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Moving to the Country? This Overlooked Loan Makes It So Easy

September 22, 2020

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With the COVID-19 pandemic still going strong, many city dwellers may be considering a move to the country—and there’s a specific type of mortgage that can help make this a reality, called a USDA loan.

Offered by the U.S. Department of Agriculture and backed by the agency’s Rural Development Guaranteed Housing Loan Program, these mortgages are designed to help buyers with moderate or low income purchase property outside cities.

They accomplish this by offering several key benefits—such as low or no down payments and looser qualifications for income and credit history.

“More people should absolutely consider using USDA loans to finance their homes,” says Jan Hadder, regional vice president of the builder division at Silverton Mortgage in Columbia, SC. “If you’re not living in the city, this can be a great option to finance your home.”

USDA loans could be a boon to the wave of buyers who are currently contemplating fleeing cities right now.

As it happens, searches for homes in rural ZIP codes jumped more than 15% this May, compared with a year ago, according to® data.

Yet many Americans aren’t aware of USDA loans, or assume that they don’t qualify. They may also have other assumptions about these mortgages that aren’t true or in step with recent changes in the terms.

If you want to avoid overlooking this hidden financing gem, here are a few things to know about USDA loans today.

You don’t have to buy a house in the boonies

The biggest misconception about USDA loans is that you have to live in the middle of nowhere.

In reality, homes qualify as long as they’re located outside a metropolitan area. In fact, communities with populations of up to 35,000 may be fine. The USDA offers an online map where you can search for properties that are eligible for the loans.

Matt Ronne, a loan originator at Motto Mortgage Preferred Brokers in Athens, TN, says USDA loans are a “vital asset” to home buyers in his area of southeastern Tennessee.

“It has been a high-demand product,” he says. “My county, McMinn, and most of the surrounding counties are 100% eligible for this type of financing, as long as those clients meet the credit, income, and property requirements.”

You don’t have to be destitute—and income limits recently increased

“Many people think that the USDA loans are meant to be subsidized housing, or that they are only intended for use by those with very low income,” says Gwen Chambers, a mortgage loan originator at Motto Mortgage Superior in Germantown, TN.

But that’s not the case. There are actually two types of USDA loans. Direct housing loans are for low-income individuals; guaranteed loans are designed for moderate-income buyers.

The USDA recently increased its income limits for loans, allowing more home buyers to be eligible. In most locations, the income limit for households with one to four people is $90,300, and $119,200 for households of five to eight people.

USDA loans are easier to get than ever

The income limits have been raised, Hadder says, and some elements of the application process for certain USDA loans have been relaxed.

For example, in response to COVID-19, the period for which certificates of eligibility are valid has been extended for some borrowers, and some parts of the application process will be streamlined, including credit reviews and loan processing.

Although the specifications vary by lender, borrowers typically need a minimum credit score of 640, whereas conventional home loans often require a credit score of 700 or higher.

“These new loan changes are designed to make it easier for a borrower to qualify for a USDA loan,” Hadder says.

Because certain parts of the application process will be waived or relaxed, she says, “borrowers will hopefully have a better chance of getting approved.”

USDA loans aren’t just for first-time buyers

Another misconception about USDA loans, Ronne says, is that they’re just for first-time home buyers.

“USDA only allows a borrower to own one property at a time, so using the USDA loan program allows for additional purchases in the future, as long as the current home is sold, or will be sold prior to closing on the new one,” he says.

As long as buyers continue to qualify, they can use the USDA program as many times as they want, Chambers says.

USDA loans have great interest rates

Mortgage interest rates for traditional loans have dropped to record lows in recent months, and now hover around 3%. The rates for USDA loans, however, are even lower.

As of Sept. 1, interest rates for Single Family Housing Direct Home Loans are 2.5% for low- and very low-income borrowers.

“The rates on USDA loans are often very competitive, and the fees are relatively low,” Chambers says. “In my community, consumers often find USDA loans to be their go-to loan of choice.”

USDA loans carry few added costs

In addition to low interest rates, USDA loans offer families the opportunity to own a home with few out-of-pocket expenses, like closing costs.

In addition, certain USDA loans offer 100% financing with no down payment, welcome news in today’s uncertain economy.

“Now, more than ever, because of the potential instability in the workforce over COVID-19 and possible future furloughs, layoffs, and cutbacks, having money in the bank to fall back on in case of emergencies has never been more important,” Ronne says.

“Personally, as a mortgage broker, I never want to see a buyer exhaust their savings for a down payment when they may not have to, especially a first-time home buyer,” he says.

More investment in rural communities benefits homeowners

The USDA loan programs can also give rural homeowners a boost indirectly. The agency recently announced new initiatives to increase private investment in rural communities across the country, Hadder says.

This includes changes to four of its business loan programs to standardize the requirements for loan processing, credit review, loan service, and loss claims.

These measures could help rural homeowners. New investment could add new jobs to an area, create better schools, and boost local economies.

This could increase property values and attract new residents to the area—all good news for local homeowners.

The post Moving to the Country? This Overlooked Loan Makes It So Easy appeared first on Real Estate News & Insights |®.

How To Negotiate an Offer on a Home in the Age of Coronavirus

April 9, 2020

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The real estate market—and daily life—has been completely upended in just a few weeks. Yet maybe in spite of it all, you’ve managed to find a home you love and are ready to make an offer. Congratulations! But as you hover on the brink of what is potentially the biggest investment of your life, amid a global crisis, you may be feeling a fair amount of uncertainty.

We’re here to help you navigate this step with a new series, “Home Buying in the Age of Coronavirus.” Our third installment aims to help you answer the question: “How do I negotiate an offer right now?” It’ll also help you figure out how to get your offer to the closing table.

Here is everything you need to know about getting from offer to closing during the coronavirus pandemic.

