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Need a Mortgage Fast? You’re in Luck: The Home Closing Process Is Speeding Up

August 20, 2019

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Once your offer on your dream home is accepted, it doesn’t mean you can just grab the keys and move in. If you need a mortgage, securing this home loan takes time. The good news is that it’s faster now than ever.

According to a recent three-year study by LendingTree, the length of time it takes to get a mortgage—aka closing—is an average of 40 days in 2019. That’s down from 51 days in 2018, and 74 days in 2017.

And here’s some good news for homeowners who’ve already moved in: The time it takes to refinance a mortgage is also dwindling. Refinancing takes an average of 38 days in 2019, down from 43 in 2018, and 55 days in 2017.

Home buyers should be thrilled to hear that the mortgage process is speeding up—who doesn’t want to move into their new home as quickly as possible? Earlier closing times can also save home buyers money, especially if they are paying high rent or having to find temporary housing while waiting to move into the new home.

Why it takes less time to get a mortgage today

The digitization of the mortgage process is the main reason for the shorter closing times, according to the LendingTree report. The mortgage industry has become increasingly digital since the 2008 financial crisis, when companies operating in the paper-centric system of the past lost or misrecorded some details from their clients, causing problems and legal issues during the foreclosures that often followed.

Since then, some lenders have created new mobile-friendly products to speed up the mortgage-approval process. For example, Quicken Loans launched the app Rocket Mortgage in 2015 to help borrowers close earlier than the industry standard, reportedly sometimes as quickly as eight days.

Another factor contributing to shorter closing times is that mortgage volumes have been decreasing, says Tendayi Kapfidze, chief economist at LendingTree. However, he says that given the recent drop in interest rates, “that’s kind of reversed itself a little bit, but we’re still seeing shorter times than in 2018.”

The LendingTree study also found that loans for smaller amounts took longer to close. Loans of under $150,000 averaged 47 days, versus 39 days for those above the conforming loan limit, which is $484,350 in 2019.

“You’d think something being more valuable or bigger risk for the lender, they might take a little bit more time with it, but it’s the exact opposite,” Kapfidze says. One possible reason is that lenders may require a more extensive appraisal for lower-priced homes, which might have some type of damage or other problem.

How to get a mortgage fast

So what can consumers do to reduce as much as possible the length of time it takes to get a mortgage? To speed up the closing process, Kapfidze urges home buyers to choose a lender with a more digital, less paper-driven process. Before signing on with any lender, ask if the company can digitally link to a borrower’s bank, the IRS, or other institution to get information to process the mortgage, since this is the key to a speedy approval.

Online lenders make it easier for borrowers to compare mortgages, and they often offer better rates and faster approvals, but they come with less customer service, so they may not work well for complex home loans. Mortgage industry experts suggest that borrowers look over the application process, check out online reviews of the company, and make sure it is registered with the Better Business Bureau before they sign up.

Here’s more on how to get a mortgage fast:

Work on your credit score

Before starting the home-buying process, make sure your credit score is in check. According to the LendingTree study, consumers with higher credit scores saw shorter closing times.

People with a credit score of above 760 have an average 38-day closing time in 2019, while closings take an average of 45 days for those with scores of below 720.

Have your financial documentation in order

“A lot of the delay in closing times is just the back-and-forth between the lender and the borrower,” Kapfidze says. He suggests having all documentation well-organized and easy to access, so that it doesn’t take long to send it to the lender.

Also, make sure that all the information that you provide is accurate, he says. If a mortgage lender goes to verify something and finds a discrepancy in what a borrower provided, that can slow things down.

The exact documentation that borrowers need to provide depends on the type of loan they’re seeking, but generally, the required documents relate to a borrower’s income, assets, and employment, such as a W-2 form, pay stubs for the previous 30 days, and bank statements. Borrowers also need valid identification, a loan application, a contract for the home purchase, and homeowner insurance contact information.

Get pre-approved for a mortgage

Many loan experts urge home buyers to get pre-approved for a mortgage before they start shopping for a home, especially if their financial situation is complex. A pre-approval helps buyers better understand what type of home they can afford and can shorten closing times.

“You’re going to have to go through this process at some point anyway, so you might as well get it out of the way upfront as quickly as you can,” says Hayden Hodges, a Dallas-based mortgage loan officer at U.S. Bank. “I would want to know what my ceiling is, what my conditions are, as quickly as I can, as opposed to perhaps getting into unnecessary fire drills towards the end of a transaction.”

Lenders can work quickly to get borrowers pre-approved. Borrowers can speed up the process even more by providing all the documentation needed for pre-approval, Hodges says.

Make sure you have cash on hand

Having cash available to supply earnest money and to pay closing costs can help you close faster, Kapfidze says. Some closing costs need to be paid in cash, so make sure you can easily access the funds.

“You don’t want to get to closing, and it’s like, ‘Hey, you need to have a $12,000 check,’ and then realizing your money’s not liquid,” he says.

The post Need a Mortgage Fast? You’re in Luck: The Home Closing Process Is Speeding Up appeared first on Real Estate News & Insights | realtor.com®.

Should You Prepay Your Mortgage? The Pros and Cons

August 14, 2019

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Should you prepay your mortgage? For some homeowners it’s a financially savvy move—but for others, beefing up their loan payments just doesn’t make sense. To help you figure out whether prepayment is right for you, here are the pros and cons cited by financial experts.

Pro: You’ll cut down on the interest you owe

Interest is the extra fee you pay your lender for loaning you the cash you needed to buy a home. After all, lenders don’t just hand out dough for free—they’re in the business to make money.

By increasing your monthly mortgage payments—also called “prepaying” your mortgage—you’ll effectively save money in interest charges. Those savings can add up big-time.

