you about to start the home buying process? Are you currently in the process
and you feel overwhelmed with the process of home buying? You’re not alone.
Homebuyer surveys find that more people today want to buy a home, but challenges
such as saving for a down payment and student loans are keeping them sidelined.
We know the vast majority of buyers (92 percent) use online
search at some point in their home buying process. Maybe that’s how you found
me at www.bobrutledge.com!
But, before you start picking out your dream house online, take
a minute to make sure you grasp these 7 key facts about homeownership.
1. Go back to school (for a day). We know you
probably just Goggled “how to buy a home,” but did you know there are homeownership
education courses that can really help you prepare? Homebuyer counseling is occasionally
required when using a down payment assistance program, but any buyer can
benefit. You’ll learn about the home buying process, improving your credit,
mortgage terms, planning a budget and more. Plus, a new study finds that by
simply participating in these in person or online courses, you’ll reduce your
risk of foreclosure by 42 percent.
an agent. If you aren’t yet a homebuyer, there’s no reason not to have a
real estate agent. Your agent’s commission will come from the home you
purchase, not your pocketbook. Everybody wins! Even if you don’t think you’ll
need help with lots of showings, a real estate agent will help you navigate
contracts between you and the seller and set up important things like the home
inspection. As a new buyer, you’ll benefit from the expert help.
the right lender. (PICK ME) Your mortgage lender will help you
secure your home financing—and, there are many types of banks and lenders who
can help. Unfortunately, according to the Consumer Financial Protection Bureau
(CFPB), nearly half of homebuyers don’t shop around for a mortgage lender. Like
you, your finances and home buying goals are unique. So, it makes sense to shop
around and interview your lender for the job. Find a lender that can work
within your parameters and not their own, too many lenders will make YOU
credit score matters. The type of loan you get, including
interest rates and points paid, is primarily determined by your credit score.
The better your credit score, the more affordable loan you can get, often with
more options for a low down payment. For low down payment loans, your MIDDLE
credit score needs to be a minimum of 620. Review your credit report, make
adjustments and get prepared so you can enjoy the lowest interest rate possible
and save cash over the life of your loan.
don’t need 20 percent down. You may have heard or read that you
need 20 percent down. It’s not necessarily a bad thing, but that’s just not the
case. And, if using a low down payment can get you in a home now (instead of 3
years from now), you’ll enjoy low rates and get out of a rising rent situation.
Low down payment options have been around for a long time. In fact, data shows
that low down payment loans with sound underwriting (loan is fully documented,
income verified) are just as successful as loan with large down payments.
payment programs offer savings. Did you know the average
down payment assistance benefit is more than $8,000? Many homebuyers don’t know
about homeownership programs that can help them get in a home much more quickly
and provide a valuable cash cushion for other home buying expenses. You could
save on save on your down payment and closing costs, or even get ongoing tax
credits. If you would like to see how a low down payment mortgage and down
payment programs can help to get you into a new home with zero out of pocket
expense follow this link to my ZERO PROGRAM.
forget to budget closing costs. Most buyers focus on saving
for a down payment, but your closing costs can run you another 3 to 5 percent
of the sales price. It’s important to factor in those costs so you are prepared
for the closing table. Ask your agent about negotiating those costs with the
seller. In addition, some homeownership programs can help you cover your
(1) Shopping for a
house before a mortgage
It is so much more
fun to look at homes than it is to talk about your finances with a lender. So
that’s what a lot of first-time home buyers do: They visit properties before
finding out how much they are able to borrow. Then, they are disappointed when
they discover they were looking in the wrong price range (either too high or
too low) or when they find that right home they scramble to get financing, and
the mortgage is not something you want to rush or put too little of time in to.
In today’s housing market you want to show home sellers you are a serious buyer
and able to make a serious offer when you find that right home.
How to avoid this mistake: Talk to a mortgage
professional about getting pre-qualified or even preapproved for a home loan
before you start to seriously shop for a place. The pre-qualification or
preapproval process involves a review of your credit, income and expenses. Having
a per-qualification/pre-approval letter in hand will make your offer more
competitive, and most offers today must have this letter.
(2) Not looking for first-time home buyer
As a first-time
home buyer, you probably don’t have a ton of money saved up for the down
payment and closing costs. But don’t make the error of assuming that you have
to delay homeownership while saving for a huge down payment. There are plenty
of low-down-payment loan programs out there.
Besides low down
payment mortgage programs there is a lot of down payment assistance programs available
to first time home buyers. Many times the funds that are available to you from
DPA (down payment assistance) Programs will cover your entire down payment.
Even if you have saved enough for a low down payment mortgage program keeping
your savings in your pocket will allow you to pay with cash for the items you
need for your new home. I see too many home buyers use credit to purchase new
home items, increasing your monthly credit obligations just after purchasing a
Visit my website
at http://www.bobrutledge.com/MODPA to learn more about what is available in the State of Missouri!
