Though there are several factors that impact how much you’ll pay for your mortgage, one of the most important is your mortgage interest rate. When you’re preparing to purchase a home, the interest rate you are quoted on the day of your initial inquiry with a mortgage company will be subject to daily or weekly fluctuations, meaning that rate can and will change over time. This is because mortgage interest rates are partially determined by the Federal Reserve and the bond market, which may rise or fall. If you’re ready to buy a home, learn why you should lock in a mortgage rate and when might be the right time to lock.
A mortgage rate lock does what it says it does: it freezes the current rate so it won’t increase or decrease during the lock period. This is a great way to save money in the long run if you see a rate you like. Bryan Harrison, Branch Manager at NFM Lending, commented, “If you have a rate that you are comfortable with and you can afford the monthly payment, you should talk to your Loan Originator and get the lock in writing”.
Lock periods are commonly offered for 30 or 60 days, but you can ask your lender for shorter or longer options. The rate you choose to keep will be honored until the lock period expires. Agreeing to a longer lock period often comes at a higher cost; ask your lender for an estimate on how long closing can take so you can decide on the best lock period.
While the rate lock will be valid during the timeframe, be aware that your rate may change if your credit score drops, you decide to take another loan type, or if there is an issue during the loan’s underwriting. Additionally, because a rate lock prevents you from being affected by rate hikes, it also prevents you from being able to cash in should rates fall. Some rate locks may have a float-down option, which means you can take advantage of lower rates during the lock period; speak with your lender to see if they offer this.
Once you’ve locked your rate, be aware that the rate could be the same for the duration of the loan (a fixed rate loan), or it could change periodically (a variable rate loan). Speak with your Loan Originator about the difference and the benefits of both types.
A rate lock that establishes a monthly mortgage payment you are comfortable with and gives you peace of mind is probably the right one for you. When you encounter a great interest rate, don’t hesitate – lock it down.
If you have any questions or want more information about locking in a mortgage rate, contact one of our Licensed Mortgage Loan Originators. If you are ready to begin the homebuying process, click here to get started!
*Other terms and conditions apply. A 1 point up-front fee may be collected from the borrower at time of lock, which will be applied to the borrower’s closing cost at settlement. Program not available in all areas. Offers may vary and are subject to change at any time without notice.
When applying for a loan, one of the most important factors that will come into play is your credit score. Before you start the loan application process, you should have a clear understanding of how your credit score affects your mortgage rate so you can assess your financial situation.
Most lenders use the FICO (Fair Isaac Corporation) model for credit scores. This model provides consumers a numerical value on a scale between 300-850. Typically, the higher your credit score, the lower the interest rate the lender will offer to you. Lenders use your credit score to determine how reliable you’ll be as a borrower and the likelihood that you’ll repay the loan as agreed upon. Essentially, they want to make sure you’ll make your mortgage payments on time each month. A lower score might indicate that a borrower could make late payments or even miss some. This is all part of your credit history, which they will also take into consideration.
Not necessarily. It mostly impacts which type of loan you’ll qualify for and the interest rate you’ll receive. A conventional loan usually requires a minimum of a 620 credit score, whereas an FHA loan has a minimum of 580. However, it’s important to note that while some loan programs accept lower credit scores, they might require a larger down payment or some other way to mitigate the lender’s risk in taking on the loan. In addition, even though someone with a 580 credit score COULD qualify for an FHA loan, it does not mean that they will; it is at the discretion of the lender within the guidelines of the loan programs.
A borrower has obtained a conventional fixed-rate 30-year loan of $200,000 with 10% down, meaning the amount borrowed is $180,000. She has a 750 credit score and received a 4% interest rate. Her monthly mortgage payment is $859 (not factoring in other fees, such as private mortgage insurance (PMI) or real estate taxes that may be included in the payment). Now, say that borrower dropped to a 650 credit score. She instead received a 5% interest rate. That increases her monthly mortgage payment to $966. That 100 point difference between credit scores ultimately means an extra $107 added to her mortgage payment each month. While that might not seem like a big deal, keep in mind the duration of the loan is 30 years. Having a higher interest rate means a yearly difference of $1,284; over 30 years that totals $38,520.
If you’re interested in comparing interest rates and monthly mortgage payments, use our mortgage calculator.
Don’t worry if your credit isn’t the best right now. Raising your credit score can take a lot of time, patience, and discipline. However, if you follow these simple guidelines you will soon notice a positive change in your credit and ultimately your financial future. You’ll be able to qualify for better rates when it’s finally time to buy a home.
To learn more about credit scores and interest rates, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!
*The figures used in this example are hypothetical and the results are intended for illustrative and educational purposes only. **NFM Lending is not a credit repair company. Please contact a credit repair company for more information on how to improve your credit score.