For example, let’s say you take out a $200,000 mortgage with a 4% fixed interest rate and a 30-year term. If you continue to make your minimum monthly payments, you’d be forking over $143,739 in interest over 30 years until the debt is paid off. But, by paying an extra $100 per month, you’d pay only $116,702 in interest over a 25-year time span—a savings of $27,037.

Pro: You’ll get your mortgage paid off sooner

By accelerating your mortgage payments, you’ll also be shortening how long it takes to pay off the loan, which would increase your cash flow in the future. That’s a huge incentive for some borrowers.

“For families with young children, where the parents are concerned about paying for their children’s college tuition, sometimes we will recommend they increase mortgage payments so that when their kids head off to college their mortgage obligation is gone,” says Joe Pitzl, a certified financial planner for Pitzl Financial, in Arden Hills, MN.

Paying more money each month toward your mortgage’s principal can also give you peace of mind, says Marguerita Cheng, a certified financial planner at Blue Ocean Global Wealth in Gaithersburg, MD.

“Emotionally, it’s gratifying knowing that you’re paying your mortgage sooner than you originally planned to do,” Cheng says.

Pro: You’ll build equity faster

No matter how much money you put down on your mortgage, your home equity is the current market value of your home minus the amount you owe on your loan. So say your home is worth $250,000 and your mortgage balance is $200,000. In this case, you’d have $50,000, or 20%, in home equity.

Making larger mortgage payments toward your loan’s principal would enable you to build equity faster. Having more home equity can be a tremendous boon if you’re looking to get a home equity loan or home equity line of credit, such as to pay for home improvements, says Tendayi Kapfidze, chief economist at Lending Tree.

Pro: It helps your credit score

Showing that you have less debt—and that you manage your debts responsibly, by paying your mortgage off early—can raise your credit score. That can help if you’re planning to apply for a car loan or a second mortgage on a vacation home, since your credit score would affect the interest rate you qualify for.

Con: Prepaying reduces mortgage interest, which is tax-deductible

Because prepaying your mortgage reduces your mortgage interest, it may not make sense from a tax-savings perspective. Mortgages are structured so that you start off paying more interest than principal.

For example, in the first year of a $300,000, 30-year loan at a fixed 4% interest rate, you’d be deducting $10,920. (To find out how much you paid in mortgage interest last year, punch your numbers into our online mortgage calculator.)

Nonetheless, taking a mortgage interest deduction under the new tax law requires itemizing deductions—and itemizing may no longer make sense for many homeowners, since the standard deduction jumped under the new tax plan to $12,200 for individuals, $18,350 for heads of household, and $24,400 for married couples filing jointly.

Another thing to consider: In the past, you could deduct the interest from up to $1 million in mortgage debt (or $500,000 if you filed singly). However, for loans taken out from December 15, 2017, onward, only the interest on the first $750,000 of mortgage debt is deductible, says William L. Hughes, a certified public accountant in Stuart, FL.

Con: You could miss out on more lucrative investment opportunities

Every dollar you put toward your mortgage principal is a dollar you can’t invest in higher-yield ventures, such as stocks, high-yield bonds, or real estate investment trusts, Pitzl says.

That being said, “you’d 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.

Con: You may miss paying off higher-interest debts

For many homeowners, paying off higher-interest debt—such as from a credit card or private student loan—is more important than prepaying their mortgage, Cheng says.

Think about it: If you’re carrying a $400 debt on a credit card from month to month with a 20% interest rate, the amount of money you’re paying in credit card interest is $80 per month—that would be leaps and bounds higher than what you’d be paying in mortgage interest on a home loan with a 4% interest rate.

Con: Prepaying a mortgage could hamper achieving other financial goals

Building your retirement savings is crucial, of course. However, some people make the mistake of prepaying their mortgage instead of maxing out their retirement contributions, Cheng laments.

“At the bare minimum, I recommend my clients do a full 401(k) match with their employer,” she says.

Moreover, Pitzl encourages people to build a sufficient emergency fund—typically, a fund large enough to cover three to six months of their essential expenses—before they focus on prepaying their mortgage.

“If you get into a bind, you can’t sell off windows and doors to make ends meet,” Pitzl says.

Con: There may penalties for prepaying your mortgage

Some lenders charge a fee if a client’s mortgage is paid in full before the loan term ends. That’s why it’s important to check with your mortgage lender—or look for the term “prepayment disclosure” in your mortgage agreement—to see if there’s a penalty and, if so, how much it is.

The bottom line: If you don’t have enough money to pad your savings before you begin paying off your mortgage early, prepaying your home loan may put you in a financial hole if an emergency crops up.

Still not sure what direction to go in? Consider sitting down with a financial planner to discuss your options based on your personal finances.

The post Should You Prepay Your Mortgage? The Pros and Cons appeared first on Real Estate News & Insights | realtor.com®.

Facing Foreclosure? Here’s When You Actually Have to Move Out

July 31, 2019

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During the housing crisis of the early 2000s, foreclosure numbers were at a record high. Thankfully, the market has since turned around, but that doesn’t mean foreclosures are necessarily a thing of the past. In 2018, there were over 600,000 reported foreclosure filings in the U.S. alone, according to ATTOM Data Solutions, a real estate research company.

Whether or not you’ve gone through a foreclosure before, the process can be emotionally and logistically difficult. There’s the financial stress, the challenge of finding somewhere to live, the logistics of moving your things, and the ordeal of planning for the future.

With so much going on, it’s important to know what to expect. But unfortunately, foreclosure laws and practices can be confusing. This is partly because the laws differ by situation and by location.

“States have all kinds of different foreclosure rules,” says Bryan Zuetel, a real estate attorney and real estate broker in California’s Orange County. “The process will depend on each state’s foreclosure laws.”

