing paint choices include shades of blue, off-white, light neutrals, earth tones, and light tints of other colors. Avoid very vivid or very dark colors as they may make you more prone to excitement or gloominess.
Pieces of You
Making your home feel more retreat-like doesn’t mean your home should be devoid of your personal touch! Enhance your space with a few decorative pieces that make you happy. These could include an art piece, framed family photos, or a cool knickknack. Be cautious not to add too many or it can have the opposite effect.
Plant Happy
Having houseplants in your home isn’t just trendy and aesthetically pleasing, it has wellness benefits, too! Incorporating touches of nature in the home can boost calmness, creativity, mood, productivity, and improve indoor air quality. Consider placing a few plants around your home, like in your living room, bedroom, or bathroom. No green thumb? No problem! You can reap the benefits of biophilic design with faux plants, nature artwork, or decor made from natural materials.
Good Vibes Only
Setting the mood isn’t just for the movies or date night, it contributes to your home’s atmosphere and how cozy it feels. Engage multiple senses with scents, sounds, and lighting that lend to a more comforting ambience. When choosing light bulbs, pay attention to the temperature and lumen levels. Temperature refers to how warm (more yellow) or cool (more blue) the light is, and lumens refer to how intense the light is. For the rooms where you unwind the most, choose lights with temperatures between 2200-2700K to give off a soft, white glow. The larger the room is, the more lumens you may need to adequately light the area. You can also install dimmer switches or use smart lighting to easily control a room’s brightness. For bedrooms, consider using light blocking blinds to enhance your sleep.
Scent is a powerful tool that can put you in the right state of mind. Use scented candles, air fresheners, or fragrance diffusers to jumpstart rejuvenation. Lavender, eucalyptus, sage, and chamomile are popular calming choices. When you’re taking time to decompress or prepare for bedtime, try playing soothing sounds through a speaker to help ground you. Many people enjoy falling asleep to sounds of the ocean, rain, forests, and white noise.
Although we can’t control every stressor in life, your home should be a place that fosters reflection and rejuvenation. When you create the optimal environment for relaxation, you’ll be well on your way to truly feeling relaxed. m
If you have any questions about the home buying process, contact one of our licensed Mortgage Loan Originators. If you are ready to buy a home, click here to get started!
Are you waiting for rates to drop so you can refinance your home? You’re not the only one! Refinancing allows you to replace your existing mortgage with another one with a different rate or conditions, and there are different types of refinances to choose from depending on your financial goals.
Rate and Term Refinance
When you think about refinancing, you likely have the rate and term kind in mind. Rate and term refinances are very popular, especially when mortgage rates drop. It can be a smart choice if you want to do any of the following: reduce your interest rate, lower your monthly payment, change the loan type (like adjustable-rate to fixed-rate), or get rid of private mortgage insurance (PMI). Note that if you want to lower your monthly payment, your loan term will be extended, while opting to refinance to a shorter term will often result in a higher monthly payment. Though each lender has different requirements, it’s best to have at least 20% in home equity with a debt-to-income (DTI) ratio of no more than 50%. The interest rates for rate and term refinances tend to be lower than that of other refinances since it’s less risky.
Cash-Out Refinance
Building equity is one of the many benefits of homeownership, but you don’t have to wait until you sell to benefit from the equity you’ve gained! A cash-out refinance allows you to transform your home equity into funds that you can use for pretty much anything. Your first mortgage is replaced with one that’s more than the remaining balance, and you receive the difference in cash. The money isn’t taxable and can be used for a number of purposes, including financing home repairs, a vacation, college tuition, or debt consolidation.
Most lenders will let you borrow up to 80-85% of your home’s appraised value, as long as you retain at least 20% equity. Since your new mortgage will be more than your initial one, expect the interest rate and your monthly payment to be higher. The rates for cash-out refis tend to be slightly higher than for rate and term refinances since they carry more risk. Cash-out refinances are available for conventional mortgages, VA, and FHA loans, with varying seasoning or waiting periods. For conventional loans, you’ll need to have owned your home for at least 6 months and have your current mortgage be seasoned for 12 months. VA loans have a 210-day seasoning period, and FHA loans have a 12-month requirement for primary ownership and occupancy before applying for a cash-out. FHA refinances also have mortgage insurance premiums (MIP). If home values in your area have risen greatly, a cash-out refinance can be an excellent way to get in on the appreciation boom!
Do you still love your home but feel it could use some upgrades? The FannieMae Homestyle Renovation Loan, FHA 203(k), and the Freddie Mac Choice Renovation loans all blend the perks of a rate and term refinance with the capital needed to repair or update your home. Renovation loans are especially convenient because the refinance of your current loan and repair costs are combined into one loan; it only has one closing and interest rate, and it provides flexibility when it comes to what can be updated. Unlike a home equity line of credit (HELOC), second mortgage, or cash-out refinance, which all use the home’s current value to determine the amount that can be borrowed, the renovation loan is based on the home’s after improved value. To determine the after-improved value, your contractor must submit a detailed plan of what’s to be fixed and how much it will cost. The appraisal is then completed using the contractor’s bid to determine what your home will be worth after the renovations are completed. Renovation loans are ideal for projects like building an addition, improving kitchens and bathrooms, and updating your home’s utility systems.