How to avoid this mistake: Ask a mortgage lender about
your options. You might qualify for a Veterans Administration or U.S.
Department of Agriculture loan that doesn’t require a down payment. Federal
Housing Administration loans have a minimum down payment of 3.5%, and some
conventional loan programs allow down payments as low as 3%. Ask about down
payment assistance programs as well. Do your own homework too, search for DPA
programs in your area.
(3) Not hiring a buyer’s agent
Too many home buyers
make this mistake! Do not make the mistake of working directly with the
seller’s real estate agent, who was first hired and obligated to secure the
best price and terms for the seller. Do not be persuaded that a Real Estate
Agent can negotiate in all fairness to both sides, it is impossible. As a
novice home buyer, you could be overmatched when negotiating with an
experienced agent who’s working on the seller’s behalf.
How to avoid this mistake: Work with an exclusive
buyer’s agent, who has a duty to work in your best interests. If you do not know
a real estate agent, seek out referrals from your friends and family. But, if
you are working with a Mortgage Lender they will know many qualified real
estate agents in the area and especially an agent who will fit your needs.
(4) Using up all of your savings
If you buy a
previously owned home, it almost inevitably will need an unexpected repair not
long after. Maybe you’ll need to replace a water heater, repair a crack in the
chimney or get rid of hidden mold.
Having money in
your account after you close is one of the best situations for any home buyer.
Besides the home repairs that will come, what about the small items that will
be needed for your new home the moment you move in.
Using your own funds
and not your credit cards will keep you from increasing your debt loan. You
have a new house payment, normally at or higher than your previous rent, try
not to add to your monthly debt with additional credit card purchases if you
don’t have to.
Read about my ZERO
PROGRAM at http://www.bobrutledge.com/zero-down-payment-closing-costs and how easy it is for new home buyers keep their savings in their
to avoid this mistake: Save enough money to make a down payment, pay for closing costs
and moving expenses, and take care of unexpected expenses. This is easier said
than done. But you can buy a home with a down payment of much less than 20%,
allowing you to conserve your savings.
(5) Ignoring a home’s flaws and drawbacks
A lot of
first-time home buyers fall in love with one of the first properties they look
at. They ignore the negatives of the house and its neighborhood.
But you can’t disregard
the downsides forever. For example, you might think you’ll be OK with a
long commute, but after a few months of spending too many hours stuck in
traffic, you’ll wish you had bought a house closer to work.
How to avoid this mistake: Do two things. First,
resolve to visit many of houses before
making an offer, you’ll be less likely to fall in love with the first or second
or third home you look at.
Second, write a list of the
attractive and the unattractive qualities of each house, and pay attention to
each home’s downsides.
(6) Being indecisive
The flip side of
choosing a place too quickly is acting too slowly when you find the right home.
In a market with more buyers than sellers, you have to move fast.
I see this a lot when I first
pre-approve a home buyer, they needed some time to think about it and made an
offer two or three days after viewing a house, only to discover that another
buyer had swooped in and made a successful offer. This will only happen to you
after the first couple times, but by then you will know what you want in a
home. If this happens to you know that it is normal and simply a part of the
learning process of being a first time home buyer…..all things happen for a
How to avoid this mistake: Once you look at multiple
houses, and you get a feel of the market and you know what the market is like
and where the prices are at, and you see something you like, don’t hesitate to
make an offer, because you and 10 other people will be interested in that same
property, this is today’s housing market.
(7) Overpaying for a house
home buyers tend to pay more than experienced buyers would pay for the same
house, according to research conducted by two economists with the Federal
Housing Finance Agency. In their analysis of appraisal data from more than 1.7
million home sales, FHFA economists Jessica Shui and Shriya Murthy concluded
that first-timers overpay by an average of 0.79%, which was nearly $2,200 per
house, according to the data set they examined.
and Murthy pointed to the inexperience of first-time home buyers. Real
estate agents say newbie buyers let their emotions take over, too. First Time
Home Buyers tend to overlook potential negatives and only look at the positives
of a particular house. I tell me home buyers to act with their heads and not
with their heart, but I know I am asking for the impossible so just use as much
of one as the other.
How to avoid this mistake: Ask your agent for
a competitive market analysis, a report that looks at the prices of comparable
nearby homes that have been sold recently. And it helps to fully understand the
real estate process, so seek out as much information as possible. If you
have friend that recently went through the process or are currently seek out
(8) Skipping the home inspection
markets, a lot of buyers compete for a small number of properties for sale. In
these strong seller’s markets, buyers are tempted to waive a home inspection.
It gives them a competitive edge over smarter buyers who wouldn’t dream of
forgoing an inspection before plunking down hundreds of thousands of dollars
for a home.
