More than 21 million Veterans and service members live in the U.S., yet only about 6% have taken advantage of a VA home loan in the past five years. This percentage could be significantly higher if more Veterans understood the full scope of benefits this program offers.

Many Veterans and their families either aren’t aware of these advantages, believe the process is too complex, or haven’t worked with a lender knowledgeable about VA loans. Let’s clear the air and explore why a VA loan is one of the best mortgage options available.

  • Zero Down Payment: VA loans let eligible Veterans, active-duty service members, and some surviving spouses buy a home without needing a down payment.
  • Lower Costs: No private mortgage insurance (PMI) and often lower interest rates make VA loans more affordable than many other loan types.
  • Flexible Eligibility: You can reuse your VA loan benefit and even refinance with VA loan options like Streamline or Cash-Out refinancing.
  • Wide Property Options: Buy single-family homes, VA-approved condos, multi-unit properties (up to four units), or even manufactured homes (with land).
  • Exclusive Benefits: Protections like no loan limits (with full entitlement), seller-paid closing costs, and financial counseling if you face payment difficulties make VA loans uniquely supportive.

1. No Down Payment Required & No Mortgage Insurance

One of the standout features of a VA loan is the option to purchase a home with $0 down. This is a game-changer for many Veterans who may struggle to save enough for a down payment, especially with rising home prices.

For comparison, most other mortgage options require a down payment of at least 3.5% to 5%, translating to $8,750–$12,500 on a $250,000 home. With a VA loan, that upfront cost disappears, allowing Veterans to enter homeownership sooner.

Additionally, VA loans eliminate the need for private mortgage insurance (PMI). For other loans, PMI typically adds $100–$200 per month to your mortgage payment if your down payment is less than 20%. This means VA loans save Veterans hundreds of dollars monthly.

Pro Tip: The VA funding fee replaces PMI and can be rolled into the loan amount, so you won’t need to pay it upfront.

 

2. VA Funding Fee Exemptions for Disabled Veterans

If you have a service-related disability rating of at least 10%, you’re exempt from the VA funding fee. This can save thousands of dollars upfront and makes the VA loan even more affordable.

For Veterans who aren’t exempt, the VA funding fee is typically financed into the loan, allowing you to avoid an out-of-pocket expense at closing. The fee varies based on your service history and loan type, ranging from 0.5% to 3.6%.

Quick Fact: Veterans receiving VA disability compensation automatically qualify for a funding fee exemption.


3. The VA Loan Benefit Never Expires

One of the lesser-known benefits of a VA home loan is its reusability. Veterans can use this benefit multiple times throughout their lifetime, provided they meet certain requirements.

Here’s how:

  • Selling your home: If you sell a home purchased with a VA loan and pay off the loan in full, your entitlement is restored.
  • One-time restoration: If you’ve paid off your VA loan but still own the home, you may be eligible for a one-time restoration of your entitlement.

Even Veterans who served decades ago can still use their VA loan benefit. Eligibility is based on service duration and time period, so it’s worth checking your status.

To verify your eligibility: Obtain your DD Form 214 and work with a VA-approved lender or access the VA’s eBenefits portal.


4. Surviving Spouses Are Eligible

Unremarried spouses of deceased service members may also qualify for a VA loan. This benefit offers them financial support during a challenging time.

Eligibility applies if the service member:

  • Died in the line of duty.
  • Passed away due to a service-related disability.
  • Was missing in action or a prisoner of war for at least 90 days.

Surviving spouses are also exempt from the VA funding fee, providing additional savings.

Related Topic: Prevent Annoying Credit Offers before starting the mortgage process – Opt out at www.optoutprescreen.com

5. VA Home Loan Interest Rates Are Typically Lower

VA loans often feature interest rates about 0.25% lower than conventional loans, saving you money over the life of the loan. These competitive rates are possible because the VA guarantees the loan, reducing the lender’s risk.

Even Veterans with less-than-perfect credit scores may qualify for these favorable VA loan rates, making homeownership more accessible.

Did You Know? VA loans also boast some of the lowest foreclosure rates, a testament to Veterans’ commitment to homeownership.

6. Flexible Credit and Bankruptcy Guidelines

VA loans are more forgiving than conventional loans when it comes to credit requirements. There’s no minimum credit score required by the VA, though individual lenders may have their own criteria.

Even Veterans with a past bankruptcy or foreclosure can qualify, as long as they’ve reestablished credit for two years. This flexibility ensures that financial setbacks don’t prevent Veterans from achieving homeownership.

Important Note: If a previous foreclosure involved a VA loan, the remaining amount owed must be repaid to restore eligibility.

