Who Should You Get A Mortgage From

Reason #: A Mortgage Wont Stop You From Building Equity In The House

Everyone wants to build equity. Its the main financial reason for owning a house. You can use the equity to help pay for college, weddings and even retirement. Mortgages are bad, many people say, because the bigger the mortgage, the lower your equity.

Theyre wrong, and heres why. Say you buy a house for $300,000 and you get a $250,000, 30-year, 3% mortgage. Your down payment is your starting equity, and you want that equity to grow, grow, grow.

But this thinking fails to acknowledge that this is not the only way you will build equity in your house. Thats because your house is likely to grow in value over the next 20 years. If that house rises in value at the rate of 3% per year, it will be worth $541,833 in 20 years! Youll have nearly a quarter-million dollars in new equity even if your principal balance never declines!

How New To The Workforce Are You

If you have just started your very first job, you could have difficulty getting a mortgage. The majority of mortgage lenders like potential homebuyers to have consistently worked in the same field for a minimum of two years before they can qualify for a mortgage. However, its possible to still get a mortgage with a shorter work history.

Its just more difficult. You will have to prove that you are employed with a good salary and a stable career track. It can also help if your job is in the same field as your degree. Also, to get a mortgage with short work history, its very beneficial to have a larger than usual down payment and a high credit score.

Home Equity Lines Of Credit

A HELOC is a secured form of credit. The lender uses your home as a guarantee that youll pay back the money you borrow. Most major financial institutions offer a HELOC combined with a mortgage under their own brand name. Its also sometimes called a readvanceable mortgage.

HELOCs are revolving credit. You can borrow money, pay it back, and borrow it again, up to a maximum credit limit. It combines a HELOC and a fixed-term mortgage.

You usually have no fixed repayment amounts for a home equity line of credit. Your lender generally only requires you to pay interest on the money you use.

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How Hot Is The Market

Finally if you find yourself in a hot real estate market and on the verge of a bidding war, you may want to consider a full cash offer as an opportunity to close the deal quickly. If two of the same offers are placed on the table and one is a cash offer while the other requires financing, home sellers will overwhelming prefer the cash offer due to the certainty that cash offers. There’s always the chance that a buyer may be rejected at the last minute by a mortgage lender.

The information in this article is accurate as of the date of publishing.

Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Refinancing And Second Mortgages

There may come a time when you can get a better mortgage. Perhaps mortgage interest rates have changed, or your credit improved. Refinancing a mortgage is a powerful move when done for the right reasons.

It’s important make sure you’re refinancing for the right reasonsand to know what they are.

A second mortgage allows you to borrow against the value of your home. It’s also called a home equity loan or home equity line of credit. You may be able to get access to a large line of credit with an attractive rate, but it comes with some pitfalls You’re adding to your overall debt burden, which can make you more vulnerable during difficult financial situations.

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How Is It Different From Having A Guarantor

The terms co-signer and guarantor are often used interchangeably. While both are similar, there are some key differences to be aware of.

The co-signers name must appear on the title, while the guarantors does not. Because the co-signers name has to appear on the title, the co-signer may have to pay a portion of the land transfer taxes, and you may lose part of the first-time home buyer rebate if youre buying a home for the first time.

In addition to that the co-signer owns a part of the property. Thats not the case with a guarantor, who owns no part of the property.

Co-signers tend to be used for those with poor credit, while guarantors tend to be used for those with decent credit looking to bump up their maximum purchase price.

Thinking About Cosigning A Mortgage

Then no amount of preparation is too much. While you wont see the full benefits of homeownership, youll still qualify as a co-borrower, so your finances and credit will be linked to the main buyers mortgage account. For more information about your cosigner rights and responsibilities, look for some professional legal and financial assistance.

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Access To A Home Equity Loan Or Home Equity Line Of Credit

The need for this type of loan could happen at any point in the home ownership process. For example, if youre buying a home, you may decide you want a home equity loan or HELOC as part of the down payment. This is a common strategy for buyers who are looking to avoid private mortgage insurance, which is very expensive.

Banks and credit unions are natural sources of home equity loans and HELOCs. If you already have a relationship with one, itll be easier to get either type of loan. Many banks and credit unions also routinely provide home equity loans and HELOCs along with new first mortgages.

But even after youve been in your home a while, you may still decide you need secondary financing. It could be to renovate or expand the home, or even to borrow money for other purposes, like debt consolidation or investment.