It’s a HUGE
mistake to buy a previously owned home without an inspection because there
could be expensive, hidden damage that you wouldn’t spot but an inspector
How to avoid this mistake: Simple: NEVER EVER ALLOW
THIS TO HAPPEN. Hire a licensed home inspector. Your real estate agent will
gladly make a recommendation, but it’s better to hire an inspector of your own
choosing who doesn’t depend on your agent for referrals. Plus, require that a
home inspection contingency is included in your sales contract, your BUYER AGENT
who represent you will help you get this negotiated in the sale contract.
(9) Underestimating the costs of ownership
After you buy a
home, the monthly bills keep stacking up. This can come as a surprise if you’re
Keep in mind it’s not just
your mortgage payment, you’re going to have the utilities bills that you did
not or may not have been paying when you rented.
Renters may have been paying
these kinds of bills, too. But the new home could very possibly have
higher costs simply because your new home is bigger. Your house may come with
entirely new bills, such as homeowner association fees.
How to avoid this mistake: Work with a real estate
agent who can tell you how much the neighborhood’s property taxes and insurance
typically cost. Ask to see the seller’s utility bills for the last 12 months
the home was occupied so you have an idea how much they will cost after you
move in. Ask for a seller disclosure for every house you are interested
in, many times this will help you.
(10) Miscalculating repair and renovation
First-time home buyers are frequently surprised by high repair
and renovation costs. Buyers can make two mistakes: First, they get a repair
estimate from just one contractor, and the estimate is unrealistically low.
Second, their perspective is distorted by reality TV shows that make
renovations look faster, cheaper and easier than they are in the real world.
How to avoid this mistake: Assume that all repair
estimates are low.
Seek more than one estimate
for expensive repairs, such as roof replacements. A good real estate agent
should be able to give you referrals to contractors who can give you estimates.
But also seek independent referrals from friends, family and co-workers so you
can compare those estimates against ones you receive from contractors your
purchasing a home in need of repairs with a renovation mortgage program that
will allow you to use your mortgage to purchase your home as well as fund the
repair/renovation costs all in one new home loan. Want to learn more about
renovation mortgages visit my website to Learn More About Renovation Mortgages at http://www.bobrutledge.com/HomeStyle-Renovation-Mortgage
2018 Guide to Qualifying for a Mortgage
with IBR Student Loans
you have student loans, qualifying for a mortgage can get tricky.
loan guidelines have changed yet again. This is your ultimate guide to
understanding how these changes will affect you in 2018.
you begin to make payments on your student loans, you may have several options.
be making payments on your student loan based on your income. This is
called an Income Based Repayment (IBR) plan.
plans typically will not cover the principal and interest due, and the loan
balance may increase even though you are making payments.
payment is based on a calculation that pays off your loan in full at the end of
a loan term, this is an amortized payment.
underwriting guidelines with all lenders will allow you to use an amortized
payment when calculating your debt to income ratio.
plans could also leave you with a $0.00 payment, even though your loan is in
repayment status. Your income is reviewed every year to determine your
new payment over the next year.
Loan Payment Change History
and more students are straddled with student loan debt for years after leaving
chained to student loan debt requires an experienced locksmith to unlock the
correct guidelines to get you approved for a home loan.
almost a full time job keeping up with the updates to the underwriting
guidelines, and IBR payments seem to send many loan officers into a tail spin
Loan Guideline Changes Since 2015
2 times for Fannie Mae Conventional Loans
2 times for Freddie Mac Conventional Loans
1 time for FHA Insured Loans
2 times for VA Guaranteed Loans
1 time for USDA Guaranteed Loans
first major change to the underwriting guidelines happened when lenders were no
longer allowed to ignore deferred payments or loans in forbearance.
second major change was that you had to apply a payment to any student loan
balance. If the payment reporting on your credit report will not pay off
the loan at the end of a fixed term, your payments are not amortized.
payments became public enemy #1 by Fannie Mae, FHA,
and USDA. In 2015, Freddie Mac guidelines did not allow for deferred
payments or loans in forbearance, and would allow IBR payments, even if the
reported payment is $0.00.
Your Debt to Income Ratio (DTI)
entire student loan debacle is being caused by confusion around how your debt
to income ratios are calculated.
debt to income ratio is calculated as your proposed housing payment (when
buying a home) plus your monthly liabilities from your credit report, as a
percentage of your gross income.
using a Fannie Mae or Freddie Mac Conventional loan, the total housing payment
plus monthly liabilities cannot exceed 50% of your gross income, or a 50% DTI.
using a FHA mortgage have 2 DTI ratios. A front-end debt to
income ratio is your housing payment as a percentage of your income. A
back-end debt to income ratio includes your monthly liabilities from your
will allow your housing payment to be as high as 46.99% front-end DTI, and a
maximum 56.99% back-end DTI including your debts.
loans become confusing when no payment is reported on your credit report, or
when your payment is an Income Based Repayment (IBR) payment.