7. Wide Variety of VA Loan Options

The VA loan program isn’t just for purchasing a home. Veterans can choose from a variety of options tailored to their needs:

 Types of VA Loans

  1. VA Home Purchase Loan: For buying a primary residence with no down payment.
  2. VA Cash-Out Refinance: Tap into your home equity for expenses like home improvements or tuition.
  3. VA Streamline Refinance (IRRRL): Lower your interest rate quickly without an appraisal or extensive documentation.
  4. VA Renovation Loan: Combine the cost of a home purchase with necessary repairs or upgrades.
  5. Native American Direct Loan (NADL): For Native American Veterans purchasing or improving homes on federal trust land.

VA loans are more forgiving than conventional loans when it comes to credit requirements. There’s no minimum credit score required by the VA, though individual lenders may have their own criteria.

Even Veterans with a past bankruptcy or foreclosure can qualify, as long as they’ve reestablished credit for two years. This flexibility ensures that financial setbacks don’t prevent Veterans from achieving homeownership.

 

8. VA Loans Are Available from Private Lenders

While the VA backs these loans, they’re issued by private lenders, such as banks, credit unions, and mortgage companies. This allows Veterans to enjoy competitive terms and the convenience of working with a local lender.

Quick Tip: The VA guarantee ensures lenders will be repaid, enabling them to offer better rates and terms to Veterans.

 

9. Buy Condos, Multi-Unit Homes, and More with a VA Loan

VA loans can be used to purchase a variety of properties, including:

  • Single-family homes.
  • Multi-unit properties (up to four units).
  • Condominiums approved by the VA.

Condos are particularly attractive for first-time homebuyers, offering affordability and access to desirable locations.

Search for VA-approved condos: Use the VA’s online condo search tool to explore approved communities.

 

The Bottom Line:

Should I get pre-approved for a VA Loan?

VA loans offer a unique combination of affordability, flexibility, and financial protections, making them one of the most valuable benefits available to those who have served our country. With no down payment, competitive interest rates, and no PMI, they help Veterans and their families achieve homeownership without the traditional financial barriers. Beyond the cost savings, VA loans offer peace of mind through borrower-friendly terms, such as flexible property options and protections for those facing financial hardship. Whether you’re purchasing your first home, refinancing, or upgrading to meet your family’s needs, VA loans are a powerful tool to help you build a stable and secure future. If you’re eligible, it’s worth exploring how a VA loan can make your homeownership dreams a reality.

Ready to make the most of your VA loan benefits? Getting preapproved is the first step toward unlocking the advantages of this incredible program. Reach out to us today to start your journey to homeownership with expert guidance and a smooth, stress-free process. Let’s get you one step closer to your dream home!

 

Frequently Asked VA Loans

A VA loan is a mortgage program created by the U.S. Department of Veterans Affairs to help Veterans, active-duty service members, and certain surviving spouses buy or refinance a home. Eligibility typically requires meeting one of the following conditions:

  • Serving at least 90 consecutive days during wartime.
  • Serving at least 181 consecutive days during peacetime.
  • Completing six years of service in the National Guard or Reserves.
  • Being the un-remarried surviving spouse of a service member who died in the line of duty or as a result of a service-connected disability.

Your lender can help confirm eligibility by obtaining your VA Certificate of Eligibility (COE).

No, one of the biggest benefits of a VA loan is the option to buy a home with no down payment, making homeownership more accessible to Veterans who may not have significant savings.

The VA funding fee is a one-time payment that helps keep the VA loan program running without requiring taxpayer funding. This fee is based on your loan amount, type of loan, and whether it’s your first time using your VA loan benefit.

For example:

  • First-time use with no down payment: 2.3% of the loan amount.
  • Subsequent use with no down payment: 3.6%.

If you have a service-related disability, you may be exempt from paying this fee. Additionally, the funding fee can be rolled into the loan amount instead of being paid upfront. – Source: VA.gov

Yes, VA loans offer several refinancing options:

  • VA Streamline Refinance (IRRRL): Helps lower your interest rate or monthly payment with minimal paperwork and no appraisal required.
  • VA Cash-Out Refinance: Lets you tap into your home equity to pay for expenses or refinance a non-VA loan into a VA loan.

Absolutely! The VA loan benefit is reusable as long as you meet the eligibility requirements and pay off any previous VA loan. You can also restore your benefit if you sell your home and pay off the loan completely.

No, VA loans are available to eligible Veterans and service members, whether they’re buying their first home or their fifth. There’s no limit to how many times you can use your VA loan benefit, provided you still qualify.

VA loans are intended for primary residences, meaning the home you plan to live in full-time. You cannot use a VA loan to purchase a vacation home or investment property.

VA loans can be used to buy a variety of property types, including:

  • Single-family homes.
  • Condos (must be in a VA-approved community).
  • Multi-unit properties (up to four units, as long as you live in one of them).
  • Manufactured homes (with land, and subject to lender approval).