How low can you go?

So how much can you lowball? Not as much as you would think.

“Banks have rolled out mortgage forbearance programs, so most sellers are not in immediate danger of losing their home, even if they just lost their job or their income has been significantly cut,” says Caleb Liu, who flips homes in Southern California with “Other sellers have opted to pull their listings and wait for better market conditions, so inventory remains tight.”

On the other hand, a home seller who doesn’t have the luxury of time is facing a smaller buyer pool, due to stay-at-home orders and concerns about buying a home based on what may only amount to a virtual tour. So buyers could have the upper hand for a short time when it comes to homeowners who need to sell.

“Here in the Phoenix and Scottsdale region it’s still a very strong seller’s market with a low inventory of homes,” says Jo Ann Bauer, an agent with the Ozer Group Coldwell Banker Realty. “However, I think nervous sellers are going to be more open to price adjustments and negotiating with buyers, so there is room for buyers to be more aggressive in their offer price.”

Still, buyers should not assume that because we are in a pandemic they can automatically lowball a seller. Sellers may be more willing, however, to entertain offers on the lower end.

“While I’m not seeing lowball offers, I am seeing sellers—who may have held out for potential better offers if we were not in this crisis—quick to take offers they receive and get officially under contract,” adds Julia Henson, a real estate professional in Springfield, MO.

The only way to test a seller’s level of motivation is to make an offer, says John Grimes, an agent in Atlanta. But play it safe.

“Just remember that most sellers that don’t absolutely need to sell would rather not engage with a buyer that is seeking to take advantage of the situation,” says Grimes, who advises offering a modest discount of 3% to 5% below asking price to start a dialogue.

Be prepared for a longer closing

Ordinarily, once your offer is accepted, it’s a straight line to closing. In the age of coronavirus, that journey is more of a zigzag. That means buyers need to prepare for potential delays.

This is due to the health and safety concerns of appraisers, home inspectors, and repair contractors. They are adjusting their guidelines and availability, which can slow the transaction. (Many of these professionals are quickly adapting to doing their work remotely when possible.)

“Buyers may need to embrace a longer transaction process by setting the closing date out further than the typical 30 days,” advises Bauer.

She also recommends adding contingencies in the contract for the in-person viewing of the property.

“By anticipating a potential delay upfront and writing an extension into the contract, buyers can have a little more peace of mind in this uncertain time,” she says.

Ensure you have a mortgage commitment

Securing financing may be the biggest challenge right now, so make sure you have a mortgage commitment letter when you make an offer. This is a more detailed document than a pre-approval and, as the name implies, represents a firm commitment from your lender.

“Banks are issuing fewer loans in order to conserve cash to offset the imminent delinquencies,” says John Castle, an agent with Keller Williams Integrity Realty in Ottawa, Ontario. “Many buyers believe they have secured financing when, in reality, their lender may have only conditionally approved their loan.”

And many lenders are tightening up their terms and conditions. Minimum credit scores and required cash reserves have risen to new levels, making it difficult for many buyers to qualify.

Make sure your lender is staying on top of the fast-changing mortgage industry, says Nathan Claire, an agent at Momentum Realty in Jacksonville, FL.

“But as long as the buyer can qualify for whatever financing they are seeking to acquire, there shouldn’t be any issue with achieving a successful close,” Claire says.

Just don’t be afraid to over-communicate during this time.

“Make sure you touch base with your lender preferably every day, or at least every other day,” says Liu. “The credit markets are shifting rapidly.”

And if you have the funds, all-cash offers are even more desirable to sellers during this time, as they allow buyers to close on the home more quickly than an offer contingent on financing.

The post How To Negotiate an Offer on a Home in the Age of Coronavirus appeared first on Real Estate News & Insights |®.

Buying a House After Bankruptcy? How Long to Wait and What to Do

October 12, 2019

buying house after bankruptcy

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Securing a home loan and buying a house after bankruptcy may sound like an impossible feat. Blame it on all those Monopoly games, but bankruptcy has a very bad rap, painting the filer as someone who should never be loaned money.

The reality is that of the 800,000 Americans who file for bankruptcy every year, most are well-intentioned, responsible people. Life has thrown them a curveball, however, that has left them struggling to pay off their past debts.

Sometimes, filing for bankruptcy is the only way out of a crushing financial situation, and taking this step can really help cash-strapped individuals get back on their feet.

And yes, many go on to buy a home eventually, despite the challenging credit score that results from bankruptcy. But how? Being aware of what a lender expects after a bankruptcy will help you navigate the mortgage application process efficiently and effectively.

Here are the steps on buying a house after bankruptcy, and the top things you need to know.

Types of bankruptcy: The best and the worst

There are two ways to file: Chapter 7 bankruptcy and Chapter 13 bankruptcy. With Chapter 7 bankruptcy, filers are typically released from their obligation to pay back unsecured debt—think credit cards, medical bills, or loans extended without collateral.

With Chapter 13 bankruptcy, filers have to pay back their debt. However, the debt is reorganized and a new repayment schedule established that makes monthly payments more affordable.

Since Chapter 13 filers are still paying back their debts, mortgage lenders generally look more favorably on these consumers than those who file for Chapter 7, says David Carey, vice president and residential lending manager at New York’s Tompkins Mahopac Bank.

A bankruptcy attorney can help determine if Chapter 7 or Chapter 13 makes the most sense for your specific situation. Unfortunately, both Chapter 7 and Chapter 13 bankruptcies will adversely affect credit scores. But don’t give up, hopeful home buyer.

How long after bankruptcy should you wait before buying a house?

Most people applying for a loan will need to wait two years after bankruptcy before lenders will consider their loan application. That said, it could be up to a four-year ban, depending on the individual and type of loan. This is because lenders have different “seasoning” requirements, which is a specified amount of time that needs to pass.