Whatever the reason, it will be much easier to get secondary financing if you already have a well-established relationship with the institution. You may even find that your bank or credit union regularly offer you opportunities for home equity loans and HELOCs.

And once again, since they already have much of your financial informationincluding your first mortgagethe application process will be both quicker and less complicated.

There Are Many Different Mortgage Options Available

There are a variety of different mortgage options available to suit all lifestyles and budgets. A 30-year mortgage is the most popular, but your loan term could be as little as 10 years. Most mortgages have a fixed interest rate, which doesn’t change over the life of the loan. However, if you’re willing to accept a degree of risk, you might opt for a mortgage with an adjustable interest rate. These usually have much lower interest rates for a limited amount of time, but the interest rate could become much higher if interest rates rise.

Discuss your lifestyle and budget with your lender to determine which mortgage option works best for you.

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Rocket Mortgage By Quicken Loans: Nmls#3030

Min. Credit Score

Quicken Loans offers conventional mortgages with as little as 3% down.

View details

at Rocket Mortgage by Quicken Loans

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Why we like it

Good for: borrowers who appreciate smartphone and online convenience for a fully digital home loan experience powered by Quicken Loans.

Pros

• Caters to self-service users who want to apply for a home loan online and talk to a human only as necessary.

• Estimates the loan amount youll qualify for within minutes.

• Offers document and asset retrieval capabilities.

Cons

• If youre a look me in the eye type of customer, youre out of luck.

• Getting a customized interest rate requires a credit check, which can lower your credit score by a few points.

Min. Credit Score

Guaranteed Rate offers conventional loans with as little as 3% down.

View details

Good for: borrowers seeking conventional or government-backed loans, and a totally online experience.

Pros

• Offers the ability to securely upload and digitally sign loan documents.

• Displays detailed sample rates for many of its loan products.

Cons

Con: You Could Miss Out On More Lucrative Investment Opportunities

Every dollar you put toward your mortgage principal is a dollar you cant invest in higher-yield ventures, such as stocks, high-yield bonds, or real estate investment trusts, Pitzl says.

That being said, youd be assuming more risk by investing your money in, say, the stock market instead of putting the money toward your mortgage, Pitzl points out.

You have to consider your risk tolerance before you decide where to put your extra cash, says Cheng.

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Why You Should Get A Mortgage Through A Credit Union Or Local Bank

Kevin Mercadante|

Modified date: Oct. 19, 2020

It often seems as if you can get a mortgage just about anywhere. There are mortgage banks, mortgage brokers, and online mortgage sources. Even many insurance companies and investment brokers offer mortgages, either to their clients or to the general public.

But is there any advantage to get a mortgage through a credit union or local bank?

There are actually a few:

Whats Ahead:

What If Your Financial Situations Changes After Getting Pre

Karl Yeh:

What happens if, after those three or four months, that things change? Maybe not for you, but just situations change, the next step would be you’re just locked into another rate, right? After the next three months? Is that correct?

Mujtaba Syed:

The way it works is that if situations have changed for you even on a personal level, we will reassess it once again, like I said.

Our pre-approval is important because we look at everything. We look at your situation, we look at the market situation, we look at the interest rate situation.

Let’s say from the first time you got pre-approved to the second time, things have changed, we will reassess it at that time and once again talk about what works best for you. You might change your amounts.

You might get pre-approved for more. You might get pre-approved for less.

That’s a very important discussion to have during that process, but it’s nothing to worry about.

If you get pre-approved, we don’t want you to rush and find a house within those three months.

A pre-approval can always be extended. Your situation might’ve changed, but we can always change a situation to kind of meet your needs and have a little bit more of a real discussion with you.

Never feel rushed that you need to buy just because you feel like your pre-approval is expiring.

Karl Yeh:

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Current Minimum Mortgage Requirements For An Fha Loan

Down payment. FHA loans require a 3.5% down payment with a 580 or higher credit score, and funds can come from employers, close friends, family members or charitable organizations. The down payment requirement jumps to 10% with a credit score of 500 to 579.

Mortgage insurance. FHA borrowers are required to pay two types of FHA mortgage insurance. The first is an upfront mortgage insurance premium of 1.75% of the loan amount, typically financed into the mortgage. The second is the annual mortgage insurance premium that ranges from 0.45% to 1.05% of the loan amount, and is divided by 12 and added to your monthly payment.

. You can have a credit score as low as 500 up to 579 with a 10% down payment. Homebuyers making a minimum 3.5% down payment will need a score of at least 580.

