How To Choose The Right Mortgage For Your Needs
With so many attractive mortgage loan options available it can be difficult to decide which type of mortgage you should apply for. Carefully considering your needs and seeking professional advice can help you make the right choice. The following steps can help you choose the best mortgage for your needs.
- Determine how much house you can comfortably afford. The fact that you can qualify for a certain type of loan doesn’t mean it’s the loan you should get. Determine how much you can afford based on your current income, expenses and expected interest rate
- Get a firm understanding of how mortgage rates affect your immediate and long-term financial situation. Knowing the facts about different loan types and mortgage rates can help you make an informed choice about your future.
- Talk to a professional. Discussing your personal financial situation with a Home Lending Advisor can help you get a clear picture of your options and how your loan choice may affect your future.
Your down payment is just one factor in your ability to buy a home. While the amount you pay upfront impacts your payments and the final cost of your home, it’s not the only consideration when applying for a home loan.
Lenders provide a variety of options to help homeowners with their down payment so they can buy a home. Speak with a Home Lending Advisor today for more information on affordable lending options and available assistance programs.
Be A Resident And The Landlord: Buy A Multi
Your primary residence doesnt have to be a single-family home. Multi-family homes can be a great way for novice real estate investors and aspiring property managers to get started buying properties that generate income.
First, with the help of a professional, find a good real estate deal on a 2-4 unit property. These homes are typically known as multi-unit properties.
While living in one unit, youll rent out the others. You can then use the rent payments to help offset your mortgage payment.
The key here is that you can buy a multi-unit property using an affordable financing option like an FHA loan or VA loan as long as you live in it, too.
Mortgage programs like FHA loans dont just have good rates and terms. They also give you options for covering the down payment.
You may be able to obtain gift funds, or perhaps even down payment assistance. And you can use these programs to buy the home without emptying your bank account.
If not, thanks to Federal Housing Administrations low down payment loan requirements, borrowers with good credit only need 3.5% of the purchase price for the down payment with either a traditional FHA mortgage or the FHA 203K loan, which is well-suited for fixer uppers.
You may be out-of-pocket with some upfront costs, but it will be less money than 20% down.
What Are The Benefits Of Refinancing
There are many benefits to refinancing, but they will vary based on your current situation and financial goals. Typically, the number one benefit is saving money, but there are many others as well.
For instance, with a refinance you can potentially get a better interest rate, lower your monthly payments, shorten the length of your loan, build equity faster, consolidate other existing debts by combining them all into a new mortgage, get rid of your mortgage insurance or even remove a person from the mortgage.
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How Do You Check Your Credit Score
There are a few ways to find out your credit score. First, you can go directly to the source and pay for your credit score and credit report from Equifax or TransUnion.
If you donât want to spend the money on a detailed credit report, you can also check it for free using RateHub.caâs free credit score tool. Once you know your credit score, youâll have a clearer idea of whether youâll qualify for a traditional mortgage, or whether youâll need to apply for a bad credit mortgage.
Itâs important to note that the credit score you receive might be different from the score that a potential lender will pull on your behalf. Every credit agency uses a different calculation to work out your credit score, and lenders sometimes use agencies that arenât available to consumers. Fortunately, the differences tend to be minor.
How Much Does It Cost To Refinance
While in most cases putting money down isnt necessary, refinancing does come with closing costs. The average closing costs to refinance total $5,000, according to Freddie Mac, and can include:
- Discount points
- Title search and insurance
Its possible to have some of these costs waived or have them rolled into your loan in a no-closing-cost refinance in order to avoid paying the costs upfront. The disadvantage to a no-closing-cost refinance is that youll pay interest on a higher loan amount and can end up paying much more over time as a result. If you wont be in the home very long, however, a no-closing-cost refinance can be a good choice.
You can also try negotiating your closing costs. If youve had a loan with the lender in the past or are otherwise a customer in good standing, you might be able to persuade the lender to waive some of the costs. Additionally, there are some costs, like the appraisal or survey, that may not need to be performed if youve had them completed recently.
However you choose to pay for closing costs, be sure to consider the point when youll break-even to determine whether the cost is worth the savings youll realize. You can use Bankrates refinance calculator to see how many months itll take to recoup the closing costs. If you dont plan to stay in your home for a long time, paying to refinance might not be worth it.
