Tax Day has come and gone, but while tax season isn’t on most people’s list of “favorite day of the year”, there’s a light at the end of the tunnel: your tax refund! The average refund in 2023 was $2,753, and with that kind of windfall, a tropical getaway might seem tempting. But before you jump on a plane, let’s explore how you can leverage your tax refund. A down payment for a first-time homebuyer, or long-term goals like financial freedom and building generational wealth!

Can I Use my Tax Refund for a Down Payment?

Are you dreaming of homeownership? Using your tax refund for a home purchase could lead to several advantages when owning your first home! Here are some benefits to a larger down payment on your loan:

• Lower Interest Rate: A larger down payment can qualify a first-time homebuyer for a more favorable interest rate on your mortgage.
• Smoother Pre-Approval Process: A bigger down payment strengthens your financial standing, with less “risk” for a lender to consider, this can make the pre-approval process smoother.
• Avoiding PMI: With a down payment of at least 20% of the home’s value, you will avoid private mortgage insurance (PMI), which adds to your monthly mortgage payment.
• Lower monthly payment: This one might be a no-brainer, but a larger down payment means a smaller loan amount. Smaller loan amount equals smaller monthly payment!

Related: Down-payment assistance programs can help first-time homebuyers get started and increase your down payment!

How Much do I Need for a Down Payment on my First Home?

Down payment requirements vary by the type of loan you want to have. Lower down payment doesn’t always mean a better loan program; there are multiple different factors to decide which loan program is right for you. The best mortgage for a first-time homebuyer is the loan that you’re most qualified for. That will depend on several factors, including your debt-to-income ratio, credit score, and yes…down payment.

We take all of these factors into consideration and help you strategize between your options and choose the right one to fit your current and future goals.

Mortgage Types and Minimum Down Payments

 

 

Related: Check out our mortgage calculators to do the down payment math yourself!

It’s easy to see how a first-time homebuyer can use a tax refund for a down payment and boost their homebuying strategy, but what about people that already own a home? Other than using the funds for home renovations, how can you use your refund to set yourself up for a better future?

Can I Pay Down Principal or Refi with a Tax refund?

We understand the allure of a vacation, but here’s the thing: by putting your tax refund towards your mortgage, you’re essentially doing two things at once: saving money on interest payments in the long run and building equity in your home faster.

Your tax refund may also be able to help you pay fees associated with refinancing to save you money by:

• Lowering your interest rate
• Shortening your loan term (from 30yr to 15yr) 
• Removing private mortgage insurance (PMI) that may have been required if your down payment wasn’t 20% or more of the cost of your home.

If you’ve decided to use your tax refund on your existing mortgage, there are a few ways to go about it:

1. Applying Tax Refund to Principal

A lump-sum payment directly to your principal balance, shortens your loan term, builds equity, and ultimately saves you on interest. The more you pay down the principal, the more interest you save.

Keep in mind:

• Ensure the payment goes towards your principal, not just a regular payment (principal + interest). 
• Check for prepayment penalties – some mortgages have them for early large payments. Review your loan terms and talk to your lender if needed.
• Some lenders might offer “loan recasting,” which recalculates your remaining loan term with the lower principal balance, potentially reducing your monthly payments.

If you’re looking for options to lower your monthly payments specifically, refinancing might be a good fit if rates have lowered since you first bought your home.

2. Using a Tax Refund for Refinancing Fees

Refinancing your mortgage means replacing your existing loan with a new one, potentially with a lower interest rate, better terms, or you could take cash out for projects or major life changes. Here’s where your tax refund can come in handy – it can help cover the refinancing fees, including closing costs and appraisals.

Is refinancing a good option for me?

• Lower Interest Rates: Perhaps interest rates have dropped since you first took out your mortgage, offering an opportunity to save.
• Improved Credit Score: If your credit score has improved significantly since the last time you bought a home, you might qualify for a lower interest rate.
• Debt Reduction: Have you paid off other debts since buying your home? A lower debt-to-income ratio can improve your eligibility for a better interest rate.