Fannie Mae, for example, has a minimum two-year ban on borrowers who have filed for bankruptcy, says David Reiss, professor of law and academic programs director at the Center for Urban Business Entrepreneurship at Brooklyn Law School.

The FHA loan, on the other hand, has a minimum one-year ban in place after a bankruptcy. These bans, or seasoning periods, are typically shorter with government-backed loans (such as FHA or VA loans) than with conventional loans.

The time is measured starting from the date of discharge or dismissal of the bankruptcy action. Generally, the more time between debt discharge and the loan application, the less risky a once-bankrupt borrower looks in the eyes of a mortgage lender.

How to reestablish credit after bankruptcy

Once the bankruptcy process is over, reestablishing and maintaining creditworthiness is key to your financial health. Lenders will be looking for zero delinquencies postbankruptcy.

While you work to build new credit, don’t go overboard opening an extensive number of accounts, as this will work against you, advises Carey. Usually, opening just a couple of revolving credit lines and paying them in a timely manner over the course of 12 months helps to increase credit scores back to an acceptable level.

What to do before you apply for a mortgage

Before you apply for a mortgage loan, check your credit score by getting copies of your three main credit reports, which detail the financial transactions (and transgressions) from your past. You will want to check these credit reports for errors, such as a credit issue that you resolved but that is not reflected in your report.

“In some postbankruptcy cases, errors continue to report negatively on credit reports,” says Carey.

These mistakes will drag down your overall credit score and reduce your chances of getting approved for the mortgage. So if you spot mistakes on your credit reports, work with the credit bureaus to correct the information they include. This can boost your credit score significantly, and may even tip the scales on your home loan approval. Mortgage lenders want to see any movement from bad credit to good credit, so don’t leave any of your hard-earned progress on the table.

Buying a house after bankruptcy: Ways to woo a lender

To start the mortgage process, lenders require a detailed letter explaining why you needed to file for Chapter 7 or Chapter 13 in the first place. Ideally, the bankruptcy would have been caused by an extenuating circumstance beyond your control—such as the death of an income-contributing spouse, the loss of employment, or a serious illness.

In other words: A lender likes to see that you were hit with hard times that had a significant negative impact on your expenses or income, and made it impossible to meet your financial obligations.

What a lender won’t want to see is someone with a die-hard shopping habit or a lackadaisical attitude toward paying credit cards on time. If that’s you, you’ll have to prove you’ve changed.

Whatever the reason you filed for bankruptcy, lenders will need to properly document your extenuating circumstances, so be prepared to provide proof detailing your life event.

Medical bills, a doctor’s note, a death certificate, or severance paperwork are all acceptable evidence that prove to lenders that you are a safe bet worthy of a home loan.

The post Buying a House After Bankruptcy? How Long to Wait and What to Do appeared first on Real Estate News & Insights |®.

5 Questions to Ask Your Mortgage Lender Before Refinancing Your Home

September 18, 2019

5 Questions to Ask Your Mortgage Lender Before Refinancing Your Home


Many homeowners with mortgages have considered refinancing at some point or another. Refinancing a mortgage essentially replaces your current mortgage with a new loan. It’s an especially enticing choice for people who want to decrease their interest rate, lower their monthly payments, pay off the loan faster, tap into home equity, or turn an adjustable-rate into a fixed-rate loan.

But hold on. Sherry Graziano, SVP, mortgage transformation officer at SunTrust in Orlando, FL, says that just because rates are at historic lows doesn’t mean that refinancing is the right decision for everyone. “Before beginning conversations with lenders, the homeowner should have a clear financial objective and see refinancing as way to achieve that objective.” 

Once you’ve decided that refinancing is worth exploring, find a mortgage representative who can clarify all the financials and explain all your options. While you’re discussing this, it’s important to ask the right questions—and lots of them.

Ready to refinance your home? Before you jump in and start the refinancing process, here are some questions you should plan to ask your mortgage lender.

1. ‘Does my quote include taxes and insurance?’

When applying for a loan, a lender will provide an estimate that gives a breakdown of all closing costs, the rate, and all other related costs with the loan.

Jeremy Engle, a mortgage lender with Vero Mortgage in Visalia, CA, says the lender’s quote usually includes taxes and insurance. “I ask clients for a current copy of their mortgage statement, and I can pull the figures from that,” he says.

Lenders will typically provide a detailed quote that will break down the new monthly payment, and it should highlight taxes and insurance, according to Graziano. She says homeowners may also want to ask about the associated fees—both the lender’s and other third parties’. “Typical costs may include an appraisal fee, credit report, title insurance, and closing or attorney’s fees,” Graziano says.

2. ‘How much money do I need to bring to closing?’

On average, homeowners can anticipate paying 2% to 3% of the loan amount to refinance a mortgage. So refinancing a $300,000 home loan, for example, could cost $6,000 to $9,000 and would be due at or before closing. Just as with your current home mortgage, the refinancing process will also include closing fees.

Communicate with your lender and ask what you need to bring to the closing table. Closing costs can include a variety of fees—bank, appraisal and attorney fees—for the services and expenses needed to finalize a mortgage.

When it comes to how much to bring to closing, it depends on the loan the borrower is looking to acquire and is unique to each borrower’s financial situation, according to Tarek Hassieb, a licensed real estate broker for Liberty Realty in Hoboken, NJ.

“If they want a lower payment, they’ll bring the appropriate funds to satisfy the payment they feel comfortable with. A borrower can essentially bring zero dollars to closing and add the closing costs to the loan, and bring nothing to the closing table,” says Hassieb.

Graziano says lenders offer different terms and promotions, and it is worth reading through all the documents. 

3. ‘What are my out-of-pocket costs?’