The VA does not set a specific credit score requirement, but most lenders do. Typically, you’ll need a credit score of at least 580-620 to qualify. However, VA loans are more flexible with credit standards compared to conventional loans, making them accessible to borrowers with lower scores.

The VA provides financial counseling to borrowers who are struggling with payments. Additionally, because VA loans tend to have lower foreclosure rates, lenders may be more willing to work with you to find a solution, such as loan modification or repayment plans.

If you have full VA entitlement, there are no loan limits, meaning you can borrow as much as a lender approves without a down payment. However, lenders will still evaluate your income, credit, and debt-to-income ratio to determine how much they’re willing to lend.

Yes, VA loans allow sellers to contribute to the buyer’s closing costs, up to 4% of the loan amount. This can include paying off debt to help the buyer qualify or covering prepaid expenses like property taxes and homeowners insurance.

Yes, VA loans come with a built-in Escape Clause that protects buyers. If the home’s appraised value is lower than the purchase price, you can back out of the deal without losing your earnest money deposit.

 

Ready to see what you can afford? Contact us today to discuss your home-buying goals and take your first step toward financial freedom.

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Equal Housing Lender. 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. 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. *Veterans Affairs loans require a funding fee, which is based on various loan characteristics. Sales price cannot exceed appraised value. Refinancing an existing loan may result in the total finance charges being higher over the life of the loan. Offers may vary and are subject to change at any time without notice. Interest rates are subject to change daily and without notice. *On an Interest Rate Reduction Refinance Loan (IRRRL) the Veterans Affairs does not require an appraisal, but NFM Lending may require a drive-by-appraisal. Income documentation is not required, but source of income must be verified. **Purchases only, must have Automatic Underwriting System (AUS) approval. No cash-out under 600. †Sales price cannot exceed appraised value. ††In a purchase transaction, reasonable closing costs may be paid by the seller, and the program is available with no points depending on credit profile, collateral, and current mortgage history.

Buying a home is an exciting milestone, but understanding how much house you can afford is essential before diving into the market. Determining the right monthly payment goes beyond just your salary—factors like debt, credit score, available down payment, and current mortgage rates all play a role in shaping your budget. In this article, we’ll help you assess affordability, including tips for using a Home Affordability Calculator to estimate your target range within your monthly budget. With these insights and our mortgage resources, you’ll be ready to confidently start your journey to financial security and generational wealth.

  • Use our Home Affordability Calculator: Start with a home affordability calculator, considering factors like income, debts, and down payment to estimate a realistic home-buying budget.
  • Debt-to-Income (DTI) Ratio & 28/36% Rule: Aim to keep housing costs below 28% of gross income and total debts under 36%. Lower DTI ratios may help secure better loan terms.
  • Plan for Upfront Costs: Budget for down payments, closing costs, and inspections, plus explore down payment assistance and gift funds if available.
  • Consider Additional Costs: Monthly expenses like property taxes, utilities, insurance, maintenance, and repair costs are important for realistic budgeting.
  • Impact of Mortgage Rates and Credit Score: Higher mortgage rates and lower credit scores can significantly increase monthly payments, so improving credit can improve affordability.
  • Focus on Personal Timing: Decide based on your personal financial stability, future plans, and readiness to plant roots—not just market conditions.

Home Affordability Calculator: Start by Crunching the Numbers

A home affordability calculator is a quick and helpful tool to get started. With just a few details—income, debts, and down payment—this snapshot can be a great starting point to identify a realistic target for your home-buying journey.

When calculating your own numbers, be sure to factor in:

Gross Income: Your annual salary before taxes.

Your gross income is the foundation of how much home you can comfortably afford. Include all earnings before taxes, bonuses, freelance income, retirement payouts, etc.

Debts: Monthly Payment Obligations

Debts like credit cards, car loans, child support or student loans are all factors in how much home you can comfortably afford.

Down Payment: Upfront Investment

Your down payment can lower your loan amount, and therefore your monthly mortgage. Higher down payments may also lead to better loan terms like interest rate.

With our calculator, you can play with different scenarios to see what factors affect your homebuying power.  From there, we can discuss the details and work together to the right loan from different programs and options available to you!

 

How Much Home Can I Afford with My Salary?

Calculating your budget doesn’t only involve monthly payments; it’s about choosing a payment level that fits comfortably in combination with your lifestyle. Every person’s life is completely different, and so are their finances. Are you single? Do you have a family? Divorced? Are you retired? Do you have a lot of debt? No debt? You get the point!

Here’s an example:

Say you earn $100,000 annually, or $8,333 per month before taxes and deductions. Based on the 28% rule, a reasonable full monthly mortgage payment could be $2,333 (including mortgage, insurance, and taxes). You’ll need to consider other financial goals to ensure you’re not overextending yourself and can continue saving.