Streamline Refinance
Who says refinancing has to be a hassle? If you have an existing FHA, VA, or USDA loan, you may have the option of going with a streamline refinance. Streamline refinances are just what their name implies—they’re a simplified refinance that speeds up the process. With this kind of refi, it’s common for income documentation, home appraisal, credit requirements to be absent or very relaxed. Each of the three varieties of streamlined refinances has unique traits:
FHA
The FHA streamline refinance doesn’t require a credit check, appraisal, or income verification and has flexible loan-to-value (LTV) and debt-to-income (DTI) requirements, making it an attractive option. If 210 days have passed since closing on your first mortgage and you’ve made at least six mortgage payments, you’ll be ready to look into an FHA streamline refi. Like the normal FHA loan, the streamline refi involves paying a MIP for the life of the loan and a one-time upfront mortgage insurance premium (UFMIP).
VA
Also called an interest rate reduction refinance loan (IRRRL), the VA streamline refinance has no appraisal requirements or employment verification. Be sure to budget for the 0.5% funding fee and closing costs. You can apply for an IRRRL if you’ve made 6 monthly payments to your first mortgage and 210 days have passed since the initial closing. The borrowing limits are very generous and allow you to refinance up to 120% of your loan’s value. The IRRRL is only available to use for a rate-and term refinance, cash-outs are not allowed.
USDA
A USDA streamline refinance loan lets you refinance without going through a credit check, DTI verification, home inspection, or appraisal. To be eligible, you’ll need to have made at least 12 on-time payments towards your first loan. Like the IRRRL, the USDA streamline can only be used to obtain a rate and term refinance.
People refinance for a number of reasons, so it makes sense to have a variety of refinance options available to help you achieve your financial goals. Working with an experienced loan originator and choosing the right refinance for your needs will help ensure you’re getting value out of your home purchase for years to come.
If you have any questions about refinancing, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!
For informational purposes only. Refinancing an existing loan may result in the total finance charges being higher over the life of the loan. Veterans Affairs loans require a funding fee, which is based on various loan characteristics. LTVs can be as high as 96.5% for FHA loans. FHA minimum FICO score required. Fixed rate loans only. W2 transcript option not permitted. Minimum required credit score of 620 for conventional loans.
It’s normal to feel confused and a bit overwhelmed when buying your first home—it’s a complex process with many moving pieces. To make your inaugural homebuying experience smooth and successful, here are some common mistakes to avoid when buying your first home.
Not Getting Pre-Approved First
If you’re seriously in the market to buy a home, getting pre-approved with a lender first is a must! A pre-approval involves submitting various financial documents and proof of identity to your lender, as well as allowing them to run a hard credit check on you. A pre-approval differs from pre-qualification in that the former takes a more comprehensive look into your finances and is a hard credit inquiry (your score will drop slightly temporarily); a pre-qualification just gives you a rough estimate on whether you can afford a home based on self-reported information. A pre-approval also has much more weight when you’re house hunting and gives you an idea of how much home you can afford. If you’ve found a home you love, having a pre-approval letter makes you seem like a more serious buyer and can help move the mortgage process along more quickly. Be aware that pre-approval letters are good for 60-90 days, and you’ll need to go through your lender to get an updated one after the first one expires. Once you’re pre-approved, you can find a great real estate agent and shop with confidence!
Buying More House Than You Can Afford
Being able to buy a house is one thing, being able to keep it is another. When your lender comes back with the pre-approval, you’ll be given a figure for the maximum amount you can borrow. Depending on whether you use less than the max or the full amount, that will be reflected in your monthly payment. However, even if you’re approved for a larger sum of money, it’s not always a good idea to go to the limit. A good rule of thumb is to not spend more than 28% of your gross income on mortgage payments. When a significant amount of your paycheck goes to your mortgage, you become house poor. The amount you’re comfortable borrowing is a personal decision, so make sure you have the cash flow to support regular mortgage payments, as well as other homeownership costs.
Overlooking Other Costs
Becoming a homeowner is a huge life change, both personally and financially. If you’ve only ever rented, you might be surprised at just how much owning a home costs. Aside from your regular mortgage payments, you’ll need to account for escrow payments (property taxes and home insurance), regular maintenance costs, and emergency repairs, and sometimes private mortgage insurance (PMI). If your home is part of a homeowner’s association (HOA), expect to pay yearly or monthly dues. Seeing as most of these costs are variable and unpredictable, it’s wise to create separate savings just for home expenses. Try putting aside money as you prepare to begin the homebuying process or after you’ve closed on your home.