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Refinance To Get Rid Of Mortgage Insurance
If you made less than a 20% down payment on a conventional loan or took out an FHA loan, youre likely paying for mortgage insurance. You could easily be paying hundreds of dollars monthly toward mortgage insurance premiums, depending on the amount you put down and your credit score when you bought your home.
The good news is you can get rid of or reduce your monthly mortgage insurance cost with these refinance tips:
Refinance your conventional mortgage. If home values in your area are on the rise and you have a conventional mortgage, you may be able to remove or at least lower your monthly private mortgage insurance premium. If you have at least 20% equity, you wont need PMI at all. Even if you dont, your mortgage premium will drop based on how much equity you have now compared to when you bought your home.
Refinance an FHA loan to a conventional mortgage. The most effective way to stop paying FHA mortgage insurance is to refinance your FHA loan to a conventional loan. However, check your credit scores first conventional mortgages require higher credit scores than FHA loans.
Refinance and pay down your principal. A little extra cash may help you pay your balance down to 80% of your homes value and avoid mortgage insurance altogether on a conventional loan.
Add In Primary Mortgage Insurance
If your down payment is less than 20% and you have a conventional loan, your lender will require private mortgage insurance , which is an added insurance policy that protects the lender if you can’t pay your mortgage. This payment will be added onto your monthly mortgage bill, requiring you to spend slightly more per month.
Some lenders offer loan products that do not require you to have PMI. However, in return, these lenders will often charge higher interest rates.
The cost of PMI varies based on your and your loan-to-value ratio . It also depends on the insurer. You can expect to pay between $30 and $150 per month for every $100,000 you borrow.
Some types of loans, such as FHA loans, do require you to pay PMI for the life of the loan. However, for many other types of loans, once you’ve built 20% equity in your home, you can ask your lender to cancel your PMI and remove that expense from your monthly payment.
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An Unequal Housing Economy
Bank of Americas program aims to address an ongoing challenge for the U.S. housing market: Black and Hispanic Americans struggle to attain homeownership. While nearly three-quarters of White Americans owned their homes as of the second quarter of 2022, less than half of Black and Hispanic Americans were homeowners, according to the U.S. Census Bureau.
There are many reasons for the racial homeownership gap, including lower incomes and less household wealth among Black and Hispanic Americans, along with the real estate industrys history of discriminatory lending practices. Mortgage lenders long ago abandoned such overtly biased practices as redlining, but the economic wounds have been slow to heal. A growing body of research suggests that homes owned by African Americans today are undervalued by appraisers, and in one recent survey, close to half of Black and Hispanic homebuyers reported missing out on homes in certain neighborhoods due to discrimination.
Invest In A New Home And Make Your Primary Residence A Rental
If you already own a home, youre ahead of the game.
One of the more common ways to become a real estate investor is by turning your current primary residence into a rental property.
There are significant advantages to backing into your first rental property this way.
- Traditional investment property loans require a larger down payment and come with higher interest rates. Often times, you can expect a 20% down payment requirement
- The interest rate on an investment property is generally higher than the rate on your primary residence by a half percent or more
So the investment strategy is: Rent out your current home, and finance the next home you buy as a primary residence .
That way, you pay a lower interest rate on both properties. And if youre still making mortgage payments on that first home, you can use the income you make from rent to cover part or all of the mortgage.
Be prepared to provide a letter of explanation, notes Jon Meyer, The Mortgage Reports loan expert and licensed MLO. It may be requested depending on how long you have been in the original home.
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Down Payment Assistance Programs
If you dont qualify for any of the programs outlined in this article, there are also down payment assistance programs you can look into. Down payment assistance is any program that provides borrowers with money toward their down payment. DPA grants, DPA loans, and the Good Neighbor Next Door program are all popular down payment assistance programs.
Reasons To Refinance A Mortgage
There are several reasons homeowners choose to refinance their mortgage loans. Here are some of the top ones to think about:
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Look For A Lease Purchase Option
If a traditional mortgage is not suited to your financial situation, another proven way to invest in real estate with no money is through whats known as a lease option or a rent-to-own home.