Still, one thing homeowners faced with foreclosure need to know is how long they have before move-out day. Here’s how long you can expect to stay in your house when it’s in foreclosure.

Beginning of the foreclosure process

First things first: Know that a homeowner isn’t automatically in foreclosure at the first sight of a late bill.

Yes, a borrower is considered “delinquent” as soon as a mortgage payment is late. But, being late on a deadline doesn’t necessarily mean you’re headed for foreclosure.

Once the borrower misses a payment, federal law states that the lender must wait 120 days before starting foreclosure proceedings.

During this time, you might be able to strike a deal with the lender and change your payment plan.

“The bank does not want to take back a home and almost always loses money when they do,” says Rick Davis, a real estate attorney in Olathe, KS. “Therefore, they will often work with borrowers to find solutions that allow the money to be repaid while the borrower keeps ownership of the home.

If an agreement isn’t reached, though, the lender can start proceedings after those 120 days.

When do you have to move out?

If eviction isn’t part of the foreclosure, you’ll probably be able to live in the house until the lender finishes the foreclosure process and sells the home.

“Usually, people will leave the home when the foreclosure is completed and they are no longer the owner,” says Zuetel, but there’s no exact rule on how long this process will take.

In fact, the length of the foreclosure usually depends on a few factors, including state laws, how quickly the lender can move the process along, and what kind of foreclosure it is.

In some states, Davis explains, “the lender can utilize a nonjudicial foreclosure, which means that the property is sold on the courthouse steps without going through court. In these instances, the property may be sold in as little as 30 days.”

But when it comes to judicial foreclosures (foreclosures that go through the courts), it can take months or even years, according to Davis.

Even then, there are some special cases where you wouldn’t have to leave as soon as the house is sold. If your state requires the court to get confirmation on the sale, you may get some extra time.

“Pay careful attention to the notices you receive from the lender or their attorney,” Davis says. “All of the information related to deadlines, court dates, and sale dates will be in these notices.”

Redemption period

Another way you might get to stay put in your home for a little extra time is if your state allows for a redemption period—that is, a period when a foreclosed homeowner can buy back the property.

If you can either reimburse the new buyers for what they paid for the house or repay the mortgage debt, you can redeem the house and take back ownership.

Still, the actual rules of the redemption period vary by state. Because of this, it may be best to contact a local attorney and find out how much time you have. In some states, the redemption period could be as short as a few days, or, says Davis, as much as a year after the sale. But be careful, because you might be required to leave the house before that redemption period is actually over.

Eviction and eviction suits

Even when it seems like you’ve come to the end of the foreclosure period, there may still be some time before you actually need to move out of the house. When you receive an eviction notice, you’ll be told how long you have before you need to be out. Most people get three days’ notice.

If you don’t leave in this time frame, the new owner can file an eviction suit (also known as an unlawful detainer) in court. Proceedings could take weeks, so you could enjoy that extra time in the house, free of charge.

However, while some extra time in the house might sound great, it’s probably better to move out before this happens. If you’re sued for staying past the eviction date, it could hurt your chances of being able to rent or own property in the future. Furthermore, your credit score could be damaged.

No matter what path you go down in the foreclosure process, it’s important to know your options.

“Homeowners faced with foreclosure should consult with an attorney specialized in residential real estate foreclosures,” says Zuetel. If you can stay informed, you just might get through the process a little easier.

The post Facing Foreclosure? Here’s When You Actually Have to Move Out appeared first on Real Estate News & Insights | realtor.com®.

What Is an Amortization Schedule? Mapping Out Your Mortgage Payments

July 27, 2019
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What is an amortization schedule? When you borrow money to buy a home, one of the documents you’ll see is an amortization schedule provided by your mortgage lender who could be a retail bank, a mortgage bank, a mortgage broker, or other lender. The word “amortization” refers to the repayment of a debt through regular payments until the loan is paid off in full.

What is an amortization schedule?

In essence, an amortization schedule outlines your loan payments each month and helps keep you on track.

When you take out a fixed-rate mortgage—whether it’s for 30 years or any other term—your lender calculates an amortization schedule based on the beginning balance, interest rate, and number of payments that shows your payment for each month of your loan.

The schedule shows your interest calculation and how the payment is divided into principal and interest, so you know how much of each you pay each month. It also calculates the outstanding balance of your loan as you progress through the loan term.

By looking at your amortization schedule calculator, you can see how the amount of interest you pay changes compared with the amount of principal you pay during the life of the loan.

You can view your amortization table on a monthly or yearly basis. In the early years of your mortgage, the schedule shows that your monthly payment is almost entirely interest. The higher your interest rate, the more interest expense you pay with each monthly payment. Gradually that shifts due to amortization—lowering of the balance by periodic payments. By the end of your loan schedule, the calculator shows your payments going almost entirely to pay down your principal.

Thinking about refinancing your loan?

When you make your first payments on a home, you may not pay attention to your balance or how your payments are split. You may be happy to be in a home and keeping up with the payments.

After you’ve owned your property and made payments for a few years, though, you may be thinking about refinancing or selling. In that case, you’ll need to know your balance so you can estimate your home equity. You can find this information on the amortization schedule calculator, or on your latest mortgage statement.

If you decide to refinance, remember if you switch from one 30-year loan to another, you’re restarting the interest clock and could end up paying more over time, even with a lower rate. For example, if you get a new loan after seven years of payments into a new 30-year loan, you’ll be paying interest on your home for a total of 37 years, between the two loans. It may be worth it, however, if you qualify for a lower interest rate.

Paying down your principal loan balance

Another reason to pay attention to your amortization table—and to use an amortization calculator—is you can easily see the benefit of making extra payments to reduce the principal balance on your loan. While your monthly payments won’t change unless you start over with a new loan, you can pay off your loan early by making additional payments.