Related: How Important is Credit Score When Buying a Home?

How much does a refinance cost?

While refinancing can save you money in the long run, there are upfront costs involved that you should consider. The Mortgage Reports estimates closing costs to range between 2-6% of your loan amount.

Here are some situations where refinancing might not be the best move for you:

• Recently Closed Loan: Many lenders and loan programs have restrictions on how soon you can refinance after taking out a new mortgage. For almost everyone, you’ll want to wait 180 days before refinancing after your most recent loan began.
• Minimal Interest Rate Drop: Aim for a rate reduction of at least 1.5-2% to make the refinancing process worthwhile compared to the cost.
• Short-Term Ownership: If you plan to sell your home soon, refinancing might not make financial sense.
• Longer Loan Term: Since a refinance is a new loan on the same property, you’ll be starting your loan term over again. A longer loan term might seem appealing for lower monthly payments, but it ultimately means paying more interest overall.

Not sure if refinancing is right for you? That’s why we’re here! Our team can do a complete cost analysis for you before you start the process, making sure you’re confident in your decision before taking the first step.

Boost Next Year’s Tax Refund

Let’s say your tax refund this year wasn’t quite enough to make a huge dent on your homeownership goals today. Don’t worry, there are still ways to optimize your tax situation for next year’s return, potentially putting more money back in your pocket to fuel your homeownership dreams.

Here are some key strategies to consider:

Tax Credits for Homeowners

• Mortgage Credit Certificates (MCCs): These state-issued tax credits can be a game-changer, allowing you to claim a portion of your annual mortgage interest as a federal tax credit, effectively lowering your monthly payments.

Reach out to us to learn more about MCCs and eligibility requirements in your area!

Homeownership Tax Deductions

• Mortgage Interest: You can typically deduct your mortgage interest payments, up to a certain limit depending on your loan amount and filing status.
• Mortgage Points: If you paid upfront points to lower your interest rate, you might be able to deduct them as well, subject to specific IRS qualifications.
• Property Taxes: The property taxes you pay on your home are generally deductible. If you dedicate a specific space in your home exclusively for work purposes, you might be eligible to deduct a portion of your related expenses like utilities and internet. 
• Home Office Expenses: If you dedicate a specific space in your home exclusively for work purposes, you might be eligible to deduct a portion of your related expenses like utilities and internet.
• Find out more here: The IRS published a great resource for homeowners in 2023 regarding what you can and cannot deduct, MCC credit and other information.  

Keeping good records of your mortgage-related expenses is crucial. This includes your loan documents, receipts for points paid, and documentation of any home improvements you make.

It’s important to note that tax laws can be complex, and eligibility for deductions and credits can vary depending on your specific circumstances. Consulting with a tax professional is always recommended to ensure you’re taking advantage of all the benefits available to you and remaining compliant with federal tax law. We can help you explore these options, or get you in contact with a great Tax Advisor.

In Conclusion

By implementing these strategies and working with a trusted loan officer, you can turn your tax refund into a springboard for achieving your homeownership dreams. We’re here to guide you through every step of the journey, from maximizing your tax refund to navigating the mortgage process.

Get a no-cost pre-approval and explore down payment options for first-time homebuyers – click the Apply Now button above!

 

 

* NFM Lending is not a Financial Advisor, Tax Advisor or Credit Repair Company. You should consult with a Financial Advisor, Tax Advisor or Credit Repair Company to learn more. The pre-approval may be issued before or after a home is found. A pre-approval is an initial verification that the buyer has the income and assets to afford a home up to a certain amount. This means we have pulled credit, collected documents, verified assets, submitted the file to processing and underwriting, ordered verification of rent and employment, completed an analysis of credit, debt ratio and assets, and issued the pre-approval. The pre-approval is contingent upon no changes to financials and property approval/appraisal.