Student Loan Guidelines Snapshot
Non-amortized Payment – IBR Ok, even with $0.00 payment – Updated
Amortized Payment – Ok with all lenders
Deferred or forbearance use 1% of loan balance.
Non-amortized Payment – Must use .5% of loan balance – Updated
Non-amortized Payment – Not Allowed | Must use 1% of loan
Non-amortized Payment – Not Allowed | Must use 5% of loan
balance divided by 12
Non-amortized Payment -Not Allowed | Must use 1% of loan balance
and Fannie Swap Guidelines
enough, Fannie Mae and Freddie Mac have since swapped positions on IBR payments
as of the most recent update by Freddie Mac in February 2018.
Mac no longer allows for IBR payments, while Fannie Mae does
since April 2017. Fannie Mae will even allow an IBR payment with a $0.00
have an IBR payment that is equal to less than .5% of the balance of your
student loan, Fannie Mae is your option for being able to use the payment as
reported on your credit report.
Solutions to Solve Student Loan Problems
are trying to buy a home, and the pieces just aren’t fitting together, here are
some creative solutions that past clients have successfully done.
Deferred or Loan in Forbearance
have loans with deferred payments, or if your loan is in forbearance, we have
had homebuyers go into an income based repayment plan, and qualify using a
Fannie Mae Conventional
Co-Sign and Pay Student Loan Payment
Mae recently updated their “Contingent liability” guideline to allow student
loan payments to be ignored, if you can show that a co-signer has made the
payments for the past 12 months.
Income Ratio too High for Conventional
home buyer is consolidating over a dozen loans into a 30 year amortized
payment. We needed an amortized payment to take advantage of more
flexible DTI requirements over Conventional.
Not Showing Up on Credit Report
loan is in repayment, your lender can get a credit supplement (if needed) from
the credit bureau by providing them with a copy of your statement from your
student loan lender.
Less than 5% Down Payment and IBR Payment
It is a
common misunderstanding that FHA offers the lowest down payment. VA &
USDA offer 100% financing, but additional qualifying is required.
Fannie Mae and Freddie Mac have programs that allow for as little as a 3% down
payment. Eligibility can be determined by income limits, or the area you
are buying in.
are no income limits for homes being purchased in “targeted” low to moderate
income. These special programs also include discounted mortgage insurance
and discounted closing costs.
Lenders Get it Wrong
you’re calling from a TV, radio, or internet advertisement, you are most likely
being connected to a call center, where the “Loan Officer” has little to no
actual mortgage experience. You can look up the experience of your Loan Officer
and see when they got their mortgage license and what they were doing before
they became a mortgage loan officer. (YOU
WILL BE SURPRISED!)
these “big box” lenders. These lenders are amazing at processing a
certain type of loan file that does not require anything too far outside the
box. They only want and really can only do the vanilla stuff.
are working through a big box lender, here is what is really happening, your
application is not getting in front of a professional until it reaches the
times, your file is not in front of the underwriter until after you’ve already
accepted your purchase offer and paid for the appraisal.
there’s enough time, and the underwriter is experienced enough to look up the guidelines,
and can figure out how to save your new home by getting you approved for the
wouldn’t believe this happens as much as it does if I didn’t see it professional
so often! So many of these horror stories we hear could have been avoided
if a professional loan officer was used, and not a call center lender.
with an Expert
Pros and Cons of a Low Down
When it comes to a down
payment on your home, are you aiming high or low? The down payment is the
number one reason most buyers wait longer than they’d like to buy a home. In
fact, many sidelined buyers have the income and qualifications to make the monthly
mortgage payment, but lack the down payment.
But, there’s also a
misperception about 20 percent down. In a NerdWallet study,
44 percent of Americans believe you need 20 percent or more to buy a home. The
reality is that about 60 percent of homebuyers financed their purchase with a 6% or less down payment,
according to the National Association of REALTORS®.
But, how low is too low
for your down payment?
The fact is there are no
cookie cutter mortgages — your home financing will be as unique as you. FHA is
known for their low down payments for first-time homebuyers, but many
conventional fixed rate loans offer lower than FHA’s 3.5% down.
What about zero down? VA
loans for armed service members and qualified veterans provide a great value,
including no down payment, relaxed credit requirements and no mortgage
insurance. (Plus, down payment programs may help with closing costs and even an
In certain areas there is
the USDA Mortgage that also provides a zero down payment option, low interest rates,
relaxed credit guidelines, but with income restrictions depending on where and number
of people to live in the new home.
Some lenders offer grants
to buyers to overcome the down payment hurdle. But, according to guidelines
from Fannie Mae and Freddie Mac, lenders can make contributions to a borrower’s
down payment or closing costs only after the borrower has contributed a minimum
3% down payment.