Mortgage Affordability: Your Debt-to-Income Ratio and the 28/36% Rule

Lenders use your debt-to-income (DTI) ratio to assess your ability to handle monthly mortgage payments. Actual loan guidelines (criteria of who qualifies for each type of loan) may allow for more debt, as high as 50% in some cases. A good rule of thumb for affordability is the 28/36% rule: housing costs should ideally be no more than 28% of your gross monthly income, while your total monthly debts—including housing—should stay below 36%.

For Example: If your monthly income is $4,500, a comfortable housing payment target would be $1,260 (28% of $4,500). Adding in other monthly debts, your total should ideally remain below $1,620 (36% of $4,500) to give you breathing room for savings, unexpected expenses, and daily needs.

 

Calculating your DTI Ratio:

  1. Add up all monthly debt payments (housing, car loans, child support, credit cards).
  2. Divide by your gross monthly income.
      • Total Monthly Debt: $1,635
      • Gross Monthly Income: $4,000
      • DTI: $1,635 ÷ $4,000 = 41%

Reducing debt, like eliminating a credit card payment, can lower your DTI, helping your monthly mortgage payment more comfortable, and also making you less of a risk to lenders which can offer you better loan terms.

Pro Tip: Connect with one of our loan officers early in the home-buying process to ensure you understand the full scope of buying a home. From pre-qualification and pre-approval to budgeting and credit tips, our team is here to help.

What if I’m Self-Employed, Work on Commission, or am Retired?

If an affordability calculator feels too rigid, or if your income varies, reach out to us for personalized advice. We’ll go over your budget, review your loan options, and answer any questions so you’re fully confident before you buy.

 

7 Important Factors to Calculate Home Affordability

 

1. How does my monthly budget affect my mortgage payments?

Your DTI ratio is a good gauge, but only part of the equation, as it only considers true “debt” and only your gross income (pre-tax).
Other things you should consider in your budgeting decisions are your true monthly obligations and recurring costs, along with your Net income after taxes, insurance, and retirement savings are deducted.

Consider Budget Items Like:

  • Childcare Costs
  • Utilities: gas, water/sewer, trash, internet/cable
  • Groceries
  • Transportation
  • Health Insurance/Medical Expenses
  • Savings and Investments
  • Entertainment
  • Personal Care
Home Affordability Mortgage Payment Monthly Payment Home Loan Affordability

Pro Tip: If you’re struggling to outline your true budget, reach out! We love helping to set our customers up for success, building a good foundation from the ground, up!

2. Upfront Costs When Buying a Home – Saving for the Down Payment

After understanding what your monthly budget can accommodate, now you can see what room there is in your budget to save for the upfront costs of buying a home. Here’s a breakdown:

  • Down Payment: Generally 3-20% of the home’s price, though some loans offer zero down payment options. If your down payment is below 20%, you may need to budget for private mortgage insurance (PMI).
  • Closing Costs: Typically 2-6% of the loan amount. Closing costs cover title fees, appraisals, legal fees, prepaid taxes, and other fees. For a $400,000 loan, closing costs might be between $8,000 and $24,000.
  • Inspection and Appraisal Fees: Expect to pay around $300-$1,000 separately for a home inspection and appraisal, depending on local rates.

Tip: Come up with a larger down payment:

The more you can contribute upfront, the less you need to borrow. Your down payment doesn’t all have to come from your own savings, either. If you have a family member or close friend who can afford to, they might give you a gift to add to your down payment. They will need to sign a letter stating that the money is a true gift — not a loan that you’ll need to pay back.

Closing costs are based on the loan amount rather than the whole home. So the larger the down payment, the less closing costs you pay!

Pro Tip: Down payment assistance is also a helpful tool that most people don’t know they qualify for! – learn more about down payment assistance

3. Be Prepared for Property Taxes

Property taxes vary based on location and property value. Some states charge no property tax at all, while others can have very high property taxes.
For instance, single-family home taxes in New Jersey averaged $9,527, while in West Virginia, the average was $928 (2022 US Census Data). Keep these in mind as they impact your monthly payment.

Tip: Lower Property Taxes by Considering Other Locations

You might have your heart set on a certain neighborhood or a certain city, but flexibility is key. If you can cast a wider net, you will open yourself up to places where property taxes, and even home prices are lower.

4. Budget for Ongoing Repair and Maintenance Costs

Homeownership means taking care of your property’s upkeep. If you’re considering a fixer-upper, research the probably and leave room for unexpected costs, as these can add up quickly. Even new homes require upkeep both inside and out.

5. Shop Around for Homeowners Insurance

Insurance is essential to protect your investment, and premiums vary based on location, coverage, and risk factors. They are especially high in states prone to natural disasters, like Florida and California. Get multiple quotes to find the best rate as this is the one area you can control in your monthly payment.

