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?
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.
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.
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.
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.
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.
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!
Homestyle Renovation Loan
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.
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:
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).
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.
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.
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.
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.
Note: This blog was originally published in June 2013 and has been updated.
Reaching the closing stage in the homebuying process is always exciting! Closing officially marks the beginning of your new life in your new home, but there’s more involved than just getting the keys–here’s what you can expect at closing.
A few days before attending closing, you need to perform a final walkthrough of the home with your real estate agent. Final walkthroughs give you the opportunity to ensure there are no outstanding issues with the property and that the sellers made appropriate repairs if they were part of the negotiation. Check that major appliances, electricity, HVAC systems, and plumbing work properly. If you find something that needs to be addressed, it may delay the sale. Regardless of the home type or whether it’s a new build or is pre-owned, doing a final walkthrough is highly encouraged. It’s better to check beforehand than to sign the papers and discover a problem when you move in.
Reviewing and Signing Documents
At least three business days before your closing date, you’ll receive a closing disclosure (CD) from your lender. The CD gives a breakdown of your loan terms, loan costs, closing costs, projected payments, cash needed at closing, and more. Review your CD carefully to ensure you understand the loan terms and that everything is accurate. Even something as seemingly insignificant as a misspelling will be an issue if left uncorrected. If you see any errors or have questions, contact your loan originator immediately.
When you arrive at the closing table, bring a valid photo ID and proof of homeowner’s insurance. These will be needed to verify your identity and show that the property is protected from accidents. On closing day, you’ll be signing more key documents in the loan package, like the promissory note, the mortgage itself, the deed, title transfer papers, the bill of sale, and the notice of servicing disclosure. Your lender and real estate agent should inform you of all the documents you’ll need to sign and what they mean prior to closing. Let your real estate and lending team know if you see errors or are unsure about anything.
Pay Cash to Close
The cash to close consists of closing costs, the down payment, and prepaid costs (like HOA dues), minus any credits you receive. You’ll know the exact figure from the details in your CD; contact your lender if you see a mistake. If you’re paying any of these costs out-of-pocket, bring a cashier’s or certified check, or have the amount wired to the title company a day or two before closing. When doing a wire transfer, avoid scams by confirming the address directly with your title agent. After the money has been disbursed and all the documents have been signed,the property transfer will be complete. The title company or real estate attorney will submit the documents to your local government’s public land records for recording. Congratulations—you just closed on your new home!
It takes a lot of hard work to get to the closing table, so celebration is definitely in order! No matter how eager you are to finish signing papers and get your keys, it’s imperative to take your time reading everything thoroughly. Having everything in order before the closing date will help reduce last-minute snags or surprises.
If you have any questions about closing, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!
If you have questions about closing on a home, contact one of our licensed Mortgage Loan Originators. If you’re ready to begin the home buying process, click here to get started!
Declaring bankruptcy is financially and emotionally stressful—it’s a situation no one wants to be in. Filing for bankruptcy is a tough decision, but you can bounce back from it and even become a homeowner.
Individuals can either file for Chapter 7 or Chapter 13 bankruptcy, and they have different implications for your finances and when you can start the mortgage process. After the initial filing, a bankruptcy court can declare it as discharged (eligible debts are removed) or dismissed (the court is not proceeding with bankruptcy filings because of unmet requirements). Your bankruptcy status plays a large role in your timeline for mortgage application.
Chapter 7 Bankruptcy
When you file for Chapter 7 bankruptcy, certain assets are sold to repay creditors, and any leftover debt is discharged. This is the more severe of the two, and the bankruptcy will remain on your credit report for 7 years. You’ll need to wait a minimum of two years before applying for a mortgage, but it can be more depending on the loan program. The wait is two years for FHA and VA loans, three years for USDA loans, and four years for conventional loans. Individual lenders may set their own waiting periods, as well. The waiting period starts after your bankruptcy is dismissed or discharged.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is not as extreme as Chapter 7; you can keep your assets and must adhere to a court-ordered debt repayment plan. As long as you continue making payments, your assets won’t be seized. It stays on your credit report for 7 years, but the waiting period to get a mortgage can be as little as 1-2 years depending on the loan program, the status of your bankruptcy (dismissed or discharged), and lender requirements. For FHA, VA, and USDA loans, you have to be at least one year into your repayment plan before trying to get a mortgage. For conventional loans, you must wait two years after your bankruptcy was discharged, and 4 years after a dismissal. Generally, you’ll need the court’s approval before applying for a mortgage if you’re still in Chapter 13 bankruptcy.
Improving your Finances
No matter what type of bankruptcy is on your record, it’s crucial to take measures to rebuild your finances and make smart financial choices. The mandatory waiting period is a prime time to improve your credit profile and show lenders that you’re responsible and financially secure enough to handle a mortgage. First, create and stick to a budget that covers your basic needs and any recurring bills. Gradually, you should ideally see more money in your pocket. Put some of that extra cash into savings so it can be used for a down payment or other housing costs. Strengthen your credit score by always making on-time payments, paying in full whenever possible. Don’t max out your credit cards or apply for new ones to keep spending. Avoid taking on unnecessary debt, and lower your debt-to-income ratio (DTI) by paying down existing debts. Repairing your finances won’t happen overnight—it takes time and consistent work.