“To meet that 3%
threshold, the borrower can still come with funds from a relative, a government
agency — such as grants from a housing finance agency — or from an employer
housing program. That has not changed,” says Lisa Tibbitts, a spokeswoman for
Let’s take a look at the pros and cons of a smaller down payment.
You can buy a home
sooner. With a lower down payment, you’re putting less down and not
saving as long before you get in a home. It can help you secure a loan at
today’s low rates and avoid any rent increases that may be on the horizon.
You’ll have more reserve
funds on hand. When you buy a home, there are many other related costs,
including home repairs and improvements. With a smaller down payment, you’ll
avoid being “house poor” as soon as you leave the closing table and can enjoy
using some of your hard earned dollars to make the home your own.
Down payment programs can
help. Don’t overlook down payment programs as part of your home
financing. These programs can help boost your down payment savings or even
provide a tax credit for the life of the loan. Some programs provide affordable
first mortgages with a very low down payment.
Your monthly payment will
be larger. When you put less down, your home loan — and monthly payment —
will be larger. Work with your lender to ensure you are comfortable with the
You may be required to
pay mortgage insurance premiums. Some down payment
programs may waive mortgage insurance (MI), but in most cases if your down
payment is below 20 percent, you’ll be required to get MI — it helps manage risk for your
lender and protect them if you fail to repay
the mortgage. It’s important to note that with a conventional, fixed rate loan
and borrower paid MI, you can cancel your mortgage insurance when you reach 20% equity in your home. With an FHA loan,
you must continue to pay MI for the life of the loan.
Could hurt in a
competitive market. Unfortunately, some sellers see smaller down payments as a
negative, although it’s not necessarily true. In fact, the seller may actually
earn less on the home from an all cash buyer with a lower offer. Plus,
some down payment programs will fund your closing costs — something you won’t
have to negotiate with the seller. Put the seller at ease by getting your
financing set up early and documenting it in a letter accompanying your offer.
The bottom line? The
right down payment for you depends on your situation. Weigh the overall pros
and cons of a low down payment and talk with your lender, Bob Rutledge, about what is the best
fit for you. Visit www.bobrutledge.com to learn about low down payment options, VA and USDA zero down payment programs, and down payment assistance.
With significant changes to the tax code taking effect this
year, homeowners and prospective buyers are revising their plans to take
advantage of its sweeping changes. Here’s an analysis based on information from
the National Association of Realtors and NerdWalllet.
Tax Rate Reductions. Joint filers with incomes of $77,400 to
$400,000, which will include most first-time buyers, will see their tax rates
decline from two to four percent when they file their 2018 taxes next year.
Mortgage Interest Rate. Changes in the mortgage interest
rate—lowering the cap to mortgages worth o $750,000 from 1 million and
excluding interest paid on home equity loans— would affect only the wealthiest
first-time buyers directly. The changes will make second homes and equity loans
more expensive for first-time buyers in the future.
State and Local Taxes. The new law limits the amount of
property taxes and other state and local taxes to $10,000 a year. First-time
owners, as well as current owners, will lose the ability to deduct thousands of
dollars that they can deduct in 2018, increasing the cost of homeownership,
especially in high tax states like New York and California. In the State of
Missouri most First Time Home Buyers homes will not have an annual property tax
anyway near $10,000.
Student Loan Interest Deduction. Potential first-time buyers
and their parents who have been burdened with student loan debt will lose the
ability to deduct the interest they pay on their loans. As a result, it will
cost them more to pay off their debts to reach a DTI that would qualify them
for a mortgage.
Personal Exemptions. Personal exemptions for filers and
their dependents, worth $4,150 each in 2017, was eliminated in the new tax law.
Moving Expenses. Taxpayers have been able to deduct some
moving expenses related to their employment, but this deduction is eliminated
in the new act.
Standard Deduction. Taxpayers must decide whether to take
the standard deduction or itemize their deductions. In the past, most
homeowners have itemized to take advantage of the mortgage interest deduction
and the deduction for state taxes, including property taxes. The new law
doubles the size of the standard deduction from $6,000 to $12,000, or $24,000
on a joint return. According to Zillow’s Alexander Casey, under the current
setup, roughly 44 percent of U.S. homes are worth enough for it to make sense
for a homeowner to itemize their deductions and take advantage of the mortgage
interest deduction. Under the new law, that proportion of homes drops to 14.4
Impact on First-time Buyers: NAR’s research department
modeled examples of homeowners as different income levels, mortgage sizes, and
A single first-time buyer who purchases a home costing
$205,000 and takes out a 30-year fixed rate mortgage at 4% interest. She puts
down 3.5 percent. Assuming she buys early in 2018, her first-year mortgage
interest would total $7,856, and she would pay real property taxes of $2,050.