Over the past several months, we have answered the top questions about the top mortgage loan options. Our final blog in this series will answer the top 5 questions about United States Department of Agriculture (USDA) loans. If you are considering buying a home, read on to find out whether a USDA loan might be the right choice for you.
USDA Loans
USDA home loans are insured by the United States Department of Agriculture. This loan program allows low- and moderate- income households to purchase homes in eligible rural areas. Home buyers who do not qualify for a conventional mortgage may be able to purchase a home with a USDA loan.
If you are looking to purchase a home in a rural area, a USDA loan may be the right financing option for you. For more information about USDA loans, please visit the USDA website. If you have more questions about buying a home with a USDA loan, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!
*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.
Recently, we answered the Top Five Questions About Jumbo Loans. This week, we will discuss VA loans. If you or your spouse is a Veteran or serving in the military and planning to purchase a home soon, these tips will help you decide whether a VA loan is right for you.
VA Loans
The Veterans Affairs (VA) loan program was introduced by the Servicemen’s Readjustment Act, also known as the GI Bill of Rights. These loans are insured by the United States Department of Veteran Affairs, and were designed to provide Veterans and service members with a federally guaranteed home loan with little or no down payment, so that they and their families can take part in the American Dream of homeownership.
Veterans and active duty service members are eligible for the VA loan program. The surviving unmarried spouse of a deceased Veteran may also be eligible for a VA loan. More information about eligibility for VA loans can be found on the VA website.
VA loan limits are the amount a qualified Veteran or active duty service member with full entitlement may be able to borrow without making a down payment. How much you can borrow with a VA loan will depend on your lender and the county you are buying your home in. The basic entitlement available to each eligible Veteran or active duty service member is $36,000; lenders will typically lend up to 4 times a Veteran’s available entitlement, if the Veteran’s income and credit qualify.
VA loans will finance up to 100% of your home purchase, meaning that you may be able to purchase a home with no down payment.
Most Veterans purchasing a home with a VA loan will be required to pay a VA funding fee. The purpose of this fee is to reduce the cost of the loan to taxpayers, as the VA loan requires no down payment and often no private mortgage insurance (PMI). The amount of the funding fee depends on the loan amount, loan type, and your military category. Some VA home buyers are exempt from having to pay the VA funding fee.
VA loans offer no down payment requirement (for qualifying consumers) and often do not require PMI. Additionally, Cash Out Refinance loans allow you to take out up to 95% of the appraised value of your home as determined by VA. Some states also offer additional resources to Veteran homeowners, such as property tax reductions.
If you are a Veteran or active duty service member, you may be able to take advantage of the benefits offered by the VA loan program. For more information about VA loans, please visit the VA website. If you have more questions about buying a home with a VA loan, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!
*100% financing is available, sales price cannot exceed the appraised value. ** Veterans Affairs loans require a 1st time funding fee, which is based on various loan characteristics, your actual loan amount may be higher than the purchase price.
Recently, we answered the Top Five Questions About Conventional Loans. This week, we will discuss Jumbo loans. If you are planning to purchase a home soon, read on to learn more about whether a Jumbo loan might be right for you.
Jumbo Loans
While a Conventional loan is one which conforms to the guidelines set by Fannie Mae and Freddie Mac, a Jumbo loan is one which exceeds the loan limits set by these entities. These set loan limits vary by location. The majority of U.S. cities have a loan limit of $417,000 on one-unit properties, while higher cost areas tend to have a higher loan limit of $625,500. Some areas have a loan limit that is in between these two numbers, or even higher.
If the home you are interested in cost more than the loan limit for your area, a Jumbo loan may be right for you. Your lender will be able to help you determine how much house you can afford, and see if a Jumbo loan fits your needs.
The amount you can borrow with a Jumbo loan will depend on your lender. NFM Lending lends up to $3 million on Jumbo loans.
Because the amount of a Jumbo loan is higher than a Conventional loan, the requirements may be stricter. A Jumbo loan may require a higher down payment, a higher credit score, higher reserves, and a lower debt-to-income ratio than a Conventional loan. Additionally, a Jumbo loan may require two appraisals, instead of one.
Often, you will not have to pay PMI on Jumbo loans, as they usually require a higher down payment. PMI is designed for home buyers who make low down payments. However, since the down payment requirement will vary by lender, it is possible that your lender will require PMI in exchange for a lower down payment.
In addition to no PMI requirement, one of the main benefits that a Jumbo loan is that you will be able to afford more home than with a Conventional loan or other loan type. Additionally, a Jumbo loan will allow you some flexibility with your loan terms. You can choose a 15 or 30-year mortgage, and a fixed-rate or adjustable-rate mortgage, depending on your needs. Your lender will work with you to determine what kind of loan program is right for you.