In fact, you can use amortization to your advantage to save money and pay off your loan faster. If you make an additional loan payment of $1,000, for example, a calculator will show you that it saves you more than $1,000 over the life of the loan. That’s because the additional payment helps you amortize your loan faster; in other words, lower the balance and thus save on interest expense.

Here are three ways to pay down your balance faster:

  • A little extra each month: Round up your payment and designate it to pay down your principal.
  • A lump sum payment: If you get a windfall, bonus, or tax refund, use it to pay down your balance.
  • Biweekly payments: By paying half of your mortgage every two weeks, you end up making one extra month’s payment each year.

You can try different scenarios on a calculator to see how even small, regular additional amounts can speed amortization of your loan along.

Regardless of how you make extra payments on your amortizing loan, make sure your lender applies the payment to the principal amount, if your goals are to decrease total interest expense and shorten the effective term of the loan.

Study your amortization schedule when you get it to see if you can accelerate your loan payoff date.

The post What Is an Amortization Schedule? Mapping Out Your Mortgage Payments appeared first on Real Estate News & Insights | realtor.com®.

What Is a Bridge Loan? A Way to Buy a New Home Before You Sell the Old One

July 13, 2019

What is a bridge loan? As the name suggests, bridge loans offer a short-term loan or “bridge” that allows borrowers to purchase new real estate property by using the home they currently own as collateral. A bridge loan is definitely worth considering for borrowers who are trying to buy and sell a home at the same time.

What is a bridge loan?

Also called a “wrap” or “gap financing,” bridge loans are a lifeline for home buyers who are eager to purchase new digs before they’ve sold the home they’re currently in. In such scenarios, unless you’ve got substantial income and wads of cash for the down payment, it can be hard to qualify for the loan amount of that new home while you are still saddled with monthly payments on the mortgage loan on your current home—for many people, that means stretching their finances awfully thin.

While some lenders may be reluctant to grant borrowers a loan for that new home, lenders also know that the odds are good that the borrower will sell his old house soon enough—and then be flush. A short-term bridge loan helps span that gap.

How bridge loans work

Typically, for a bridge loan, you can finance up to 80% of the combined value of both homes. So if you’re selling a home for $200,000 and buying another one for $300,000, you can borrow $400,000 max. As for the rest (in this case, $100,000), you’ll need that handy either in home equity, savings for a down payment, or some combination of the two. Once your home sells, you pay off the bridge loan and then apply for a new longer-term mortgage with a more favorable interest rate to refinance just your new home.

Bridge loans typically take a shorter time to process than conventional loans (a couple of weeks versus a few months) and are meant to be short-term solutions (often three months to a year). However, since lenders can’t make much money in interest in such a short time, they typically charge borrowers a higher interest rate and fees than lenders would on a standard home loan.

In the current market, lenders charge bridge loan interest rates in the range from 6% to 16%, says Jordan Roth, vice president of GuardHill Financial Corp. in New York City. You may be able to find lenders that offer an interest-only, fixed-rate loan for the length of time you need bridge financing.

With interest rates like that, the idea is to pay the bridge loan off as quickly as possible, as soon as you sell your previous real estate. (That said, some lenders have a prepayment penalty while others don’t, so do make sure to read the fine print.)

Lenders may charge borrowers substantial origination fees on bridge loans—consider it the price you pay for the convenience of getting a short-term loan.

Pros and cons of bridge loans

What is a bridge loan best for? With one of these loans, you can make an offer on a new home without a financing contingency, which means that you’ll buy the home only if you can secure a new mortgage. Odds are, the person selling the home you hope to buy doesn’t like financing contingencies, since that would mean that your offer is not a sure thing. A bridge loan solves this home-buying problem by guaranteeing the cash needed to close the deal.

Still, bridge loans are rare—requiring an excellent credit score and a low debt-to-income ratio—and you should take time to consider “what is a bridge loan going to do to my long-term finances?”

Even if you’re fairly certain you’ll sell your current home quickly and can pay off this high-interest loan, the real estate market is never a sure thing, and there’s always a possibility that your old home will take far longer to sell than you imagine—or, God forbid, your old home will never sell at all. Then you’re stuck paying high interest rates and big mortgage payments—and if you can’t pay up at the end of the loan term, you could end up losing your home to foreclosure. Granted, most bridge loan lenders are willing to extend the deadline on a bridge loan, but not forever.

Is a bridge loan right for you?

Whether you should get a bridge loan or not “depends on the market you’re in,” says Steve Goldman, a real estate partner with Kurzman Eisenberg, Corbin & Lever, in White Plains, NY.

As a general rule, it’s a good gamble if your home is situated in a hot seller’s market, where you are reasonably assured that it will sell in a short time.

“If you’re in a seller’s market, it’s generally fine to buy a new house, then sell your old one,” says Goldman.

However, if you’re in a buyer’s market, where your home might sit on the market for months or years, it’s much wiser to sell your house and rent something for a short time until you find another home you love. Yes, that means you’ll have to move twice—once into your rental, then once again after you buy a home—but that hassle will pale in comparison to the stress you’ll face when the clock is ticking and you’re making mortgage payments on a bridge loan. So make sure you’re a good candidate before you go out on this limb.

The post What Is a Bridge Loan? A Way to Buy a New Home Before You Sell the Old One appeared first on Real Estate News & Insights | realtor.com®.

How to Get a Mortgage: A Step-by-Step Guide for Home Buyers

July 11, 2019

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If you want to buy a house but don’t have oodles of cash lying around, you’ll need to learn how to get a mortgage—that all-important home loan used to purchase property that you will then pay back for years or even decades to come.

The vast majority of home buyers need a mortgage to achieve their dream of homeownership, but that doesn’t mean lenders just hand out loans to everyone who asks. There’s a process, with requirements you’ll have to meet. So before you even set foot in a home, make sure you know the steps on how to get a mortgage so you can secure a loan without a hitch.