Under the old law, her taxes for 2018 would fall by $2,098; Under the new law,
her taxes would rise by $30. Moreover, the difference between renting and
owning was $2,098 under the prior law but shrinks to $637 ($6,060 - $5,423), or
$53 per month.
A family of five with an income of $120,000 that buys a
$425,000 home with a 10 percent down payment on a 30-year fixed mortgage at a 4
percent. Under the old law, they would save $3,219 by buying. Under the new law
their taxes would decline only $100, but if they had remained renters, they
would receive a tax cut of almost $2,400. Under the prior law, the tax benefit
of buying a home was $3,219. Under the new law, they will get a tax cut $948
($8,999 - $8,051), a much weaker incentive to buy.
The 3% Down Alternative to FHA
It seems that a
lot of people think that Conventional financing requires a minimum down payment
of 20% or more.
I am shocked at
how many folks I speak to every day that think that a conventional loan is not
an option for buying a home with a low down payment.
Both Fannie Mae
and Freddie Mac, the conventional mortgages, have special loan programs
available that, based on your income, and/or the geographic region you are
buying in, allows you to buy with as little as 3% down payment.
Credit is Best
conventional loan programs they tend to favor better credit scores, through
their risk based pricing they punish borrowers with lower credit scores with
costs to the lender that increase interest rates if you are not perfect in the
eyes of Fannie or Freddie.
If you’re one
of those homebuyers, or homeowners that has excellent credit to decent credit,
but not a lot of equity or money for a down payment, you may be surprised at
conventional loan options offer.
HomeReady program is designed to meet the diverse needs of today’s buyers using
flexible underwriting guidelines for credit worthy low-to-moderate income
borrowers trying to finance a home.
Income from non-borrowing household members can be considered as
a compensating factor to allow debt to income ratio greater than 45%, up to
Can use income from rental unit and boarder income for
Allows non-occupying borrowers, like a parent, to help meet debt
to income requirements.
Financing up to 97% loan to value for the purchase of a one-unit
Financing up to 95% loan to value for limited cash out
refinances, or 97% loan to value if mortgage being refinanced is owned or
guaranteed by Fannie Mae.
You are NOT required to be a first time home buyer to qualify
for this program
Private mortgage insurance is discounted, in many cases below
that of FHA and a regular conventional mortgage.
Gifts, grants, community seconds, and cash-on-hand can be used
as a source of funds for down payment and closing costs.
Nontraditional credit is allowed. An example is rental
history, or utility and insurance payments.
Requirements for HomeReady
HomeReady are required to meet certain criteria that are not necessarily
required if you’re using a traditional conventional loan with a maximum loan to
value of 95% (5% down payment for purchase).
Education Requirement – A homeownership education course may be required unless you
have previously taken a course required by a community seconds program, or if
you’ve completed a course from a recent attempt to purchase another home.
Eligibility – HomeReady is available to any homebuyer or homeowner that
meets the income limits of the property location. The income limits may
be waived if the property is located in a “targeted” low-to-moderate income
You can look up
the income and property eligibility by entering the address of the home you’re
interested in into Fannie Mae’s
Eligibility Search Tool Here
Home Possible Mortgages
Home Possible mortgage offer low down payments for low-to-moderate income
homebuyers, or buyers in high-cost or underserved communities.
offers two different low down payment options, Home Possible 95% Loan to Value,
and Home Possible Advantage 97% Loan to Value. I will only address the 97% or
3% down payment option.
Maximum loan to value 97%. Minimum 3% down payment for
1-unit single family unit homes, condominiums, and planned unit
developments are eligible.
Flexible sources of down payment. Down payment can come
from a variety of sources, including friends and family, employer-assistance
programs and secondary financing.
No cash-out refinancing is available up to 97% loan to value for
borrowers who occupy the property.
Income flexibility. Borrowers with income above the area
median income (AMI) may be eligible in high-cost areas. No income limits
in underserved areas.
You can check eligibility by using Freddie Mac’s Home Possible
Income & Property Eligibility Tool Here.
Private mortgage insurance is discounted, in many cases the
monthly mortgage insurance is well below that of a regular conventional
mortgage and below that of FHA
All borrowers must live in the property. Non-occupying
borrowers not allowed at 97% loan to value.
How Do I Choose
The Best Option?
There is very
little to no difference between the costs and interest rates of these two programs,
so it comes down to your financial situation that may determine which option is
best for you. In a sense, the best option chooses you.
or Home Possible should all be considered for many home buyers that in the past
were placed only in a FHA mortgage. What use to be has changed, if yesterday
you were a FHA mortgage today you may have a better option
example is if you have student loans with Income Based Repayment (IBR) payments.
FHA, Freddie Mac, and Fannie Mae all handle this situation differently.
is that the targeted income and property lookup tools offer different results.
