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.
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!
When you’re considering different home loan products, one key question you should ask yourself is whether you want a fixed-rate or an adjustable-rate mortgage (ARM.) Many people become entranced by the ARM’s lower interest rates, but there’s more to them than their attractive rates. Here’s what you need to know about adjustable-rate mortgages.
What’s an Adjustable-Rate Mortgage?
Mortgages can generally be categorized into two types: fixed-rate mortgages and adjustable-rate mortgages. As their names suggest, the interest rate for an ARM is variable and can change over the life of the loan. ARMs are appealing because of their lower starting rate and the money-saving benefits during the beginning of the loan. It’s important to be financially prepared when the rate adjusts, as no one can predict how much they will change in the future. Having an ARM can become a problem if the rate increases to a point where you can’t afford to make payments. This element of uncertainty is why ARMs typically have lower rates than fixed-rate mortgages.
Types of ARM Loans
Hybrid ARMs have an initial fixed-rate period (often for 5, 7, 10, or 15 years) during which you’ll pay the same interest rate you closed on. After that period ends, your rate adjusts to whatever the current rate is for the life of the loan. The rate adjustment period can vary depending on the loan. Hybrid ARMs have an interest rate cap that limits how much the rate can increase or decrease within a certain timespan. For example, a 5/1 ARM may be structured with a 5/2/5 rate cap where after the first five years, the rate can be up to 5% higher than your initial rate in the sixth year. After that, the rate can increase up to 2% from your starting rate for the rest of the term. The last number in the rate cap indicates the maximum the rate can increase during the life of the loan, which is 5%. Make sure you understand and consider the loan’s rate cap so you know how much you could be paying. Locking in a competitive rate for the first few years gives you time to build savings, and you could save even more if the rate drops in the future.
With interest-only ARMs, you pay a lower rate upfront and only make interest payments for a certain amount of time. Your monthly payment will be lower since you’re just paying interest. Be aware that you won’t be gaining equity since your payment isn’t going towards the principal. After the interest-only span is over, you’ll be making interest and principal payments, while being subject to an adjustable rate. Interest-only ARMs also have rate caps. Make sure you understand the repayment terms, as some loans may require a balloon payment where the entire balance is due soon after the interest-free period.
Is it Right for You?
Though fixed-rate mortgages are perennially popular, adjustable-rate mortgages can be a good fit for some buyers. An ARM works well for people with flexible lifestyles and finances. For instance, if you have a solid level of savings, you’ll have more breathing room if rates rise significantly. This loan can also be beneficial if you expect your income to increase within the first several years of owning your home. For those who don’t expect to live in their house long (like if you have a starter home), an ARM lets you take advantage of the lower rate and build equity when it’s time to sell. If you decide later that you’d rather not deal with a varying rate, look into refinancing to a fixed-rate mortgage.
If the higher rates of fixed-rate mortgages are keeping you from becoming a homeowner, an adjustable-rate mortgage can be a helpful alternative. Even though your rate will change every now and then, the potential savings could make having a variable rate worthwhile.
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!