Discuss with your loan officer any additional fees you may be responsible for that are not included in your closing fee estimate. These may be included as separate costs, such as insurance and a property survey. Out-of-pocket costs vary, depending on each buyer’s situation.

“While some homeowners may opt to pay out of pocket for some expenses, many will choose to roll their refinancing costs into the loan,” says Graziano. “Homeowners should be clear about whether or not the lender offers them that option.” 

4. ‘Do I have room to cash out any equity?’

Most lenders prefer to see some equity if you are to qualify for a loan. Usually, the more equity there is in a home, the easier it is to refinance. Experts say at least 20% equity is needed if you don’t want to pay private mortgage insurance. However, even with less, you can still refinance, but the terms may not be as favorable. Hassieb says that since each buyer’s loan may be different, this would be assessed on a case-by-case basis.

5. ‘How long is the term of the loan that you are quoting me?’

When you refinance, you will have a new term and amortization schedule. Each time you refinance your property, the clock is reset for the term length. “The loan would restart to Day One. So consider it a new loan. A borrower can choose a term from 10 years up to 30 years,” says Hassieb.

The cost to refinance a mortgage can vary based on such factors as interest rate, credit score, loan amount, and lender. As a homeowner, if you want to get a better mortgage refinance deal, you should shop around and make lenders compete for your business.

Hassieb says most lenders have an online link to a refinance pre-approval that can help the lender understand the borrowers’ financial situation and help them achieve their financial goals.

The post 5 Questions to Ask Your Mortgage Lender Before Refinancing Your Home appeared first on Real Estate News & Insights |®.

Airbn-Bling: How Renting Out Your Property Can Help You Get a Mortgage

June 19, 2019

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Short-term rental sites such as Airbnb have changed the game for homeowners. Renting out your entire home—or part of it—is an attractive way to make extra cash. In fact, some developers are even building homes aimed at first-time home buyers with separate bed-and-bath areas designed to be rented out—a twist on the classic in-law suite.

But how does your plan to host short-term renters play out when you’re applying for a mortgage? Rent money will increase your yearly earnings, but do lenders count future revenue as income? Can plans to maintain a short-term rental help you get a mortgage?

For the most part, no. Stephen Rybak, senior managing director at GuardHill Financial Corp., says a lender will never consider potential income from renting out part of a single-family home. And it doesn’t matter if we’re talking about a space that’s detached from the house (e.g., a garage apartment, studio, or casita)—it’s all technically part of a one-family home.

“If it’s not zoned for a two-family, you’re never going to get credit for that from a lender,” he says.

Two-family properties

You will, however, be able to include part of your potential rental income if you are buying a building zoned for two or more families. Whether it’s a townhouse, brownstone, or free-standing home with multiple units, the building needs to be a legal two-family dwelling.

Zoning laws vary by city and state, so if you’re considering this kind of building, talk to your real estate agent or lawyer to ensure that the building is a “true” or “legal” multifamily property. The type of building will also be indicated on the listing.

How a lender decides what your rental is worth

In a two-family or multifamily home, the market-rate rent for each unit is determined during the appraisal process.

“The appraiser will give you the market value,” says Rybak, “and the bank will consider 75% of that amount to help you qualify for the loan.”

So if you’re buying a two-family home and the appraiser puts the fair market rent for your unit at $1,000 a month, you’ll get $750 a month, or $9,000 a year, added to your income. That will allow you to qualify for a bigger loan than you otherwise would have been able to get—regardless of what you actually end up making on the rental.

Could short-term rentals hurt your ability to refinance?

Just because the bank won’t consider income from a short-term rental in a one-family home doesn’t mean you shouldn’t do it. Renting out your place is still a great way to help pay your mortgage.

However, keep in mind that, in rare situations, having an active short-term rental could hurt your ability to refinance. If your lender decides that you make enough money from your home to qualify as a commercial or investment property, it could deny your refinance application or charge you a higher interest rate. That means the $30,000 you make a year renting out theº cottage behind your home could disqualify you from refinancing the whole property. In this situation, a bank could consider you to be operating a business out of your home.

That kind of issue is rare, though. So if short-term rentals are legal in your city, and you don’t mind taking on the responsibilities of being a property manager, a supplemental income—potentially thousands of dollars a year—is nothing to sneeze at.

The post Airbn-Bling: How Renting Out Your Property Can Help You Get a Mortgage appeared first on Real Estate News & Insights |®.

Who’s the Best Mortgage Lender for You? How to Find Your Match

April 23, 2019

Mortgage Broker


Most house hunts involve not only finding your dream home, but also selecting the best mortgage lender to finance this massive purchase.

So what do we mean by “best”? A mortgage with a low interest rate and fees, obviously, but it’s more than just the money. Ideally you want a mortgage lender who won’t leave you buried in paperwork, or confused by a slew of obscure terms you don’t understand.

In a recent survey, about 1 in 5 U.S. home buyers said they came to regret their choice in a lender. Don’t want to be one of them? Then be sure to ask yourself these questions below to home in on your perfect match.

How much money do I need?

A mortgage is by no means a one-size-fits-all product. Indeed, your budget plays a significant role in what lender you should choose.

If you’re looking to get a big loan, you’ll want to search for a lender that specializes in jumbo loans. In a nutshell, these are mortgages that exceed the loan limit of conforming loans, which is $424,100 in most areas. If you live in a high-cost area, the conforming loan limit is $636,150. But, after the housing crisis, many mortgage lenders pulled out of the jumbo loan market. After all, extra-large home loans pose a greater risk to the lender.

To get a ballpark figure of how much money you need—and the type of house you can afford—plug your income and other numbers into an online home affordability calculator.

Would I qualify for a conventional loan?