6. How Do Current Mortgage Rates Impact Affordability?

Interest rates are determined by many different factors, but the effect they have on your monthly mortgage payment is simple. The higher your interest rate, the higher your monthly payment. For instance, a 30-year $600,000 mortgage would be $3,220 at a 5% rate, but would increase to $4,402 at 8%.

Tip: Talk with us about today’s rates and how they affect your monthly budget.

7. How Does Credit Score Impact Affordability?

Your credit score is the foundation of your finances, and it plays a critical role in determining your mortgage rate. For example, let’s say you have a credit score of 750, considered in the “very good” range by FICO. That will put you in the running for a better rate than, say, a lower credit score of 580, which is at the top of the “poor” credit range. To find out your score, check your credit report at one of the big three agencies: Equifax, Experian and TransUnion.

Tip: How to Improve Your Credit Score

Boosting your credit score is a great way to put yourself in a position for the lowest mortgage rate possible. ALWAYS make your payments on time and in full every month. Pay down your credit cards and avoid applying for any additional accounts as you prepare to apply for a mortgage.

Related Topic: Prevent Annoying Credit Offers before starting the mortgage process – Opt out at www.optoutprescreen.com

 

The Bottom Line:

Should I Buy a Home Now or Wait?

Home prices have been on a rollercoaster ride in recent years and are still very high, as are mortgage rates. It’s enough to make you wonder whether now is even a good time to buy a house. It’s important to focus on your personal situation rather than thinking about the overall real estate market. Is your credit score in great shape, and is your overall debt load manageable? Do you have enough savings that a down payment won’t drain your bank account to zero? If your personal finances are in excellent condition, a lender will likely be able to give you the best deal possible on your interest rate.

It’s not just about money, though. Think about what’s on the horizon for you. Are you comfortable planting roots for the foreseeable future? The longer you can stay in a home, the easier it is to justify the expenses of closing costs and moving all your belongings — and the more equity you’ll be able to build.

With careful planning and the right support, homeownership can be a powerful step toward building financial security. Reach out today to discuss your options, learn about our loan programs, and take the first step toward making your dream home a reality.

 

Frequently Asked Questions About Home Affordability

Let’s say you earn $75,000 each year, which is $8,333 per month before taxes and deductions. By using the 28 percent rule, your full mortgage payments should add up to no more than 28 percent of $8,333, or $1,750 per month (including mortgage, insurance, and taxes). – This is assuming no other debts and doesn’t consider your other monthly obligations and budget.

Federal Housing Agency (FHA) mortgages are available to homebuyers with credit scores of 500 or more and can help you get into a home with less money down. If your credit score is below 580, you’ll need to put down 10 percent of the purchase price. If your score is 580 or higher, you could put down as little as 3.5 percent. There are limits on FHA loans, though. In most areas in 2024, an FHA loan cannot exceed $498,257  for a single-family home. In higher-priced areas, the number can go as high as $1,149,825. You’ll also need to factor in how mortgage insurance premiums (MIP) — required on all FHA loans — will impact your payments.

Eligible active duty or retired service members, or their spouses, might qualify for down payment–free mortgages from the U.S. Department of Veterans Affairs. These loans have competitive mortgage rates, and they don’t require PMI, even if you put less than 20 percent down. Plus, there is no limit on the amount you can borrow if you’re a first-time homebuyer with full entitlement. You’ll need to also consider how the VA funding fee will add to the cost of your loan.

Loans backed by the United States Department of Agriculture (USDA) require no down payment, and there is no limit on the purchase price. However, these loans are geared toward buyers who fit the low- or moderate-income classification, and the home you buy must be within a USDA-approved rural area.

 

Ready to see what you can afford? Contact us today to discuss your home-buying goals and take your first step toward financial freedom.

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Refinancing an existing loan may result in the total finance charges being higher over the life of the loan.

Refinancing your home may seem like a big decision, but it’s essentially swapping your current mortgage for a new one—potentially with better terms, a lower interest rate, or a different loan balance. When you refinance, your lender will pay off the old mortgage and issue a new one. But why refinance? If you’re curious about how the mortgage refinance process works or wondering how it might benefit you, we’re here to walk you through every step.

  • Refinancing Basics: Refinancing replaces your current mortgage with a new one, potentially offering better terms, a lower interest rate, or cash from your home’s equity.

  • Reasons to Refinance: Common reasons include lowering your interest rate, removing mortgage insurance, or accessing cash for large expenses through a cash-out refinance.

  • Choosing the Right Lender: Select a lender who listens to your financial goals, educates you, and helps you choose the best mortgage refinance option for your needs.

  • Closing Costs Matter: Refinancing involves closing costs of 3-6% of the loan principal. Talk to your loan officer to determine how long it will take to recover those costs (your break-even point), and if you can roll them into your loan.

  • Walking Through the Refinance Process: We walk through every step, starting with gathering documents, submitting your application, and through what your closing appointment will be like.