 

If you’re in the market for a new home, you’re probably keeping an eye on the current interest rates. When rates are low, it can be easier to jump into the homebuying process, but not so much when rates are high. Fortunately, if you’re ready to buy a home now, there’s something you may be able to do to pave the way for more manageable mortgage payments, regardless of what the market is up to. One of these handy strategies is called a Temporary Buydown.

Explaining Temporary Buydown Mortgages

A Temporary Buydown is an option where a buyer is able to temporarily reduce the interest rate on their new loan, in exchange for a one-time fee at closing. This tactic can give a homebuyer some breathing room and help ease into the full mortgage payment through the first few years of the loan, especially in a high interest rate environment.

How does a Temporary Buydown Work?

There are different buydown options, each offering a specific reduction in interest rate for a set period.

 

At NFM, we offer three different types of temporary buydowns:

• 1 Year Buydown (1-0 ): This option allows for the effective rate of interest paid by the buyer to decrease by 1% for the first year of the mortgage loan.

• 2 Year Buydown (2-1): The option allows for the effective rate of interest paid by the buyer to decrease by 2% for the first year of the mortgage loan and 1% for the second year.

• 3 Year Buydown (3-2-1): This option allows for the effective rate of interest paid by the buyer to decrease by 3% for the first year of the mortgage loan, 2% for the second year and 1% for the third year.

Temporary Buydown Example

Let’s say you secure an 8% interest rate on a 30-year fixed-rate mortgage with a 3 year buydown (3-2-1 buydown).

• Year 1: Your payment will be based on a 5% interest rate (8% – 3% = 5%).
• Year 2: You’ll make payments calculated at a 6% interest rate (8% – 2% = 6%).
• Year 3: Your payments reflect a 7% interest rate (8% – 1% = 7%).
• Year 4 onwards: Your monthly payments transition to the original 8% interest rate for the remaining loan term. 

So, for as long as you own the home, or until you refinance to a new loan with a potentially lower interest rate, you will continue to make the principal and interest payment based on this 8% rate.

Temporary Buydown Calculator

Use our temporary buydown calculator to estimate the cost and potential savings associated with different buydown scenarios. We can also discuss if this makes financial sense for you any time!

Who Pays for a Temporary Buydown?

There are several ways to fund a temporary buydown:

• Seller/Builder Concession: Traditionally, sellers or builders will offer a temporary buydown as a seller concession to attract buyers, especially in a slow market.

• Buyer Funded Buydown: You can choose to pay for the buydown yourself at closing. This might be a good option if you have the savings and want to lock in lower monthly payments in the early years of your loan.

• Lender or Realtor Incentive: In some cases, lenders or real estate agents may offer a temporary buydown as part of a promotional package.

 

 

Funding and Cost Considerations

The party responsible for paying for the buydown pays the amount as a closing cost when the loan is funded. The amount is equal to the buyers interest savings. Meaning the difference between the final note rate and the agreed lower interest rate during the first years of the loan. 

These funds are deposited into a custodial escrow account at closing. The loan servicer then draws from the account every month to make up the difference between the full loan payment and the discounted bill the homeowner is paying.

 

Temporary VS Permanent Buydown

While both options involve lowering your interest rate, temporary and permanent buydowns have key differences:

• Reduction Amount: Temporary buydowns offer a more significant initial reduction (up to 3%) compared to permanent buydowns (typically 0.125% – 0.5%).

• Loan Structure: Temporary buydown funds are held in an escrow account and used to supplement your monthly payments. In a permanent buydown, the lender reduces the loan amount itself.

• Buyer Qualification: For a temporary buydown, you need to qualify for the full loan amount and original interest rate even though you’ll pay lower rates initially. Conversely, you only need to qualify for the reduced interest rate with a permanent buydown.

 

When is the best time to use a Temporary Buydown?