Most home buyers obtain conventional loans, since these mortgages tend to offer the lowest interest rates. But in order to qualify for a conventional mortgage, borrowers need to meet certain requirements—like, for instance, a credit score of at least 620, a down payment of 5% to 20%, and a maximum debt-to-income ratio of 43%, says Todd Sheinin, mortgage lender and chief operating officer at Homespire Mortgage, in Gaithersburg, MD.

The DTI ratio is how much money you owe in monthly debt obligations (on student loans, credit cards, car loans, and hopefully soon a home loan), divided by your monthly income. So, let’s say you’re paying $500 to debts and pulling in $6,000 in gross (meaning pretax) income. Divide $500 by $6,000 and you’ve got a DTI ratio of 0.083, or 8.3%. However, that’s your DTI ratio without a monthly mortgage payment. If you factor in a monthly mortgage payment of, say, $1,000, your DTI ratio increases to 25%.

If I don’t quality for a conventional loan, what are my options?

Most home buyers who don’t qualify for a conventional loan do still qualify for other types. The main options include FHA loans, VA loans, and USDA loans. Generally the requirements for these are looser—meaning lower down payments, lower credit scores, and higher DTI ratios. However, they still have their limits.

Federal Housing Administration loans, for example, let home buyers put down as little as 3.5%, but borrowers generally need a minimum credit score of 580, says Tim Lucas, editor at

Meanwhile, U.S. Department of Agriculture loans let borrowers put as little as 0% down, but these loans are available only in certain rural locations.

Veterans Affairs loans also require no money down, but are available only to veterans, active-duty service personnel, and select reservists or National Guard members. If you quality for these loans, they’re great options.

Am I willing to hire someone to do the legwork?

To find the best mortgage lender, it’s essential that you shop around. However, there’s one alternative: Hire someone to do the shopping for you.

You can do this by hiring a mortgage broker—an industry professional who can shop for multiple lenders simultaneously on your behalf. The caveat: Sometimes mortgage brokers get their commission paid by the borrower (that’s you) based on an agreed-upon fee that becomes part of your closing costs, while other times brokers get paid by the lender that’s ultimately chosen to fund the loan.

Typically, a mortgage broker’s commission is around 1% to 2% of the loan borrowed (or $1,000 to $2,000 per $100,000). The upshot: Though you might have to pony up cash to use a broker, this person can help you not only find a lender but also negotiate for you—meaning you don’t have to do any haggling yourself to nab a low-interest home loan.

Am I comfortable getting a mortgage online or prefer hands-on guidance?

Online mortgages are growing in popularity, particularly for younger home buyers: One recent survey by NerdWallet found that 64% of millennial mortgage applicants would prefer to get it all done digitally. Though online lenders often offer lower mortgage rates and fees, they’re not right for everyone.

If you care about the kind of one-on-one, face-to-face service you get when you work with a local mortgage lender, be aware that you don’t typically get that with an online lender (although many online mortgage lenders do employ loan officers you can speak to on the phone).

Another reason an online lender may not be a good fit: Many don’t employ mortgage specialists who know the ins and outs of your local market, which can be a disadvantage if you’re applying for a complicated loan, such as a mortgage for a self-employed borrower.

Nonetheless, “online lenders are great for conventional scenarios: salaried borrowers without financial or credit complications, and properties that are typical for the area in design, lot size, condition, and amenities,” says Richard Redmond, author of “Mortgages: The Insider’s Guide.”

The moral of the story: You’ll have to weigh your loan needs and comfort level of completing the entire mortgage process online before choosing an online lender.

Do I want to work with a small or large lender?

Choosing between a small lender, like a local credit union, and a larger national lender, such as Bank of America or Wells Fargo, is mostly a matter of preference. But knowing which you’d prefer can help you find the right lender to fit your needs. If you like personal service, it may make sense to choose a small mortgage lender in your local area. Indeed, the bigger the bank, the more business it does, which means you’re just one of thousands of clients, so it may not bend over backward to attend to your every whim, says Bruce Ailion, a mortgage broker at Re/Max Town and Country in Atlanta.

If you don’t have much time to waste, a larger lender may be a better choice, since the bigger banks have in-house underwriters and larger teams to process mortgage applications faster.

Another factor consider: Large lenders may have more payment options such as online payment or automatic mortgage deduction. Also, big banks often let you do everything online, from your mortgage application to account management. (Many local lenders don’t have as well-oiled online banking systems.)

To better weigh all your mortgage options, head to to compare lenders and learn more.

The post Who’s the Best Mortgage Lender for You? How to Find Your Match appeared first on Real Estate News & Insights |®.

How to Lower Closing Costs: A Guide for Home Buyers

April 10, 2019


If you’re buying a house, you might wonder how to lower your closing costs—a daunting list of fees that accompany a home purchase.

On average, typical closing costs can total anywhere from 2% to 7% of a home’s purchase price. So on a $250,000 home, closing costs could amount to anywhere from $5,000 to $17,500. In short: Closing costs are a huge chunk of change, and span a wide range of fees.

But, much like haggling on the price of a house, you can negotiate closing costs down to a more affordable level. The key is knowing which fees are fixed—and which ones have wiggle room that you can work to your advantage.

What are closing costs, anyway?

Before you can lower your closing costs, you need to know what they are. If you don’t need a mortgage, your closing costs will be limited, but if you do need a home loan, your closing costs will typically encompass the following fees:

  • Agent commissions
  • Attorney fees
  • Lender fees
  • Mortgage insurance
  • Title search fees
  • Recording fees
  • Property taxes
  • Transfer taxes
  • Appraisal fee
  • Title insurance


When do you learn what your closing costs will be?

You don’t have to wait until closing to find out how much your closing costs will be. You can get a sense of what you will owe in your loan estimate document, which federal law requires lenders to provide within three days of the loan application.