When to Consider Refinancing Your Mortgage

There are several scenarios where refinancing can be a smart financial move:

  1. Rate and Term Refinance

Goal: Refinancing gives you the option to shorten the term to pay off your loan faster and potentially secure a lower interest rate. Alternatively, you can extend your loan term, spreading out payments over a longer period and lowering your monthly costs.

  1. Remove Mortgage Insurance

Goal: If you have an FHA loan, you’re required to pay a mortgage insurance premium (MIP) for the life of the loan. Many homeowners refinance to a conventional loan once they reach 20% equity, allowing them to drop the insurance and lower your monthly expenses.

  1. Cash-Out Refinance

Goal: A cash-out refinance lets you tap into your home’s equity by refinancing for a higher loan balance and taking the difference in cash. This is a great way to access funds for large expenses like home renovations, education, or consolidating high-interest debt.

Knowing when to refinance is key to maximizing your savings. Tools like a Mortgage Refinance Savings Calculator can help you determine whether a refinance is right for you.

 

Starting the Mortgage Refinance Process

1. Choose the Right Mortgage Lender

The first step to refinancing is finding a mortgage refinance lender you trust. They will walk you through different mortgage refinance options and help you choose the one that aligns with your financial goals.

Choose a lender who listens, asks about your goals, educates, and communicates clearly.

When is it Worth it to Refinance?

A good rule of thumb is to consider refinancing if you can lower your interest rate by at least 1%. For instance, if you currently have a 7% rate and find that you could refinance at 6%, it’s likely worth running the numbers with your lender. Beyond that, your lender can help you calculate the total savings and how long it will take to break even on the cost of refinancing.

 

Closing Costs

Understanding Closing Costs When Refinancing

You might ask, “Is it worth it to refinance my mortgage?” One key factor is closing costs, which are typically 3-6% of the new loan principal. You’ll want to make sure the financial benefits of refinancing outweigh these costs. Your lender can help calculate your break-even point—how long it will take to recoup the cost of refinancing through the savings generated by your lower monthly payments.

Refinance Break-Even Point closing cost calculation
TIP: If you’re planning to move before you reach your break-even point, refinancing might not make sense financially. However, if you plan to stay in your home long-term, refinancing can yield substantial savings.

How to Pay for Refinancing Closing Costs

You can either roll closing costs into your loan or pay them upfront at closing. Talk with your loan officer to decide which option works best for your situation. Some homeowners prefer to pay upfront to avoid increasing their loan balance, while others like the flexibility of rolling the costs into the loan to avoid out-of-pocket expenses.

 

Steps in the Mortgage Refinance Process

Now that we’ve covered the basics, let’s dive into the key steps you can expect when going through the mortgage refinance process:

2. Gather Documentation

Before filling out a mortgage refinance application, you’ll need to gather essential documents. Every situation is unique, but you’ll likely need the following:

  • Government-issued ID and Social Security number
  • Recent pay stubs
  • W-2s from the past two years
  • Federal tax returns
  • Proof of additional income (if applicable)
  • Mortgage statements, credit card statements, and other debts
  • Retirement and investment account statements
  • Homeowners insurance policy
Your documents may be needed again in the processing phase, so keeping them on hand in the beginning and throughout your loan process can save you time and headaches.

3. Submit Your Refinance Application

Once you’ve gathered all your documents, it’s time to submit your application. This step involves sharing details about your financial situation, such as your assets, liabilities, and property information.

Our online application process is safe, secure, and easy to complete right from your smartphone or computer.

After submitting your application, your credit will be checked to give your loan officer a complete picture of your finances. Within three business days, you’ll receive a Loan Estimate (LE), which breaks down your estimated closing costs and the terms of your new loan. Be sure to review it carefully and notify your loan officer immediately if you spot any errors—like a misspelled name or incorrect address.

4. Processing

During this stage, your loan processor verifies your financial details. This includes checking your income, assets, and credit score. They may request additional documents to clarify or confirm information, so keeping your documents organized can help speed up the process. The processor will also open an escrow account and may order an appraisal to determine your home’s current market value.

Appraisal

An appraisal is typically required during a refinance to ensure the new loan amount does not exceed the home’s value. Some loans, such as FHA Streamline Refinance and VA IRRRL, may waive the appraisal requirement, but for cash-out refinance, it’s usually necessary.

5. Underwriting

The underwriting process reviews all the information you’ve provided. The underwriter might grant:

underwriting approval, green checkmark

Direct approval: Your loan is approved with no further action needed, and you can proceed to closing.

caution, conditional approval

Conditional approval: You’ll need to provide additional documents or clarification before receiving full approval.

red x, underwriting denial

Denial:
What happens if your refinance application is denied?
In rare cases, your loan could be denied due to credit history, insufficient income, or other factors. If this happens, the underwriter will explain the reasons, and you can work with your lender to explore alternatives.