Step 1: Shop for a mortgage

Before you start shopping for homes, you should shop for a mortgage. Many first-time buyers wait until they’ve found the perfect home to start shopping for a mortgage and looking at mortgage rates—and that’s a mistake.

The reason: All lenders are a little bit different, so it pays to compare the loans they’re offering in terms of interest rates, closing costs, and more, says Richard Redmond, a mortgage broker and author of “Mortgages: The Insider’s Guide.”

This is a good time to decide whether you want to apply for a fixed-rate or adjustable-rate mortgage loan.

This step will also help you pinpoint any concerns lenders might have with your loan application, and give you time to fix these flaws so you’re in great shape to make an offer once your dream home does come along.

You’ll also want to check your credit report before you go much further. If your credit score is less than excellent, or even if you have bad credit, you have work to do before you can qualify for a loan with a favorable interest rate. You can take some steps (e.g., paying down loan amounts and possibly increasing credit card limits) to improve your credit score quickly. If your credit report shows more problems, however, you may need to spend several months to a year working on your credit score before you try again to get a mortgage.

Step 2: Get mortgage pre-approval

The goal of meeting with a mortgage lender is to get pre-approved for a mortgage. During this process, the lender will probe your financial past and check out your income, debts, and other factors that help it determine whether or not to give you a home loan—and how much house you can afford to buy.

Getting pre-approved is critical if you want your home-buying efforts to succeed. Why? Because a pre-approval letter from a lender shows home sellers that you have the financial backup necessary to buy their home. Without it, sellers have no guarantee you can afford their place and, in many cases, won’t take you seriously.

Don’t confuse pre-approval with getting pre-qualified. To pre-qualify, a borrower basically has a conversation with a lender about finances, but the borrower doesn’t need to provide any paperwork.

“A pre-qualification can be drafted on a piece of loose-leaf paper,” says Ray Rodriguez, regional mortgage sales manager at TD Bank. “It often holds no value.”

To apply for pre-approval, you’ll need to provide a lender with the following:

  • Pay stubs from the past 30 days showing your year-to-date and monthly income, or business profit and loss if you are self-employed
  • Two years of federal tax returns
  • Two years of W-2 forms from your employer
  • 60 days or a quarterly statement of all of your asset accounts, which include your checking and savings, as well as any investment accounts such as CDs, IRAs, and other stocks or bonds
  • Any other current real estate holdings
  • Residential history for the past two years, including landlord contact information if you rented
  • Proof of funds for the down payment, such as a bank account statement (If the down payment cash is a gift from your parents, “you need to provide a letter that clearly states that the money is a gift and not a loan,” says Rodriguez. Otherwise, the money for the down payment affects your debt-to-income ratio, and can prevent you from getting the mortgage loan.)
  • A mortgage application
  • Permission to check your credit report and pull your credit score (Your credit history shows your history of making mortgage and credit card payments, and borrowing other money and paying it back responsibly. Your report also shows open debt accounts you may have, including student loans, credit cards, and other debts. Even if you have a good credit score, if you have too many debts, your debt-to-income ratio may be too high to qualify for the monthly payments on your new loan.)

Step 3: Get a home appraisal

After you’ve made an offer on a home and signed a sales contract, most lenders will want to check out what you’re buying with their loan proceeds—and size it up for themselves with a home appraisal. This means a home appraiser will assess the market value of the house using comparable homes, or comps, much like you and your real estate agent did when coming up with how much to offer on the home.

Most times, the appraiser’s price will end up approximately the same as your own—in which case all is good, says Rick Phillips, an appraiser and real estate agent in Vienna, VA. And if the appraisal comes in higher than what you’re paying, you’re getting a good deal. For example, if you’re paying $700,000 for a home and the appraiser says it’s worth $710,000, you’ve instantly gained $10,000 in home equity.

However, if the loan appraisal comes in lower than what you’ve agreed to pay for the home, that can be trouble, because lenders will loan you only as much money as the assessment says it’s worth, or up to a percentage of the assessment. That means you’ll have to pay the difference between the maximum loan amount and the purchase price plus closing costs—or persuade the seller to lower the sales price to what the lender thinks is fair. Another option is to challenge the loan appraisal by either filing an appeal or ordering a second loan appraisal. In most cases this all works out—and if it doesn’t, keep in mind your lender is essentially keeping you from overpaying for a dud.

Step 4: Clear the property title and close the deal

When you buy a home, you “take title” of the property—meaning you become the rightful owner. And your lender wants proof! As such, it’ll ask for a title search, which involves paying a title company to search public records for any heirs insisting the property is theirs, liens (from contractors who worked on the home but were never paid), or other problems. Hopefully all goes well, but in case not, this extra step could save you from a seriously scary situation where you’re fighting for ownership, or responsible for paying back old liens yourself.

Once the title is cleared, you can close the deal. That’s where buyer, seller, lender representative, and any others involved in this process meet to sign all of the paperwork, transfer all money owed, pass along the keys, and move on with their lives!

Sure, the whole mortgage process may sound time-consuming and complicated, but rest assured its purpose is to protect all parties, including you, from making costly mistakes.

The post How to Get a Mortgage: A Step-by-Step Guide for Home Buyers appeared first on Real Estate News & Insights | realtor.com®.

The Earnest Money Deposit: How It Helps Buy a Home

July 4, 2019
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What is earnest money? Depositing earnest money is an important part of the home-buying process. It tells the real estate seller you’re in earnest as a buyer, and it helps fund your down payment. The earnest money check is typically cashed and held in a title company trust account, or in the broker’s escrow account. You get a receipt from your brokerage when you hand in the earnest money.