While the closing costs on this loan estimate document should be fairly accurate, you won’t receive the final number until three days before you actually close on your home. That’s when you’ll receive another document called your closing disclosure, which contains your final, official closing costs.

Closing costs you can’t change

First off, prepare to pick your battles, because not all closing costs are negotiable and worth wasting your haggling energy on.

“For example, the costs of title fees and government fees—transfer taxes, if applicable—are a big chunk of the cost, and a buyer cannot negotiate these,” says Heather McRae, senior loan officer with Chicago Financial Services, in Chicago.

Whether or not you, as the home buyer, have to pay these fees depends on where you live. In New York City, a condo buyer will typically pay transfer taxes, but sellers pick those up for co-op purchases, as well as for single-family homes in Westchester County, says Peter Grabel, managing director of Luxury Mortgage, in Stamford, CT.

How to lower closing costs

So, there’s not much wiggle room with taxes and local fees, but there are some areas where you can lower your costs. For example, some costs, such as title services, are provided by a third party, so you can look for a less expensive provider. Some areas with flexibility include the following:

  • Your title costs: Title insurance can vary widely across the U.S.—and even by type of home, says John Walsh, president of Total Mortgage, in Milford, CT. Sometimes title insurance is bundled with settlement services. You may be able to research and find a title and settlement company that is less expensive than the one your lender recommends. Some states require a borrower to use a lender-selected title insurance provider, but not all states do, according to Greg McBride, chief financial analyst for In states where you can find your own title insurance provider, you can look online for other title service providers that are less expensive, and then let your lender know about your preferred title servicing company.
  • Your lender fees: Another way to lower closing costs is by choosing the right lender. Some lenders may offer lower origination fees for customers who already have a checking or savings account at the bank and want to add a mortgage, says Peggy Lawlor, a mortgage strategy executive with Bank of America. For example, Bank of America just rolled out a Preferred Rewards program that offers up to $600 in reduced closing fees for customers, depending on the dollar amount of a customer’s deposits. If you’re dismayed by the lender fees on your loan estimate, contact other lenders to see if you can find a better deal.
  • The day you close: The day of the month when the mortgage closes can also affect costs, says Walsh. “If you close on Nov. 5, you have to pay the per diem interest from the 5th to the 30th; but if you close on Nov. 28, it’s only three days,” he adds. You’ll save a bit in interest costs if you close as close to the end of the month as possible.
  • Your closing attorney: Many borrowers stick with a lender-appointed attorney to represent them at the closing, but they are not required to do so, and you can hire your own, says Lawlor. So feel free to shop around for one who offers great rates.


How to negotiate closing costs

All in all, Michael Press of Penrith Home Loans, in Seattle, says that lowering closing costs is doable if home buyers are assertive and willing to put in the time to shop around.

“The most important first step for home buyers is to ask,” he says. For instance, he recommends home buyers ask their agent to negotiate a seller credit, which can significantly lower closing costs. A seller credit is when the seller agrees to pay all or part of the closing costs. Not every seller will be willing to cover closing costs, but sellers who have already purchased a home may be eager to close the deal as soon as possible. Plus, it typically doesn’t hurt to ask.

For home buyers purchasing newly constructed homes, Press recommends checking into builder incentives. Builder incentives are similar to seller credits, but they’re offered by the company doing the new home construction. To take advantage of builder incentives, you may need to work with a lender of their choosing, so be sure to look carefully at the offer as a whole to ensure it’s actually saving you money.

Anya Martin contributed to this report.

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What Is an APR? Annual Percentage Rate, Explained

February 21, 2019

What is an APR? The annual percentage rate, or APR, is how much you’ll pay in interest and other fees when you get a mortgage from a lender to buy a home. APR can also be considered the total cost for a debt over a one-year period.

The “and other fees” clause is key here. When home buyers get a loan, they often obsess over the interest rate alone—say, that 5% extra you’ll pay over the life of your $300,000 loan. But that’s not where your expenses end, and that’s where APR comes into play.

“The APR includes the interest rate and other charges, which is why it’s usually higher than just your interest rate,” says Michele Lerner, author of “Home Buying: Tough Times, First Time, Any Time.”

What is an APR, and which fees are included?

People tend to think of annual percentage rate as the “true” amount they pay, because it includes all of the major fees associated with the loan (e.g., closing costspoints, and private mortgage insurance).

The APR is also your “apples to apples” number when comparing loans from various lenders, and keeps you from getting tricked into paying hidden fees. If one lender has a vastly higher APR for the same interest rate, that means it’s charging you more to get the loan and you could end up carrying more debt.

There are some costs that aren’t usually calculated into APR, including the home appraisal, title search, title insurancecredit report, and transfer taxes. (Though taxes are usually considered part of closing costs, they aren’t a lender fee so don’t count toward the APR.)

That said, the appraisal, credit report, title search, and title insurance should normally be fairly minor costs when compared with the cost of the loan. Still, if you’re looking at two very close rates, make sure to examine what’s calculated into the APR. Some lenders might not be including things that other lenders are.

Interest rate vs. APR

So which number is more important, the interest rate or APR? If you want to make sure you get the best loan for your situation and don’t get into too much debt, it’s important to look at both.

“The reason you should look at both numbers is that if you just stick to the interest rate, you may not know about the fees associated with your loan,” explains Lerner. “If you focus only on the APR, you could miss out on a lower interest rate.”

Keep in mind that the fees that are included in the APR are paid at closing. In contrast, your interest rate is what you’ll pay over the life of your loan, which could last as long as 30 years, notes Stephen Rybak, a senior vice president with Guardhill Financial in New York.

What determines my interest rate?

Even saving a fraction of a percent on your interest rate can save you thousands of dollars.