6. Review Your Closing Disclosure

Three days before your closing date, you’ll receive a Closing Disclosure (CD) outlining the final details of your loan, including the closing costs. Compare it with the Loan Estimate you received earlier and carefully review the terms. If anything seems off, don’t hesitate to ask your loan officer for clarification.

Closing and Final Steps

7. Closing Day

On closing day, you’ll meet with a title company representative, and possibly your loan officer to finalize your loan. Bring a state-issued photo ID and any remaining funds needed to cover closing costs (if not rolled into the loan). After signing the documents, the loan funds will be distributed. If you’re refinancing to take out cash, you’ll typically receive your funds a few days after closing.

8. First Monthly Payment

Depending on the closing date, you may be able to skip one or two mortgage payments. After that, your regular monthly payments will begin. 

If you’re interested in how to pay off your mortgage quicker, here are a few ways you can do that.

 

Wrapping it Up


We hope this guide has provided clarity on the mortgage refinance process. Whether you’re aiming to reduce your monthly payments, access your home’s equity through a cash-out refinance, or eliminate mortgage insurance, refinancing can offer significant financial benefits. With the right approach, you can save money and achieve your long-term financial goals.

When you’re ready to explore your refinancing options, feel free to reach out to us. We look forward to helping you navigate the process and find the best solution for your needs!

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Refinancing an existing loan may result in the total finance charges being higher over the life of the loan.

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

 

Common Mortgage Types and Minimum Down Payment

 

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.

Getting ready to purchase a home is a huge financial undertaking. While you are probably aware of having to save up for a down payment, you might not know about closing cost fees. Don’t be taken by surprise at the closing table; here’s what you need to know about closing costs.

What are closing costs?

Closing costs are the fees charged for services performed during the home purchasing process that you will pay at closing. Closing is the final step of the loan process and is a meeting between you (the buyer), the seller, and closing officer (a lawyer or title/escrow company representative, depending on the state). You will review the legal documents provided in your loan package and execute all required documents. This step is extremely important, as it is the final confirmation of the loan terms as discussed with your lender.

What fees are included in closing costs?

The closing costs you might have to pay will vary based on the property, where you live, and the loan you choose. The following are a few of the most common fees you may see.

Again, closing costs will not be the same for everyone as they vary by region. On average, most homebuyers typically pay about 2 to 5 percent of the home loan amount. For example, if you are getting a loan for $250,000, you might pay between $5,000 and $12,500 in closing fees.

Can I avoid closing costs?

It is likely you might be able to avoid some closing cost, but not all. Here a few ways to save on closing costs.

Your lender will provide you with an estimate of what closing costs will be at the beginning of your application process, which will allow you the chance to shop around to find the best lender and deal for you. After finding a lender and going through the loan process, you will receive a closing disclosure, or the final closing cost total, at least 3 business days prior to closing. This is your time to make sure everything looks right and if you have questions or find a mistake, you have time to contact your lender. If you’re worried about how much you’ll pay in closing costs, there’s plenty of options for you! NFM participates in most state bond programs that provide closing cost assistance.

To learn more about closing costs or bond programs, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!

While buying a home might seem straightforward, there’s a lot more to the process than picking out a home and obtaining a mortgage. One of the things most buyers don’t prepare for is all the hidden costs of buying a home, both during the homebuying process and after.

Some of these costs occur during the homebuying process, otherwise known as closing costs:

Down Payment/Earnest Money: Your down payment is a certain percentage of the home’s purchase price, ranging from 0-20%. Earnest money is essentially a security deposit that shows your intent to buy the home. This money is later applied to your down payment when you purchase the home. For example: if the home you want to buy is listed at $250,000, you can expect to have a down payment between $8,750 (3.5%) and $50,000 (20%).

Appraisal Fee: An appraisal is a written analysis of a property’s estimated value, prepared by a qualified appraiser. On average, the fee for an appraisal ranges from $250 to $400. This price is dependent on the size of the home you are looking to buy and where you live, so it could be more or less than average.

Title Services: When you buy a home, the seller must transfer their legal ownership or “title”, over to you in the form of a deed. Your lender requires you to have a complete title search and insurance to protect you in the instance that the seller or previous owners didn’t have complete ownership of the home. This fee is a bit higher than other closing costs, averaging around $1,000, but it is a vital aspect to protecting yourself from potential issues in the future.

Lender’s Origination Fee: When working with a mortgage lender, they charge an upfront fee to process your loan application. This fee is usually a percentage of the total loan you obtain, also known as “points”. One point is equal to 1% of the loan amount. For example, on a $250,000 loan, a 1% origination fee or one point is equal to $2,500.