Without the requirement of earnest money, a real estate buyer could make offers on many homes, essentially taking them off the market until they decided which one they liked best. Sellers rarely accept offers without the buyers putting down earnest money to show that they are serious and are making the offer in good faith.

Assuming that all goes well and the buyer’s good-faith offer is accepted by the seller, the earnest money funds go toward the down payment and closing costs. In effect, earnest money is just paying more of the down payment and closing costs upfront. In many circumstances, buyers can get most of the earnest money back if they discover something they don’t like about the home.

How much should you put down in the earnest money deposit?

The amount you’ll deposit as earnest money will depend on factors such as policies and limitations in your state, the current market, what your real estate agent recommends, and what the seller requires. On average, however, you can expect to hand over 1% to 2% of the total home purchase price.

In some real estate markets, you may end up putting down more or less than the average amount. In a market where homes aren’t selling quickly, the listing agent may note that the seller requires only 1% or less for the earnest money deposit. In markets where demand is high, the seller may ask for a higher deposit, perhaps as much as 2% to 3%. Your real estate agent may recommend that you are more likely to win a bid if you give the seller a large deposit. In fact, the seller may be willing to negotiate on the purchase price a little if you make a bigger good-faith deposit.

On the other hand, you may not want to put too much earnest money down. Coming up with that much money, and losing the use of it for weeks or months before the sales contract closes, may not be the best use of your cash.

However, you may wind up having to do some paperwork for your mortgage lender, and the bank may want to verify the source of the funds for larger deposits of earnest money. It won’t be a problem if you can show that you’ve had the money for at least 60 days.

When do you make an earnest money deposit, and who holds it?

In most cases, after your offer is accepted and you sign the real estate purchase agreement, the contract stipulates that you give your deposit to the title company. In some states, the real estate broker holds the deposit.

Always check the credentials of the title company or real estate broker taking the deposit, and verify that the funds will be held in escrow. Never give the earnest money to the seller; it could be difficult or impossible to get it back if something goes wrong.

After turning over the deposit, the buyer’s funds are held in an escrow account until the home sale is in the final stages. Once everything is ready, the funds are released from escrow and applied to your down payment.

Can you get your earnest money deposit back?

If the deal falls through, a small cancellation fee is usually taken out of your earnest money deposit, but the remainder remains in escrow. Whoever holds the deposit determines whether you should get the earnest money back under the terms of the purchase and sale contract. Make sure that the purchase agreement covers how an earnest money deposit refund is handled.

To be on the safe side, make sure the purchase agreement contains contingency addendums that stipulate how a refund is handled (e.g., an inspection contingency protects the buyer if the real estate fails a home inspection). Buyers can also usually get their earnest money back if they find problems with the property, or if they are unable to get title insurance.

A financing contingency ensures that the earnest money is refundable and the buyer can get out of the transaction if he cannot get financing. Keep in mind that a pre-approval from a lender does not guarantee a borrower can get a loan at mortgage rates he can afford. Even if a buyer has a good credit score and is pre-approved for a mortgage loan, the lender can still turn him down  based on unforeseen factors such as the appraisal amount being too low. In such cases, a standard contingency allows buyers to renegotiate the purchase contract, or get their money back.

Updated from an earlier version by Laura Sherman.

To learn more, head to realtor.com/mortgage

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Should You Refinance Your Mortgage? A Homeowner’s Guide to HELOCs and More

July 2, 2019

Refinancing a mortgage can be a great way for homeowners to save some money. But beware—make a wrong move when you refinance a loan, and you could easily get in over your head. That’s why we highlight here the right (and wrong) ways to refinance your mortgage loan.

What is home equity?

Your home equity is the current market value of your home, minus the amount you owe on your mortgage. While paying down your mortgage loan will decrease your debt and increase your home equity, the value of your home can rise (or fall) and increase (or decrease) your home equity, too. (Here’s how you can get an estimate of how much your home is worth.)

What is a refi?

When you refinance your mortgage, you’re essentially applying for a new loan. Once again, you’ll be subject to complete documentation and verification of your income, assets, debt-to-income ratio, credit score, and job history. Your real estate property will need to appraise for enough value to support the mortgage refinance, and you’ll have to show that you can afford the new monthly payments on the mortgage.

You will also need to either pay closing costs on the loan, which run anywhere from 2% to 7% of the amount of the mortgage, or opt for a no-cost refinance, where your lender covers the closing costs but you get a slightly higher interest rate on your new loan.

A mortgage refinance can be for the amount you currently owe on your mortgage, or it can be for more or less money. If you have extra cash and want to reduce your mortgage balance, putting money with your refinance is a good idea. The lower your new loan amount, the less you’ll pay in loan origination fees and interest. On the other hand, if you get a cash-out refinance, you can get a check at closing.

Whether you use the same lender for a mortgage refinance is entirely up to you, says Jordan Dobbs, a loan officer at Washington First Mortgage in Rockville, MD. Even if you were happy with your current mortgage lender, it could be beneficial to shop around and compare your loan options with different lenders.