Six key factors affect your interest rate:

  1. Credit score: Your credit score is a numerical representation of your track record of paying off your debts, from credit cards to college loans. Lenders use your credit score to predict how reliable you’ll be in paying your home loan. In general, consumers with higher credit scores receive lower interest rates than consumers with lower credit scores. A perfect credit score is 850, a good score is from 700 to 759, and a fair score is from 650 to 699.
  2. Loan amount and down payment: If you’re willing and able to invest a large down payment in your home, lenders assume less risk and will offer you a better rate. (A 20% down payment makes a lender feel a lot more secure than a 10% down payment.) If you don’t have enough money to put down 20% on your mortgage, you will probably have to pay private mortgage insurance, or PMI, an extra monthly fee meant to mitigate the risk to the lender that you might default on your loan. (PMI ranges from about 0.3% to 1.15% of your home loan.) Also, depending on your circumstances or loan type, your closing costs and mortgage insurance may be included in the amount of your loan.
  3. Home location: Mortgage rates can vary depending on where you’re buying a home. Indeed, the strength of your local housing market can drive up or drive down interest rates.
  4. Loan type: Your interest rate will depend on what type of loan you choose. The most common type of home loan is a conventional mortgage, aimed at borrowers who have well-established credit, solid assets, and steady income. If your finances aren’t in great shape, you may be able to qualify for a Federal Housing Administration loan, a government-backed loan that requires a low down payment of 3.5%. There are also U.S. Department of Veterans Affairs loans and U.S. Department of Agriculture Rural Development loans.
  5. Loan term: The duration of your loan affects your rate. In general, shorter-term loans have lower interest rates—and lower overall costs—but larger monthly payments.
  6. Type of interest rate: Mortgage rates depend on whether you get a fixed-rate mortgage or an adjustable-rate mortgage, or ARM. “Fixed-rate” means the interest rate you pay remains fixed at the same level throughout the life of your loan. Meanwhile, an ARM is a loan that starts out at a fixed, predetermined interest rate—likely lower than what you would get with a comparable fixed-rate mortgage—but the rate adjusts after a specified initial period—usually three, five, seven, or 10 years—based on market indexes.

How to choose a home loan that’s right for you

Having a hard time choosing between loans based on the interest rate versus APR? If you have the cash upfront but would prefer to have a lower monthly mortgage payment, it might be worth it to you to shop for the lowest interest rate, even if the APR is slightly higher. In 10 years, you’ll be thankful for that lower interest when you’re paying a smaller bill.

On the other hand, if you need all your cash on hand for the down payment, you might need to pay a slightly higher interest rate with fewer fees at closing. It also matters how long you plan to stay in the house.

Every loan has a break-even point, where the extra fees you paid upfront are balanced out by a lower interest rate. If your break-even point for a higher-APR/lower-interest-rate loan is seven years, but you plan to sell the house in five, you’re getting a better deal with a higher-interest-rate/lower-fee loan.

In the end, to get the best deal on a home loan, you’ll want to look at the interest rate, APR, and any details you can get about what fees have been included (or perhaps more importantly, not included) in those numbers.

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How to Buy a House for Your Child (Even If You Aren’t Loaded)

December 12, 2018

Want to learn how to buy a house for your grown child? Being able to help your grown kids become homeowners can really give them a leg up—particularly in this pricey housing market.

“Between rising home prices and millennial student loan debt, many young adults don’t have money to buy a house,” says Todd Sheinin, mortgage lender and chief operating officer at New America Financial in Gaithersburg, MD. “That’s where parents can help out.”

Indeed, 41% of college-educated Americans with student loans report having postponed buying a home because of their debt, according to a recent survey by Student Loan Hero, a service that helps people pay off their student debt more efficiently. According to a recent home buyer survey from ValueInsured, 17% of millennial home buyers say they plan to rely on a loan or a gift from a family member to fund the majority of their down payment. That relative is usually a parent.

But make no mistake, buying a house for your adult child isn’t as straightforward as, say, buying them a puppy when they were 8. Purchasing a house for your kid requires careful planning. Here’s what you need to know, and your options on how to get this done.

Option 1: Gift the down payment money

When you contribute funds to your child’s down payment for a mortgage, the money can be classified as either a loan or a gift. This decision has major tax implications, Sheinin says.

If you provide the cash as a loan, your kid (or you) will have to pay taxes on it. Gift money, however, can be transferred tax-free up to a certain limit. For 2018, any gift of $15,000 or higher will incur taxes, up from $14,000 in 2017. For couples, however, that means each person can gift $15,000 to their child tax-free, for a total of $30,000.

Note: If you gift the down payment, your child’s mortgage lender will require proof showing that the money is indeed a gift. This must come in the form of a gift letter, where you swear on paper that you don’t plan on asking for the money back.

However, that letter might be insufficient for your child’s mortgage lender. In many cases, you’ll have to provide a paper trail verifying where the money is coming from, says Casey Fleming, mortgage adviser and author of “The Loan Guide: How to Get the Best Possible Mortgage.”

Most lenders will require two months of statements from your bank account, including all pages from each statement.

Option 2: Buy the house and rent it out to your kid

If you can afford it, you have the option of buying a home solely in your name and renting it out to your child; in fact, this may be your only option if your kid can’t qualify for a mortgage. Fortunately, property taxes, mortgage interest, repairs, maintenance, and structural improvements are generally deductible on a second home.

The caveat? Your kid must pay you rent in order for you to qualify for these tax deductions, says St. Petersburg, FL, real estate agent Lisa Cahill, a certified public accountant and former tax manager. If you let your child live in the house for free, you’ll receive none of those write-offs.

Option 3: Buy and co-own the house

The third approach is to purchase a home and co-own it with your child. In this case you’d be purchasing the home and dividing the equity in whatever percentage you choose, and when the house is sold, you’d get your share of the money back. This is a good arrangement if you eventually plan to sell your portion of the house to your kid, says Michele Lerner, author of “Homebuying: Tough Times, First Time, Any Time.”