Under lease options, the property owner charges the buyer a monthly or yearly premium, in the form of higher rental payments. The excess rental fee will then be channeled towards the purchase price of the home.
With this type of agreement, you may be able to invest in real estate via a slightly higher rental fee.
Is A No Cost Refinance A Good Idea
- In general, it can make a lot of sense if you dont keep the loan very long
- As upfront closing costs usually take several years to recoup
- So those who expect to sell their home or refinance again in a short period
- May benefit from going the no cost refinance route
This is the point where you need to ask yourself what you plan to do with the property and the mortgage.
If youre planning on moving or upgrading to a more expensive home in just a few years, or if youre the type who refinances often, paying upfront costs for a lower interest rate will probably be a losing endeavor. For you, a no cost loan may actually be a good choice.
After all, theres no reason you should pay for a lower interest rate if youre only going to turn around and sell/refinance a few months/years later. Youll never realize the savings!
But if you plan to stay in the home for five or more years , it could make sense to pay a little more upfront for future savings.
Why? Well, that $200 discount each month might ease your budgeting woes in the future, and amount to some serious savings if you stick with the mortgage for the long haul.
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How Can I Fund A Down Payment
A down payment is a major expense. You can fund it by building up savings in a savings or checking account. If you are selling an existing home, you could use the proceeds from that sale as a down payment on your new place. Other options include down payment assistance programs, gifts from family, or borrowing from your retirement accounts.
Can I Refinance My Mortgage With No Closing Costs
Every borrower wants to save money when they’re refinancing their mortgage, often by securing a lower interest rate that drives down their monthly mortgage payments and saves them thousands over the life of the loan.
But does a no-closing-cost refinance fit into the money-saving category? Sure, this type of refinance might sound appealingafter all, the average closing costs for a single-family home in the U.S. were $5,749 in 2019, according to real estate data firm ClosingCorp. Yet even though a no-closing-cost loan lets you refinance without any upfront fees, it could very well trigger a rise in your interest rate or loan balance. That, in turn, could cause your monthly mortgage payments to climb and increase the total cost of the loan.
That said, a no-closing-cost refinance might be a good option if you don’t have enough money saved up to cover the closing costs or you’d rather spend that money on a home remodeling project.
Read on to understand the ins and outs of no-closing-cost mortgage refinance loans.
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If Your Credit Score Is Under 500
Youll need to raise your credit score if its below 500 or you dont qualify for an FHA loan. Even if you can get a loan right now, there are plenty of benefits to applying for a loan with a higher score. Having a higher gives you more lender choices and access to lower interest rates. An interest rate thats just a fraction of a percentage point lower can save you thousands of dollars over the course of your loan, so investing in your score is worth the effort.
Here are a few tips to help raise your credit score:
- Pay down your outstanding debt.
- Reduce the amount of money you put on your credit card each month.
- Always make your credit card and loan payments on schedule.
- Take out a small personal loan and pay it back.
- Apply for a secured credit card, which is a credit card that requires a deposit youll need to pay back in full.
- Remove any errors on your credit report.
- Wait patiently while your accounts become older and more appealing to lenders.
The Pitfalls Of Refinancing Your Mortgage
While refinancing has many positive benefits, it could come with pitfalls if you’re not prepared.
To begin with, refinancing loans have closing costs just like a regular mortgage. The mortgage lender Freddie Mac suggests budgeting about $5,000 for closing costs, which include appraisal fees, credit report fees, title services, lender origination/administration fees, survey fees, underwriting fees and attorney costs. It all depends on where you live, the value of your house and the size of the loan you’re taking out.
Some lenders might offer a no-cost refinance, but that usually just means the closing fees are being wrapped up into the amount of your loan. If you refinance with your existing lender, you may get a break on mortgage taxes, depending on your state’s laws.
“That’s a carrot that they dangle,” says English. However, you should always compare rates, terms and programs.
Once you calculate your closing costs, do some quick math to make sure that you’ll make that money back by saving on your new monthly payment. If your closing costs are $5,000 and you save $500 per month on your new mortgage, it would take 10 months to break even. However, if you only saved $200 per month, your “break-even point” would be 25 months . Stay in the home for less time than that, and you won’t truly be saving money long-term.
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