If you are looking at homes that exceed the conforming loan limits for your area, a Jumbo loan may be the right financing option for you. If you have more questions about Jumbo loans, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!
Recently, we answered the Top 5 Questions about FHA Loans. This week, we will discuss Conventional loans. If you are planning to purchase a home soon, read on to learn more about whether a Conventional loan might be the right financing option for you.
Conventional Loans
A Conventional or conforming loan is one which adheres to the guidelines set by Fannie Mae and Freddie Mac, and is not insured or guaranteed by the federal government. These loans can be fixed-rate or adjustable-rate. At any given time, approximately 35-50% of mortgages are conventional mortgages.
1) What kind of credit score do I need to qualify for a Conventional loan?
As with other loan types, credit score requirements for Conventional loans will depend on your lender. Conventional loans are designed for borrowers with good-to-great credit, and typically require a higher income and credit score than FHA loans.
2) What is the down payment amount for a Conventional Loan?
The minimum down payment for a Conventional loan is 3% for fixed-rate mortgages, and 10% for adjustable-rate mortgages. It is usually a good idea to have a larger down payment saved up, as a down payment of 20% or more on a Conventional loan means that you will not have to pay a monthly mortgage insurance premium in addition to your monthly mortgage payment.
3) How much can I borrow with a Conventional Loan?
Fannie Mae loan limits for Conventional loans vary by state and county. The current loan limit for a 1-unit property in the continental United States is $417,000. For counties in the U.S. that have been designated as high-cost areas, the loan limit is $625,500. To see what the loan limit is in your area, click here.
4) Should I get a fixed or adjustable-rate mortgage?
Conventional loans allow you to choose between a 15- or 30-year term, with a fixed or adjustable interest rate. A fixed rate mortgage means that your interest rate remains the same throughout the life of the loan. An adjustable rate mortgage means that your interest rate will fluctuate throughout the loan term, based on market conditions and other factors. An adjustable rate mortgage allows you to take advantage of falling rates without having to refinance; however, your monthly payments will change periodically. A fixed rate mortgage means that your monthly payments will not change, and that you will not be affected if interest rates go up. What type of loan you should choose depends on your financial situation and how long you plan to live in the house. Your Loan Originator can assist you in selecting the right loan type for your needs.
5) What are the benefits of a Conventional loan?
One of the main advantages of Conventional financing is that you will likely be eligible for lower interest rates than with an FHA Loan. Another advantage is that you do not have to purchase mortgage insurance with a down payment of 20%; and if you do opt for a lower down payment, your mortgage insurance premium may be cheaper than it would be with an FHA Loan. Additionally, should you need to take cash out for any reason during your mortgage term, you may be able to “cash out” up to 85% of your home’s value.
A Conventional loan can be an excellent choice for the right home buyer. If you have more questions about Conventional loans, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!
We recently discussed the fourth step in the home buying process: applying for the loan. Once you apply for a home loan, your Mortgage Loan Originator will submit all of your documentation to Processing, and from there, your loan will be sent to Underwriting. These are crucial steps, and it is important to understand some of the factors that go into getting your home loan approved.
Processing
Once you have submitted all of the required documentation for your loan application, your Loan Originator will submit everything to Processing. The Processor puts all of the documentation together for Underwriting, and works closely with the Loan Originator to ensure a smooth process. They will order a title search to make sure that the seller has legal rights to the property, and schedule an appraisal to determine the value of the property. Based on information received, the Processor may reach out to the borrower for any additional documentation needed. Once all of this has been completed, the Processor will send the application to Underwriting.
Underwriting
In the underwriting process, the lender determines the degree of risk involved with lending the consumer money. Here are the “Four C’s” that the Underwriter will evaluate:
Once the Underwriter has approved all applicable documentation, and determines that the loan is a good fit, a clear-to-close (CTC) will be issued, allowing the loan to move into the final stage of the process: closing on your new home.
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!
Buying a home is one of the most significant financial decisions you will make in your life. Each step in the process is important to ensure a smooth transaction. Over the next several weeks, we will explore each step of the home buying process in detail. Experienced NFM Lending Mortgage Loan Originators will share advice and insight about each step, so you can be prepared when the time comes to buy a new home. In this blog, we will discuss the first step in the buying process: getting pre-qualified.
What is pre-qualification?
A pre-qualification is when a lender evaluates a loan applicant’s eligibility for a home loan. The Loan Originator collects information and documentation from the loan applicant, such as their employer information, gross income, asset information, and current expenses. The lender then gives the applicant an idea of whether they could qualify for a home loan, and the approximate amount of the loan they could qualify for.
Why get pre-qualified?
Pre-qualification allows you to enter the home buying process prepared. It makes your home search more efficient, and ensures that when it comes time to make an offer on a home, you are ready.