However, not all mortgage lenders offer home loans for shared ownership, so you may have to shop around if you choose this financing option. Another drawback: If your kid can’t pay the mortgage, you’re on the hook for it.

Decide what your role will be

Before you help your kid buy a home, determine what your level of involvement will be. Do you want to be part of the search process by attending showings or open houses? Are you going to let your child ultimately pick the property, or do you want to have final approval? Do you want to be involved with writing the offer or handling negotiations? These are all good questions to ask yourself.

Make sure junior can afford the homeownership expenses

Helping your child buy a house is a big decision—and you probably don’t want to put yourself in the position where you’re also paying the monthly homeownership costs. After all, being a homeowner doesn’t just mean paying off your mortgage—it also means paying for maintenance, repairs, renovations, redecorating, and utilities.

The take-home lesson: Make sure your child has a steady source of income before buying her a house!

Caution: Don’t sabotage your retirement

Even if your golden years are decades away, buying a home for your child could negatively affect your retirement plans if you have to dip into your retirement accounts.

For instance: If you withdraw money from an IRA or 401(k) before age 59½, you’ll get slapped with a 10% excise tax on the amount you withdraw, on top of the regular income tax you pay on withdrawals from traditional defined contribution plans. Making early withdrawals also prevents the money from accruing interest in these accounts, so you’d be setting yourself back significantly in the future.

The bottom line: You need to consider all the factors that go into buying a house for your child before opening up your wallet.

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5 Reasons to Talk to a Lender Right Now—Long Before You Buy a Home

December 7, 2018

Most potential home buyers wait to talk to a mortgage lender until they’re ready to buy. Makes sense, right? Why bother digging up your financial statements and filling out a bunch of paperwork if you’re not going to buy right away?

If buying a home is one of your long-term goals, you may be doing yourself a disservice by not talking to a lender sooner rather than later. The goal of any good mortgage lender is to help you get “mortgage-ready.” This means getting you and your finances in order so you can qualify for the best mortgage possible, with financial terms and a monthly payment that make sense for you and your budget.

So even if buying a home is a few years away, sitting down with a mortgage lender today can help get you on the path to homeownership. Here are five reasons why you should talk to a lender, even if you’re not quite ready to buy.

1. You may be closer to buying a home than you think

One reason home buyers may hesitate to meet with a lender is that they think they aren’t financially ready. They may think their credit score is too low, or they don’t have enough saved up for a down payment.

They might be surprised, though.

“Every day, I’m able to show a prospective home buyer a home financing option or solution they didn’t know about,” says Gaurav Mahajan, vice president of residential lending at Draper and Kramer Mortgage Corp. of Chicago. “From a credit score, monthly payment, and down payment perspective, many potential buyers are closer to owning a home than they realize.”

2. You don’t need perfect credit to buy a home

Many people put off buying a home until they have a good credit score (typically a score of 700 or higher). According to Mahajan, a credit score of 620 is generally considered the minimum to qualify for a mortgage, but many lenders work with applicants with lower credit scores. Federal Housing Administration loans are available to applicants with scores as low as 580, and your lender may be able to connect you with other options.

3. A lender can help you create an action plan for improving your credit

If your credit score is on the lower end, you may want to take some steps to improve your credit so you can qualify for a better interest rate.

“I often begin working with prospective home buyers one to two years in advance,” says Heather McRae, senior loan officer at Chicago Financial Services, in Chicago. “If there are [credit] items that need to be addressed—like how to boost your credit score to obtain the best rate and terms, or the best way to handle an account that has gone to collections—I guide people on how to best tackle these items.”

Michael Press of Penrith Home Loans in Seattle agrees. “If a buyer’s credit score needs improvement or perhaps they have an issue documenting necessary income or assets needed to qualify, a seasoned mortgage lender can help formulate a plan to get that same buyer in a better position to buy,” he says.

To formulate an action plan, lenders will typically:

  • Do a “soft” credit check—A soft credit check is a credit inquiry that doesn’t hurt your credit score. This gives your potential lender a sense of where you stand today.
  • Review your financial statements—Reviewing your bank statements and any investment or retirement accounts you have helps your lender know your available income and assets.
  • Ask you about your budget, income, and financial history—Don’t be shy or embarrassed when it comes to disclosing this information to your lender, whose goal is to work with you. If you had a financial rough patch, got behind on a bill, or co-signed on a loan for your brother-in-law that you really regret, let your lender know.


Once your potential lender knows the ins and outs of your financial situation, it can develop a plan to help you pay down debts that are dragging down your credit score.

4. A lender can specify what you need for a down payment

Lenders can also clarify exactly how much you need to save for a down payment. FHA loans, for example, require a down payment of at least 3.5%. You may want to make a larger down payment to bring down your monthly payment or to offset negative credit items. A larger down payment of 25% to 30% lowers the lender’s financial risk, making your application more appealing.

A high down payment isn’t a requirement to qualify for a mortgage, though. Depending on your situation, you may qualify for a down payment assistance program. Many of these programs are localized, so to find out what you qualify for in your city and state, you should sit down with a lender in your area. For example, McRae reviews the pros and cons of local down payment assistance programs with her prospective home buyers to help them make an informed decision.

5. You’ll know what to expect

The mortgage application process is lengthy, even for experienced home buyers. For first-time buyers, sitting down with a lender can give them an understanding of the mortgage underwriting process, how long it takes, and what documentation they will need to have prepared.

“With interest rates rising and many housing markets shifting, education and preparedness are more important than ever,” says Press.

Sitting down with a lender can help demystify the lending process, giving you time to get “mortgage ready” so you can purchase your dream home—whenever the opportunity presents itself.

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