If you look up a property using Fannie Mae’s HomeReady lookup tool, you
may make too much income to qualify, whereas if you look up the same property
using Freddie Mac’s Home Possible lookup tool, you may qualify. FHA does not
have a maximum income limitation.
If you are
considering a new home purchase and want a low down payment option you need to
consider a mortgage lender that has experience with FHA, Home Possible, and
HomeReady, and is willing to consider all possible options for you.
If you want to
talk with me about what options are available to you please contact me, Bob
Rutledge, at 314-628-2218 or email me at email@example.com
The VA mortgage program does not have a required minimum down payment, it is a 100% mortgage. But, there are closing costs involved in the VA mortgage as there is in all mortgage. WHO pays for closing costs is much different with the VA mortgage than it is with any other mortgage program, another benefit to the veteran borrower.
A common way to remember
which costs a veteran is allowed to pay for is to remember the acronym ACTORS.
That stands for:
are common charges found on most every VA mortgage and while they can vary a
bit by amount; these fees are the ones that can be paid for by the veteran. But
what about these charges?
fees, and others, are example of charges that the veteran is not allowed to
pay. Even though the VA lender requires a processing and an underwriting fee in
order to approve the VA loan, the veteran may not pay for these charges and any
other fee deemed "non-allowable." So if the veteran can't pay them,
closing costs can be paid by the seller of the property and is typically the
initial method of dealing with such charges. As part of a sales contract, the
buyer can say, "We'll pay you $200,000 for this home as long as you pay
for $3,000 in closing costs."
for a buyer's closing costs is considered a seller concession, and is limited
to four percent of the sales price of the home. If a home sells for $200,000,
then the seller can only pay $8,000 of the buyer's costs.
concessions can be used to pay for the buyer's VA funding fee, loan costs,
property taxes and insurance among others.
real estate agent representing the buyer can contribute toward closing costs in
the form of a credit at the closing table. Real estate agent commissions are paid
for by the seller of the property and typically represented as a percentage of
the sales price.
a real estate agent brings a buyer to a seller and there are two agents, the
listing agent and the selling agent, the commission is typically split between
both agents. If the sales commission is six percent, each agent gets three
percent each for their services. Some states don't allow the practice of an
agent contributing toward a buyer's closing costs so check to see if it's okay
in your area.
lender can offset part or all closing costs with a lender credit. Lenders can
offer a credit to a borrower by adjusting the borrower's interest rate. It's
like paying a point to get a lower interest rate but in reverse.
example, a VA borrower applies for a 30 year fixed rate VA mortgage and is
offered a 3.75 percent rate. The lender offers the buyer a lower rate if the
buyer pays one point, or one percent of the loan amount. The choice is 3.75
with no points or 3.50 with one point.
the other direction, the lender can offer 3.75 percent with no points and 4.00
percent with one point credit to the borrower. On a $200,000 loan, the lender
can increase an interest rate by about one-quarter of one percent and the
borrower gets a $2,000 credit toward closing fees.
seller can pay, an agent can pay, the lender can pay but the borrower also has
one more way to pay non-allowable closing costs. Recall that an origination fee
is an allowable charge.
lieu of charging the borrower non-allowed fees, the lender can charge a one
percent origination fee instead of itemized non-allowable charges for things
such as attorney or underwriting charges.
costs on VA loans are indeed a different breed compared to FHA or conventional
loans, especially with regard to who is responsible for any particular fee. If
there are any questions about who pays for what, those questions should be
asked directly to your loan officer. VA costs can be confusing, there's no need
for them to be.
If you have questions go to www.bobrutledge.com and learn more or call Bob Rutledge with USA Mortgage directly at 314-628-2218.
At the start of many mortgage application I hear my borrowers tell me that they had started the process of 'fixing' their credit BEFORE they spoke with me or any other mortgage lender. This is a mistake that has hurt so many potential home buyers. This is especially true when it comes to collections on your credit report.
have done a great job over the years of convincing consumers that paying off
collections will raise their credit scores. Many are actually surprised to
learn that paying off collections will actually LOWER their credit scores.
Collections are usually reported on the credit as a “9” status or collection
account. This means the account has already been "written off" and
assigned to collections by the creditor. Once an account is reported this way
on the credit report, the damage to the credit score is irreversible, unless
that item is removed completely from the report.
If the account is paid off, the collection company reports that the account now
has a $0 balance, but they do not usually delete the item off the report. The
account has already become a collection, and the risk of the consumer
defaulting on another account is already very high, due to that collection.
So their credit score will not go any higher if it is paid off, because paying
off a collection after the fact, doesn't lower the risk of defaulting in the
However, the DATE OF LAST ACTIVITY is updated to the date the account was paid
off. So if that account was sent to collections 3 years ago, the date of last
activity is 3 years old and the impact to the credit score is not as much. But
if the consumer pays off that collection today, they just update the date of
last activity to today's date, many times causing the scores to go DOWN as a
Crazy isn't it?