4 reasons refinancing a mortgage can work

There are several things that could prompt you to refinance your loan:

  1. To get a lower interest rate. Many people decide to refinance a mortgage when mortgage rates are lower so that they can lower their monthly payments and, consequently, pay less in interest over the life of the loan. You may also qualify for a lower interest rate now than you did when you took out your mortgage (e.g., if your credit score has improved). If that’s the case, you’d want to look at your potential closing costs and calculate your break-even point to determine whether it makes sense to refinance, since you’re also resetting the clock in terms of the life of your mortgage. You can use realtor.com®’s refinance calculator to crunch the numbers of your own mortgage and see how much you’ll save on your monthly mortgage payments if you refinance at a lower interest rate. (One rule of thumb says that if your interest rate is more than 1% above current mortgage rates, deciding to refinance is a smart move.)
  2. To get a different type of mortgage. Some borrowers want to refinance an adjustable-rate mortgage into a fixed-rate loan, while others want to reduce their loan term from a 30-year loan to a 10-, 15-, or 20-year loan in order to pay it off faster and save money in interest payments over the long haul.
  3. To stop paying private mortgage insurance (PMI). If you didn’t have enough cash to make a 20% down payment when you purchased your home, your lender likely required you to get mortgage insurance—a monthly premium that typically costs between 0.3% and 1.15% of your home loan and is included in your monthly payment. If you refinance to a loan without mortgage insurance, you can save hundreds of dollars each month in your mortgage payment, but you’ll need to have at least 20% equity in your home to qualify, says Dobbs.
  4. To tap into the home’s equity. People also refinance a loan because they want to take cash out of their real estate, which is often done to make home improvements, pay for college, consolidate debt, or make a down payment on a second home. If you decide to go that route, you can choose between a cash-out refi and a home equity line of credit (or HELOC). Be aware that a cash-out refinance increases the size of your loan amount over your previous balance on your original mortgage loan. A one-time mortgage refinance may be a good strategic move if the monthly payment does not adversely affect your cash flow and financial goals. However, repeated mortgage refinances every few years will put you further in debt and extend your loan term, making it difficult to ever pay off your loan balance.

What’s the difference between a home equity loan and a HELOC?

Although these two loan products sound similar, they’re significantly different. With a home equity loan, you decide how much you want to borrow against your real estate and then make monthly payments, similar to a regular mortgage. Thus, with a home equity loan you avoid the temptation to overspend, because you’ll be borrowing a set amount. Also, because the interest rate is usually fixed, you have peace of mind knowing that the payments will remain the same.

A home equity line of credit, or HELOC, meanwhile, functions more like a credit card, because it allows you to borrow up to a certain amount (typically 75% to 85% of the appraised value of the real estate, minus what you still owe) on an as-needed basis over the term of the loan (usually five to 20 years). In fact, your lender will actually issue you a plastic card that you can use to access the money easily. A HELOC works well if you want to borrow money but don’t know exactly how much you’ll need (a common conundrum when making home improvements).

The main drawback to HELOCs? Unlike with home equity loans, interest rates on HELOCs are variable, which means they fluctuate depending on market conditions. And while many lenders offer a low “introduction” rate, it lasts only for a matter of months; after that, the interest rates will adjust—and continue to readjust—which could create problems if you don’t prepare for the potentially higher payments. So be sure to weigh these pros and cons before you start chipping away at the real estate equity you’ve gained.

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7 Myths About Going Through Foreclosure to (Hopefully) Ease Your Mind

June 28, 2019

If you are a homeowner, the word “foreclosure” can strike fear deep into your heart, conjuring up scenarios of the bank kicking you out of your home and damaging your credit so you’ll never be able to buy another home.

But here’s a reality check: Yes, foreclosure is a soul-crushing process. When an owner is unable to pay the mortgage, the lender, to recoup some of its costs, assumes ownership and tries to sell the home. But few people are really familiar with how it all goes down—and so a lot of what you think you know about the foreclosure process is a myth.

We’ve rounded up the top misconceptions about foreclosure below, in the hope that they’ll help you breathe a little easier.

Myth 1: The bank wants to take your house

“The bank absolutely doesn’t want your home,” says Kyle Alfriend of The Alfriend Real Estate Group, in Dublin, OH.

Yes, the bank you have a mortgage with has a legal obligation to do everything within its power to get back the money still owed to it. “But taking your home is their absolute last option,” he says.

In fact, a bank would prefer anything over foreclosure. Why? Banks are in the business of collecting interest on loans, not owning homes. And the losses to a bank foreclosing on a property are enormous compared with other loss mitigation techniques.

This all means that banks are often open to discussing reasonable alternatives to foreclosure such as loan modification, forbearance, or a short sale.

“The key is to talk to the bank; don’t hide from them and don’t avoid their calls,” says Alfriend.

Just keep in mind that banks have to deal with regulations, too. If they shut down one request, keep talking to them about other options.

Myth 2: You can’t refinance with another lender

You can certainly try to refinance—which means you’ll take out a new loan to pay off the existing mortgage—to stop the foreclosure.

“These loan options are typically at higher rates, and you will need to evaluate the pros and cons, but options do exist,” says Alfriend. You will need to have a stable income and equity in the home to qualify for a new loan.

“If you can’t find a traditional lender, you likely need to find what is called a hard money lender,” says Ed Kaminsky, a real estate agent at Strand Hill Christie’s International Real Estate in Redondo Beach, CA. This option makes sense only if the equity in your home is more than the cost of refinancing.

Myth 3: Once foreclosure starts, you can’t stop it

In reality, you can try to stop foreclosure up to the moment that your home goes up for public auction at the county courthouse steps, which is the final step in a foreclosure process.

“If you reach the trustee handling the foreclosure and make up all of your back payments prior to that, you can save your home,” says Kaminsky. Again, this is a situation in which you should work with your lender to figure out your options for repayment.

Myth 4: You’re kicked out of your home immediately

Missing a couple of mortgage payments or receiving word from your lender is cause for concern, but don’t jump to the conclusion that you’re going to be evicted immediately. Owners have the legal right to remain in their home until the foreclosure process is completed. And sometimes, lenders will let you stay longer.

“About seven years ago, my first home was foreclosed on,” says Becky Beach of MomBeach.com. Beach lost her job and had no other income to pay the mortgage. “But the bank—Bank of America—let me stay in the home for a year.”

After a year, the bank told Beach she had to vacate the property within a three-month period. After that time period expired, Beach still needed some extra time in the home. “And the bank let me stay an extra month after I spoke to a manager,” says Beach.