Temporary buydowns can be a good idea for first-time home buyers who are shocked by the speed at which mortgage rates have risen, and who will deplete their savings on the down payment and closing costs. The temporary payment reduction allows borrowers to replenish savings or spend the money on home upgrades.

The most favorable time to take advantage of a buydown is when the seller or builder is offering to contribute cash towards closing. Sometimes this can happen as an incentive to get a buyer to purchase their home or to encourage the purchase of a home in a newly built community. If this isn’t an option, a buyer can often still pay down the rate themselves. 

 

 

Final Thoughts

Now that you understand temporary buydowns, it’s crucial to weigh the pros and cons against your individual financial situation and homebuying goals. Consulting with a mortgage professional is the best way to determine if a temporary buydown aligns with your needs. They can assess your eligibility, calculate potential costs and savings, and guide you through the entire mortgage process.

Beyond temporary buydowns, there are other strategies to navigate the homebuying journey in today’s market. Our team of home loan experts is dedicated to helping you explore all your options. Additionally, check out our blog for informative articles on various mortgage programs, down payment assistance, and tips for first-time homebuyers.

 

Let us empower you to make informed decisions and turn your dream of homeownership into reality. Contact us today to schedule a free consultation!

*Reduction in payment is the result of builder or seller concessions used to buy down the rate and are not guaranteed by NFM Lending. 5% down payment is the responsibility of the borrower. Available for fixed-rate conventional, VA, USDA, and FHA loans. For new or existing home purchases only. 

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!

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.

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. 

Bankruptcy Types

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.  

Your Finances

Credit Score

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). 

Down Payment

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.

Mortgage Points 

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!

Paying property taxes each year is part of the reality of being a homeowner, but there’s a way you could minimize this expense. A homestead exemption can save you money on your property taxes, and you don’t need to be a farmer to take advantage of it! Learn what the homestead exemption is and how it can give you a break on your taxes.

What is the Homestead Tax Exemption?

The homestead exemption benefits homeowners by offering two things: protection from certain creditors in case of bankruptcy or the death of a spouse, and a reduced property tax. We’ll be discussing the latter here. Property tax is determined by your home’s assessed value, which your local government determines based on several factors. The homestead exemption reduces how much of your assessed value gets taxed, potentially saving you hundreds of dollars in taxes. 

For example, if your home’s assessed value is $250,000 and your property tax totals 1%, you would pay $2,500 in property taxes. However, if you have a homestead exemption of $20,000, only $230,000 of your home would be taxed, lowering your property tax to $2,300 and saving you $200.

The deduction amount varies widely by state and county; sometimes it’s a flat amount or a percentage of your assessed value or acreage. Having a homestead exemption in effect is beneficial outside of the upcoming tax season—it gives you a cushion against rising property values since you won’t have to pay the full amount. 

Eligibility

Each participating state and county will have their own specifications, but a general requirement for eligibility is that you own your home and live in it as your primary residence. You can’t receive an exemption on a second home or investment property, and you’re limited to one per household. If you’re also part of a special population, such as being a senior citizen, a Veteran or surviving spouse, or disabled, you may qualify for additional property tax exemptions. Applying for the homestead exemption usually involves sending proof that you live in and own your home. Some local jurisdictions may require you to refile for an exemption each year, but some may not. If you move, you’ll have to file a new application. Similarly, if you bought a home within the past year, apply for a homestead exemption as soon as possible to reap the tax benefits. Be sure to consult a tax advisor for your area’s terms and eligibility requirements.

Few people like paying property taxes, but having a homestead exemption can ease your tax burden. It’s simple to find out whether you qualify, and any tax savings will truly add up when all is said and done.

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!

Terms and requirements vary by location, programs may not be available in all areas. NFM Lending is not a tax advisor. You should refer to a licensed tax advisor and your local area’s department of assessment and taxation regarding your unique financial situation.