Also, if you have medical collections most mortgage programs will not require you to remedy medical collections, in essence....we ignore them. Yes, they may be hurting your credit scores, but there are usually other methods available to you to increase your scores.
Before you start doing your homework to purchase a new home please contact me or another mortgage professional. Allow us to pull your credit report for you and to discuss what is the best course of action to take, you may be surprised how easy it really is to get your credit scores higher.
Loans For Remodeling, Mortgages for Renovation or Fixing Up, Home Loans for Rehabbing, Home Improvement Loans. There are a lot of different options available to you to borrow the funds necessary to complete the project you have in mind for your home or soon to be home.
You currently own your home and want to make improvements or upgrades? You are looking at purchasing a new home and are considering a fixer upper? There are home loans and mortgages available to you!
The FHA 203k Renovation Mortgage is the best known mortgage option to help a home owner or home buyer with home remodeling and renovation funding. The FHA 203k is a first mortgage that combines the sales price and the renovation costs as a combined new first mortgage when you are purchasing a new home. If you already own your home the FHA 203k would be used as a refinancing or replacement of your current mortgage.The FHA 203k can be used to make just about any home improvement you can consider or think of. Want to add a second story to your ranch? Looking to upgrade all your appliances? Add a new room? Expand your garage? Landscaping? If you would like to learn more about the FHA 203k visit my webpage; http://www.bobrutledge.com/fha203krenovationloan
One of the great advantages of the FHA 203k is that you don't always need to have equity in your home. The FHA 203k will allow you to borrower 10% over the after completion appraised value. So if you are short on equity to start use this program to make equity building improvements and build new equity in your home.The Fannie Mae HomeStyle Renovation Mortgage, this is the near FHA 203k equal but a conventional renovation mortgage option. All the improvements that you can make with the FHA 203k you can do with the HomeStyle Renovation Mortgage. If you are considering getting a swimming pool you cannot go with the FHA 203k but you can get it done with the Fannie Mae Home Style Mortgage.
The HomeStyle mortgage can be used as a refinance or replacement of your current mortgage or it can be used as a new purchase mortgage for those homes that need some extra work to make them your home. The minimum down payment or equity position is 5% or the appraised value or sales price.
The big advantage the HomeStyle Renovation Mortgage has over the FHA 203k is mortgage insurance. If you have 20% equity in your home or a 20% down payment you will not have a monthly mortgage insurance payment. If your loan to value ends up being more than 80% but less than 95% there is a possibility of not having a monthly mortgage insurance payment, mention it if you are interested in this option.Cash Out Refinance, no matter what type of mortgage you have on your home you can refinance to get cash out of the equity you have in your home. Each mortgage, except USDA, has their loan to value limitations based on a new appraisal, FHA is 85%, VA is 100%, and Conventional is 80% loan to value based on a new appraisal in many instances.
Home Equity Second Mortgages and Loans, many times these are referred to as Home Equity Lines of Credit or Home Equity Second Mortgages. Professionally, I do not have the ability to provide any of these mortgage programs but I do have resources to help you with finding the right HELOC for you.
Many times these types of loans are shorter in term, require much more equity in the home, have higher interest rates, and are harder to qualify for. But, the times are changing and I am starting to see these programs loosen up. Talk with your bank to start, then a credit union or two, and then ask me if I can help. There are positives and negatives associated with these loans but they have a very useful purpose.
Did You Know? In many instances the FHA 203k, HomeStyle, and Cash Out Refinances have tax advantages that Home Equity Loans do not. This is especially true if you utilize the mortgage interest deductions on your Federal tax returns. Consult your tax preparer before making this decision.
There are a few more options available to you when it comes to financing your home improvements and remodeling projects. Consider asking your Contractor to finance the costs, many bigger companies can do this or provide you with a private lending company. But, look at the terms and conditions and compare with some of the options above. Ask you contractor if you can make payments during the work phase, many will take a percentage upfront, during, and at the end.
I am a Mortgage Lender with USA Mortgage and I am a Certified FHA 203k Specialist, I close either one or more FHA 203k and/or HomeStyle mortgages nearly every month. I closed my first renovation mortgage nearly 20 years ago. You need and want a mortgage loan officer like me if your are wanting a home loan for fixing up you house, remodeling, renovating, improving, or rehabbing.
USA Mortgage has offices in the St. Louis MO area, plus Kansas City MO, Columbia MO, Springfield MO, Jefferson City MO, Branson MO, and Cape Girardeau MO. I am located in the St. Louis and St. Charles MO area but help borrowers throughout the State of Missouri, if you have questions or want help please feel free to contact me.