“Most of the time the bank will extend the foreclosure process multiple times if you give them a valid reason to do so,” Kaminsky says.

Myth 5: Foreclosure ruins your credit for life

The foreclosure will live on your credit report for at least seven years. But you should be able to borrow again once you prove that you are creditworthy.

You can reestablish good credit two to four years after your foreclosure by regularly paying off a credit card or a higher-interest car loan.

“After seven years, my credit is nearly perfect,” says Beach. “And there’s no record on my credit report about the foreclosure.”

Myth 6: You’ll never be able to buy another house

Sure, your chance of getting a loan at the lowest possible interest rate is likely off the table for several years, depending on the circumstances of your foreclosure. But you can certainly buy another home.

“It’s a myth that foreclosed people can’t get another home,” says Beach. After finding a new job and saving for four months, she was able to put a down payment on another house.

“Now I live in a new $250,000 home,” says Beach.

Myth 7: Foreclosure is always a bad idea

In some cases, it can make sense to let the foreclosure happen and reset your financial life.

“This is if you have little to no equity or even negative equity in the home,” says Kaminsky.

In this case, readjusting your priorities on where you put your money is something that should be considered.

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What Is a Hard Money Lender? It’s Not as Scary as You Might Think

June 22, 2019

What Is a Hard Money Lender

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What is a hard money lender? The real estate term may conjure up visions of crooked-nosed guys who’ll cut off a borrower’s pinkie finger for flaking on a hard money loan. But you can rest assured that, despite the “hard money” moniker, these professionals aren’t thugs. In fact, these lenders fill a legitimate niche in the housing market for quick, asset-based home loans. And they loan money for massive real estate investments and regular homes alike.

What is a hard money lender?

There are many types of money lenders. To understand “what is a hard money lender,” it’s important to know what a hard money loan is: It’s simply a short-term loan secured by real estate.

Back to the question of who and what a hard money lender is: “It’s synonymous with a private investor,” says Don Hensel, president of North Coast Financial, which specializes in hard money loans. “A lender could be an individual, a group of investors, or a licensed mortgage broker who uses his own funds. This differs from a bank that uses money from its depositors.”

Benefits of a hard money loan

Why would any potential borrower opt for a hard money loan from a hard money lender instead of getting a mortgage through a traditional loan from a bank? Because hard money loans are generally less of a hassle than those from traditional lenders, especially when it comes to real estate investments. The flip side? Hard money loan rates are much higher, and you borrow the money for only a short period of time.

Hard money lending is especially popular for the following people:

Flippers: If a house in disrepair comes on the market and it looks like it could be fixed and flipped in several months, most borrowers prefer not to go through the hassle of taking out a 15-year loan on the property. Instead they take out a fix-and-flip loan, aka a hard money loan, to buy and renovate the investment property with an aim to repay the lending party for the money loan within one year.
Builders: Many contractors use hard money to buy a lot, build on it, and then sell the new real estate and pay off the loan quickly.
Real estate investors: On occasion, a real estate investor will come across a killer deal on a property that needs to be snapped up pronto. If the real estate investor doesn’t have the money on hand to snag the asset, a loan that’s short-term can be fast-tracked by a hard loan lender, who is, in effect, a real estate investor as well.
People with credit issues: Borrowers who have cash on hand for a down payment for what will likely be an owner-occupied home but have been rejected by a bank for a conventional loan—or have had a foreclosure, default, low credit score, or other red flag on their recent credit report, but have some cash on hand—can use hard money to buy a property that would be unavailable to them otherwise.

So let’s say you lost your job several years ago and your house went into foreclosure. Since then, you’ve found a great position and are happily employed. You’ve also found a killer deal on the perfect real estate, but there’s a problem: Few banks will grant you a mortgage with a foreclosure on your record.

Chances are you can find a lender who works with hard money who will give you the opportunity to buy that real estate before it slips away. You can then refinance with a traditional mortgage once time has passed and your credit score improves.

“The higher interest rates may seem scary at first, but the benefits of getting a loan funded quickly and being able to obtain financing when all the banks have said ‘No’ will far outweigh the extra cost,” says Hensel.

The closest thing banks have to a hard money loan is a bridge loan, but qualification for one may be more difficult.

How borrowers get a hard money loan

To find hard money lending options and explore hard money loan rates, ask your Realtor® for suggestions. You could also check Biggerpockets.com‘s directory of hard money lenders across the U.S. But first, you should know how they work.

The loan terms for hard money are usually much shorter; from six months to one year is most common, but sometimes they can go up to five years. And, as you would expect, interest rates are considerably higher, usually ranging from 12% to 21%. Most lenders of hard money also charge points upfront in addition to high interest rates, where 1 point equals 1% of the loan. From 3 to 6 points is typical for a hard money loan.

So if you borrow $100,000 from a hard money lender, you would pay $1,000 per point charged, which would likely be an extra $3,000 to $6,000 upfront, in addition to the interest you’ll be paying until the end of the loan.

Down payment requirements on real estate for hard money loans are also different. You can expect to receive about 60% to 75% of the property value you intend to purchase. If you’re looking at a $200,000 property, for example, the most you’ll probably be allowed to borrow would be $150,000, meaning you’d have to pay $50,000 upfront.

On the other hand, because you’re not doing all of the paperwork and extensive qualifying procedures required by big banks, you can usually get a hard money loan much faster. In many cases, it could take as little as one week.

Risks of a hard money loan

Once you can answer “what is a hard money lender,” you might be tempted to contact one. But you should use caution if you decide to go the hard money route. Make sure you take the time to look into the reputation of the hard money lender, and have an experienced real estate attorney review the paperwork. While there are many legitimate lenders of hard money offering loans, there are also predatory ones who try to take advantage of borrowers.

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