“It is important to get pre-qualified so that you will know what you can afford, what you will qualify for, and what types of homes you should be looking at,” says Bruce Dorsey, Mortgage Loan Originator with NFM Lending. “You want to know how much your payments will be, and have confidence that when you find your perfect house you can make an offer on the house and qualify for the loan. If you are not pre-qualified first, then when you do find your perfect house, you can make a credible offer on the house. Without this, you run the risk of losing the home you want because other potential buyers that are already pre-qualified may be making offers on the home.”
In addition to being prepared and helping you know your price range, getting pre-qualified will make it easier for you to hire a real estate agent. Real estate agents typically prefer to work with pre-qualified buyers, in order for them to be able to show you houses in your price range, and so they know you are prepared to make a credible offer on a home when the time comes.
Helpful tips for getting pre-qualified
You may be considering a home purchase later this year, or at some point in the near future. Below are some tips from Bruce Dorsey on preparing for the pre-qualification and home buying processes.
It is important to be as prepared as possible when you start the home buying process. Once you are pre-qualified, the next step is to choose your loan type. Stay tuned for our next blog on how to choose the loan type that is right for you.
If you have any questions about pre-qualification or the home buying process, contact us. If you are ready to get pre-qualified, click here!
*Please note that the pre-qualification does not constitute a commitment or a loan approval, but is instead a preliminary assessment of your current credit worthiness.
If you are in the market for a new home, one of the first things you should consider financially is how much of a down payment you can make. Most home buyers know that the most common mortgage loan (a Conventional loan) requires 20% down payment. This means that if you purchase a home worth $200,000, you must have $40,000 cash available, on top of the closing costs needed to purchase the home. This may deter many potential home buyers from purchasing because they only have a small amount of money saved. However, Conventional loans are only one of the many loan options available. Here are five of the most widely used mortgage loans and their down payment requirements.
FHA Loan – 3.5% Down Payment*
A Federal Housing Administration (FHA) loan is a mortgage loan that is insured by the government’s Housing and Urban Development (HUD) agency. FHA loans require a 3.5% down payment for purchases and it typically offers very competitive rates compared to rates from a conventional loan. Due to the low down payment, FHA Mortgage Insurance Premiums (MIP) are required in order to protect lenders against losses as a result from defaulted mortgages. There is an up-front premium paid at closing, and a monthly premium that is paid along with the monthly mortgage payment. FHA has several guidelines that all loans must meet, such as loan limits, allowable closing costs, and debt ratios.
VA Loan – 100% Financing**
A VA loan is a mortgage loan guaranteed by the U.S. Department of Veterans Affairs (VA). VA loans help service members, veterans, and eligible surviving spouses purchase a home with a competitive interest rate, limited closing costs, no Private Mortgage Insurance (PMI) requirement, and often without a down payment (as long as the sales price doesn’t exceed the appraised value). This is because VA guarantees a portion of the loan, which allows the lender to provide favorable terms. VA loans have several guidelines that all loans must meet, such as eligibility and loan limits.
USDA Loan – No Money Down†
A USDA loan is a mortgage loan guaranteed by the United States Department of Agriculture (USDA). With a USDA loan, home buyers can purchase a home in eligible rural locations with no down payment, and can finance up to 100% of a home’s appraised value, plus closing costs. For eligible borrowers, USDA loans often come with the lowest interest rates and program insurance premiums of all government-backed loans. USDA loans have several guidelines that all loans must meet, including property eligibility and income eligibility.
80-10-10 Loan – 10% Down Payment
Also known as a Piggyback loan, an 80-10-10 loan is a great option for home buyers who have great credit but lack capital, and wish to avoid paying PMI. The mortgage loan works by having 80% of the property value covered by a first loan, 10% of the property value covered by a second mortgage which carries higher interest rates than the first conventional mortgage, and 10% will be covered by the home buyer’s down payment. Loans that are 80% or less of the home value do not require PMI.
State Bond Programs – Specific Assistance
Several U.S. states offer state bond loan assistance programs. These bond programs aim to help first-time home buyers or buyers with low capital by providing below-market interest rates, down payment assistance, long term affordability, and/or other benefits specific to the programs. These loans have program-specific income and occupancy requirements, and limitations.
There are many more mortgage loan options available not mentioned but these are the most commonly used. If you are looking to purchase a home soon, make sure you speak with a licensed mortgage loan originator. Choosing a down payment option is a big decision and a licensed mortgage loan originator can help you find options that best fit your needs. They can also walk you through the loan process and explain to you all of the eligibility requirements for the loan you choose.
*LTV’s of up to 96.5% for FHA loans. **Veterans Affairs loans require a funding fee, which is based on various loan characteristics. †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.