Things to Consider
When you’re in a better position to start the homebuying process, government-sponsored loans are an excellent choice to consider, as the waiting periods are shorter and have more flexible requirements than conventional loans. Bankruptcy can be caused by a number of issues, both within and outside of your control. Some loan programs may reduce the waiting period if your bankruptcy was caused by a one-time, extenuating circumstance that is well-documented (such as a medical emergency). You might need to provide your lender with a letter of explanation if an extenuating event caused your bankruptcy. Regardless of what type of bankruptcy is on your record, speak with a loan originator to see what options are available for your situation.
Bankruptcy may feel like a death sentence, but it doesn’t have to be. The speed bump that bankruptcy puts in front of homeownership can be used to your advantage by taking steps to restore your finances. When you’re financially, mentally, and emotionally prepared for homeownership, you’ll be set up for success.
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!
NFM Lending is not a debt settlement company or credit repair agency. Speak with a licensed financial advisor regarding your unique financial situation.
LTV’s can be as high as 96.5% for FHA loans. FHA minimum FICO score required. Fixed rate loans only. W2 transcript option not permitted. Veterans Affairs loans require a funding fee, which is based on various loan characteristics. For USDA loans, 100% financing, no down payment is required. The loan amount may not exceed 100% of the appraised value, plus the guarantee fee may be included. Loan is limited to the appraised value without the pool, if applicable. Qualifying credit score needed for conventional loans.
Every homebuyer wants a great mortgage rate, but what exactly goes into how the rates are set? No, it’s not astrological movements or cloud formations; it’s a variety of financial and economic elements. Learn how these factors impact how mortgage rates are determined.
You don’t need a “perfect” credit score to buy a home, but having a strong score gives you access to more competitive interest rates and programs. Your credit score is a significant metric in predicting how likely you’ll be able to pay back the mortgage. Even if you’re not thinking of buying a home in the near future, build up your credit score now so it’s primed for when you’re ready.
Debt-to-Income Ratio (DTI)
Having a high debt-to-income ratio (DTI) means you have little money left after paying your current bills, and it can lead to paying higher interest rates. Take steps to pay off debts, especially high interest ones like credit cards.
Loan-to-Value Ratio (LTV)
The loan-to-value ratio (LTV) also factors into your rate. If you’re seeking a mortgage that covers over 80% of the home’s price, it’s considered a high LTV and is considered riskier. You’re more likely to be offered a lower rate if your LTV is 80% or under, and you won’t need to pay private mortgage insurance (PMI).
Though having a 20% down payment is not necessary for all home buying programs, the amount you’re able to contribute to a down payment can affect your mortgage interest rate. Lenders view borrowers who can put down more money upfront to be less risky, and can offer lower rates. The down payment amount can also lower your LTV.
Though it is entirely optional, paying mortgage points at closing (aka, buying down the rate) is another way to lower your interest rate. One point equals 1% of your mortgage, and buying additional points will minimize your rate even further. The discounted rate stays with the loan until you refinance or pay it off.
Federal Reserve Actions
The Federal Reserve is always a hot topic whenever mortgage rates shift, but they don’t actually set mortgage rates. Instead, they determine the federal funds rate, which is how much interest banks are charged for borrowing from the Fed and when exchanging money with other depository institutions. The Fed considers various market indicators when they decide to change the federal funds rate. These factors include: economic growth, inflation, unemployment, the housing market, and the overall health of the economy.
The funds rate has a direct effect on rates for adjustable-rate mortgages (ARMs), home equity lines of credit (HELOCs), and home equity loans, all of which are based on an index. When it comes to fixed-rate mortgages, the funds rate has a more indirect impact as it can spur demand in the bond market. For example, a lower funds rate boosts bond prices and investor demand, leading to lower mortgage rates. Conversely, increasing the funds rate can lessen bond prices and demand, resulting in higher mortgage rates.
The Bond Market
Mortgages are largely based in the mortgage-backed securities market (investors buy groups of mortgages), which is influenced by U.S. Treasury securities (government bonds). Bond prices and rates have an inverse relationship, and shifts in the bond rate often cause similar movements for fixed-mortgage rates. Mortgage lenders use bond market activity as a guideline to set their lending rates.
Your Lender and Loan Programs
Another thing that makes mortgage rates hard to pin down is that lenders have different criteria for eligibility and don’t all offer the same programs and incentives. Rates and requirements are not uniform across all loan programs. Mortgages with shorter repayment terms tend to have lower rates than those with longer terms, but the monthly payment is usually higher. When deciding which lender and mortgage program to work with, be aware that the advertised rate may reflect a best-case-scenario and can differ from what you may be eligible for. Be sure to work with a loan originator to see what options are available for your unique situation.
There’s no such thing as a universal mortgage rate; rates differ depending on individual circumstances, economic conditions, lenders, and loan programs. Even though you can’t control every aspect that affects interest rates, it’s important to manage the ones you can. Working with a reliable lender and improving your finances will give you an edge when you’re ready to buy a home.
If you have any questions about using mortgage points, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!