Home Inspection: It is crucial to have a home inspected before you proceed to purchase. Professional home inspectors are trained to see things that normal eyes might overlook. You don’t want to buy a home with foundation problems, bad roofing, or pests. The cost for a professional home inspection is between $300 and $500, depending on the size of the home.

Property Taxes: As a homeowner, you typically pay property tax twice a year. In most cases, the sale of a home will fall within one of the tax periods. This means that at closing, the buyer will reimburse the seller for the property taxes they’ve already paid for the tax period. Since you are only paying a portion of the taxes, the total cost depends on both the value of the home and how far into the pay period you are buying the home.

After you purchase your new home, you should plan to pay for these expenses:

Moving: There are a lot of aspects of moving to consider when trying to estimate what it will cost. Are you moving down the street, across the state, or across the country? Obviously, the further the distance, the more you will pay for movers or to rent a moving van/truck. Moving yourself is a cheap alternative to hiring professionals. The size of the home and the weight of items also impact the cost. You’ll need to purchase packing supplies, including boxes, containers, tape, and bubble wrap. The time of your move also comes into play, as moving in the summer is busy season and usually has the highest rates. Expect to spend anywhere between $1,200 and $5,000 to move.

Utilities: If you’ve owned a home before then you’ve experienced paying for your own utilities. For first-time homebuyers, some of these costs were probably covered if you were renting. Utilities you’ll have to pay include: water, sewer, gas, cable, internet, electric, trash/recycling, and phone. A few of these costs are dependent on the seasons (electric), while others can be impacted by the number of people living in your home (water). Plan to pay about $300 to $600 a month in utilities when setting a budget. You can easily adjust this amount once you’ve had a couple months to find your own average.

Maintenance/Renovations: While your new home might have been in great condition when you purchased it, it’s your responsibility to keep up with maintaining the home and yard. If you’ve never had to maintain a yard, you might need to purchase some tools, such as a lawn mower, rake, shovels, shears, or leaf/snow blower. If you prefer to hire professionals to maintain your landscape, be sure to add that into your budget. Set aside some money for a renovation budget as well, as you might choose to repaint the living room or redo the kitchen a year or two down the line.

Homeowner’s Association (HOA): If the home you purchased is part of a HOA, you’re going to have an additional monthly cost of, on average, $200 to $400. The more upscale the community/amenities, the higher the fee. Every HOA has different requirements and standards, so do your research before choosing to join.

Becoming a homeowner is a milestone achievement, so make sure you are fully prepared for the financial commitment. Now that you know what hidden costs to expect when buying a home, you should feel confident about your budget and moving forward in the homebuying process.

If you have any questions or want more information about the homebuying process, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the process, click here to get started!

A Veterans Affairs (VA) loan allows you to buy your home with 100% financing or no down payment.  However, there still will be other costs associated with the loan. You most likely still will need an earnest money deposit and closing costs to cover.  You may be able to get the seller to cover some of the closing costs during settlement, up to 4% for a VA loan. When buying a home using VA financing, closing costs cannot be rolled into the loan. There are some costs that can be financed such as the VA funding fee.

For first-time home buyers, the VA funding fee ranges from 2.15% to 2.4% of the purchase price. If you are receiving any form of disability from Veterans Affairs, then the funding fee may be waived. The funding fee is based on various loan characteristics. On an Interest Rate Reduction Refinance Loan, an appraisal is not required, but the lender may require a drive-by-appraisal. Income documentation is not required, but source of income must be verified. On a purchase loan, the sales price cannot exceed the appraised value.

In general, when buying a home using 100% VA financing, the closing costs can range from 3.5% to 5.5% of the purchase price of the home. Closing cost can range from loan origination fees from the lender, credit report cost, appraisal, recordation cost, title fees, and transfer taxes, to name a few. If the 4% in closing cost assistance from the seller doesn’t cover these costs, then the remaining difference is the responsibility of the buyer. Also note, as a new home owner you will want to have some savings available after settlement in case of an emergency, and to pay for any added expenses once you move in, such as moving and purchasing curtains, lawnmowers, appliances, etc.

If you are ready to purchase a home with your VA benefits, keep in mind that there is a difference between down payment and closing cost.

Enjoy your home search and good luck!

 

Bruce Dorsey is employed by NFM, Inc. as a Mortgage Loan Originator, NMLS #174898. NFM, Inc. is a Veterans Affairs Automatic Lender (659985-00-00) under the trade name NFM Lending. NFM, Inc. is licensed as: Maryland Mortgage Lender (5330) under the trade name NFM Lending. For NFM lending’s complete licensing information, please go to www.nfmlending.com/licensing. NFM, Inc.’s Nationwide Mortgage Licensing System (NMLS) Company Identifier Number is 2893. NFM, Inc. is not affiliated with, or an agent or division of, a governmental agency or a depository institution. NFM, Inc. is an equal housing lender.