Employment. FHA loan income requirements look at the borrowers stability of income and employment for the past two years. Job-hoppers need to explain changes or gaps in employment.

Income. There are no income limits for FHA loans. However, borrowing power is limited to the FHA maximum loan limit cap of $356,362 in 2021, compared to $548,250 for conventional loans in most parts of the country.

Cash reserves. FHA loan qualifications dont usually require cash reserves unless youre buying a two- to four-unit home, or trying to qualify with a lower credit score.

Occupancy. A one- to four-unit home financed with an FHA loan must be your primary residence for at least the first year after buying it.

Is There A Prepayment Penalty

After you start paying off your mortgage, you may find that you have more access to funds than you initially thought and are able to pay off your mortgage early. If you can swing it, this option can save you thousands of dollars in interest. However, not all mortgage lenders allow clients to do so, which is why you should ask your lender ahead of time.

If they do allow you to pay off your loan faster, you should ask whether there are any prepayment penalties. Mortgage lenders often charge these fees to dissuade borrowers from making extra payments on their loans, refinancing their loans at a lower rate or selling their home before the loan is due. Prepayment penalties enable mortgage lenders to recoup some of the money that they would have made off of your loan had you continued to make monthly payments through the end of your loan term. For example, Rocket Mortgage® has no prepayment penalties.

There are different types of prepayment penalties: soft and hard.

• With a soft prepayment penalty, borrowers are able to sell their homes without being penalized, but are charged if they refinance.
• With a hard prepayment penalty, borrowers are required to pay fees regardless of whether they sell their home or refinance it.

If your mortgage lender charges prepayment penalties, make sure to ask how much they cost. How prepayment penalties are charged varies among lenders they can be very expensive and make early payoffs unprofitable.

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Reasons #4 And #: Your Mortgage Interest Is Tax

These two points are related, and together they offer you important benefits to carrying a mortgage.

The interest you pay on loans to buy, build or substantially improve a qualified residence is tax-deductible if you itemize your deductions. The deduction is taken at your top tax bracket. Thus, if youre in the 35% tax bracket, every dollar you pay in mortgage interest saves you 35 cents in federal income taxes. You save on state income taxes too.

Say youre in the 32% tax bracket and you get a 3% mortgage. That loan costs you 2.04% after taxes. Meanwhile, say you invest money and earn 3%. Your profits are taxed at only 15%, meaning your after-tax profit is 2.55%. Thus, even if your investments earn no more than what you pay for your loan, youre still making a profit!

Why You Should Consider Paying Cash For A House

One of the primary reasons to pay cash for a house is owning the home outright. There are fewer fears of foreclosure if you dont owe a lender , and you also dont have to worry about defaulting on a home loan which could negatively impact your credit. Owning the home outright also means you have the right to borrow against the 100% in equity you have in your home if needed.

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Understanding Todays Mortgage Market

Before the housing crisis of 200809, it seemed that anybody with a pulse could get a mortgage . Lenders pushed sub-prime loans on people with poor credit knowing the entire time that the applicants couldnt afford the payments and would eventually default.

These lending habits were obviously unsustainable, and we know the rest of the story. The banks got bailouts while millions of homeowners either lost their homes or got stuck underwater, owing much more on their mortgage than their home was worth.

Even as the real estate market begins to recover, the mortgage crisis has left its mark. Mortgage underwritingthe criteria banks use to determine whether to make a loanis more stringent. Thats not to say that young couples or other first-time home buyers will have a difficult time getting a mortgage. But it means that proving to the bank that youre financially prepared for a mortgage is more important than ever.

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Open And Closed Mortgages

There are a few differences between open and closed mortgages. The main difference is the flexibility you have in making extra payments or paying off your mortgage completely.

Open mortgages

The interest rate is usually higher than on a closed mortgage with a comparable term length. It allows more flexibility if you plan on putting extra money toward your mortgage.

An open mortgage may be a good choice for you if you:

• plan to pay off your mortgage soon
• plan to sell your home in the near future
• think you may have extra money to put toward your mortgage from time to time

Closed mortgages

The interest rate is usually lower than on an open mortgage with a comparable term length.

Closed term mortgages usually limit the amount of extra money you can put toward your mortgage each year. Your lender calls this a prepayment privilege and it is included in your mortgage contract. Not all closed mortgages allow prepayment privileges. They vary from lender to lender.

A closed mortgage may be a good choice for you if:

• you plan to keep your home for the rest of your loans term
• the prepayment privileges provide enough flexibility for the prepayments you expect to make

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