Jeopardizing Your Closing
When your lender tells you closing is around the corner, you’re basically home free, right? Not exactly. Your mortgage and home purchase haven’t officially been finalized, so it’s crucial to maintain your credit score, cash supply, and debt-to-income (DTI) ratio until then. Activities to avoid before closing include: quitting your job, applying for or cosigning a loan, applying for a credit card, closing lines of credit, and making large, unnecessary purchases (like buying or leasing vehicles, furniture, or expensive trips). Doing these things can delay or even make you ineligible for mortgage approval. If you’re in what you feel is an emergency situation, contact your loan originator right away and tell them what’s happening. They’ll let you know how best to proceed in a way that won’t threaten your closing.
Using the Wrong Real Estate Agent
Choosing the right real estate agent for your needs is important any time you’re buying or selling a home, but especially if you’re a first-time buyer! Don’t pick just any real estate agent to help you buy your first time—be sure to thoroughly interview and research several local agents. When interviewing agents, ask about their communication style, familiarity with the area, industry experience, local market trends, and reviews from past buyers. Additionally, if you’re using a specialized mortgage to purchase your home (such as a VA loan), seek out agents who are well versed in working with buyers like you. Besides their technical know-how, the strong agent should also be a good listener and friendly.
Buying a home comes with many challenges, and even more so if you’ve never done it before. Fortunately, there are many factors you can control that will mean the difference between having an exceptional home buying experience instead of an exasperating one.
About NFM Lending
NFM Lending is a national mortgage lending company currently licensed in 49 states in the U.S. and Washington, D.C. The company was founded in Baltimore, Maryland in 1998. NFM Lending and its family of companies includes Main Street Home Loans, BluPrint Home Loans, Elevate Home Loans, and Element Home Loans. They attribute their success in the mortgage industry to their steadfast commitment to customers and the community. For more information about NFM Lending, visit www.nfmlending.com, like our Facebook page, or follow us on Instagram.
For many aspiring homeowners, coming up with a down payment is a significant obstacle standing in the way of homeownership. While having a 20% down payment isn’t required to buy a home, it can be challenging to gather enough funds to start the home buying process. Read on to learn about different ways to come up with a down payment.
Increase Savings
Saving money is perhaps the obvious first choice when it comes to collecting a down payment. The process of putting away extra money usually happens gradually, so it’s best to start a dedicated savings account as soon as possible. Increase your savings potential by creating and maintaining a household budget. You might also consider starting a side hustle or asking your employer for a raise to increase your cash flow. Growing your savings will be beneficial when you’re ready to begin your home buying journey, even if you find you won’t need much for your down payment.
Down Payment Assistance
Down payment assistance (DPA) programs are an underrated way to partially or fully subsidize your down payment. There are many DPA programs offered to homebuyers at the federal and state level, from both public and private institutions. DPA programs are often tailored to first-time or low-income buyers, but repeat homebuyers may be eligible for certain programs. The DPA funds can come in the form of a grant or a low interest second mortgage that may be repayable or forgiven after a set amount of time. If you’re part of a particular profession, such as teaching or law enforcement, there are DPA programs designed to help you become a homeowner. Taking advantage of DPA allows you to secure your dream home and save for other expenses. Make sure to ask your loan originator if you qualify for any down payment assistance programs.
Gift Funds
Your down payment doesn’t have to come entirely from you; all or part of it can come from family and friends in the form of gift funds. In order to use gift funds in your down payment, have your benefactor send your lender a gift letter detailing the amount given, their relationship to you, withdrawal dates, and a statement that repayment is not expected. Your lender may also need to see accompanying withdrawal and deposit slips to source the money. It’s important to know that if your contributor expects you to repay the gifted money, it will be considered a loan and will be factored into your debt-to-income (DTI) ratio.
Leverage Your 401(k)
401(k)s are meant to be accessed upon reaching age 59 ½ , but tapping into it earlier can boost your down payment amount if needed. You can either use a 401(k) loan (if offered by your employer), or withdraw funds. Both methods allow you to access cash on hand without going through a lender or credit check. A 401(k) loan lets you borrow against your retirement savings and must be restored within five years with interest. Your employer may pause 401(k) contributions until the loan is paid back. Withdrawing money from your account will lead to a 10% penalty fee, and any amount you remove will be subject to an income tax. You will also forfeit any tax-free retirement earnings that you have accrued. For these reasons, this option is best used only as a last resort. It’s essential to consult with a financial advisor so you fully understand what’s involved.
Getting a down payment ready doesn’t have to be the thing that stops you from achieving homeownership! If owning a home is something you want to accomplish, it’s ever too early to start saving and preparing for one of the most important purchases of your life.
If you have any questions about buying a home, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!
NFM Lending is not a financial or tax advisor. You should consult a financial advisor to assist with your financial goals.