How to Buy a House When You Have Student Loans


Educational loans are an investment in your future. A college degree can pave the way for a brighter future, providing an opportunity to follow your dreams and find a satisfying career. But the rising cost of college means that more and more graduates are leaving school owing tens of thousands in student loan debt.

Although student loans are considered “good debt,” repaying a large debt can affect other life decisions. And sometimes, student loans delay buying a house. But while it’s harder to purchase a home with student debt, it’s not impossible. Here are four ways to make a home purchase happen with student loans.

1.Refinance your student loans

Refinancing student loans can put a home within your reach. Refinancing can consolidate all your student loans into a single loan, plus lower your interest rate and monthly payment. If you ca lower your student loan payment to a manageable amount, it’ll be easier to qualify for a mortgage.

Typically, mortgage payments should be no more than 28% to 31% of your gross income, and your total monthly debt payments should not exceed 36% to 43% of your gross income. If you’re paying hundreds each month on student loans, and these payments put your total debt payments over 43%, refinancing and getting a lower rate may be the only way to qualify for home loan financing at this time.

2.Maintain a high credit score

Although there are debt limits when qualifying for a mortgage loan, some lenders are more lenient than others. These banks may approve a home loan application even though a borrower has high student loan payments and their debt ratio is slightly higher than the recommended percentage.

But to qualify for a home loan in this instance, you must meet other qualifying factors. If you have high debts, a lender will only approve your mortgage if you also have a high credit score—the higher, the better. Aim for a credit score in the high 700s or 800 range. You can achieve this by paying your bills on time every month and keeping credit card balances low.

3.Live at home longer

Rather than rush into homeownership, consider living at home after graduating college. This is beneficial for two reasons. Your parents may charge less rent than a landlord or allow you to live rent free. As a result, you can make higher student loan payments and pay down the balance sooner. Also, living at home gives you an opportunity to save a larger down payment—maybe 20%. A larger down payment means you’ll borrow less money from a bank. This results in a lower mortgage payment, which might be easier to swing with student debt.

4.Explore low down payment options

Expensive student loan debt often makes it difficult to save money for a down payment. If so, consider low down payment options. These include FHA home loans that require as little as 3.5% down, or conventional loan products that only require 3% down, such as the Conventional 97 or the HomeReady program.

Why You Should Buy a House With Cash


Some people don’t think of purchasing a home with cash. In their minds, this is financially impossible. But while most people rely on home loans to purchase their homes, some people are in a position to pay cash.

There are benefits of financing a property, such as the convenience of paying off the home slowly over 30 years, and the option to write-off mortgage interest and save on taxes. There are, however, also benefits of buying a house with cash.

1. You can negotiate a lower price

Home sellers want to get as much money for their properties. For this matter, they typically choose offers that are close to their home’s asking price. But in real estate, the highest bidder doesn’t always win the property.

Sellers prefer a smooth process with as few delays as possible. This is why they like cash buyers. There’s no bank serving as a middleman, and since a cash buyer isn’t depending on financing for the purchase, sellers don’t have to worry about a mortgage lender canceling the closing at the last minute.

Since cash purchases are often a smoother process, you might be able to negotiate a lower price on a property if you’re willing to pay cash. You may not be the highest bidder, but you are the more desirable bidder—especially since it can take a mortgage company between 30 and 45 days to close on a home loan. As a cash buyer, you can potentially take possession of the property within a couple of weeks.

2. No appraisal required

If you’re purchasing a home with a mortgage loan, your lender will order a home appraisal to determine the property’s worth. An appraisal can hurt a real estate deal. If the home appraises for less than the agreed-upon price, you and the seller will have to re-negotiate the price. This slows down the entire process.

With a cash purchase, there is no appraisal required. As the buyer, you can choose to have your own appraisal to get an idea of the property’s worth, or you can review comparable sales for the area. An appraisal is recommended because you can avoid overpaying for a property. But without a bank serving as a middleman, you can choose to skip the appraisal.

3. You don’t have to qualify for a mortgage

One of the best things about buying a house with cash is that you don’t have to qualify for a mortgage loan. Getting a mortgage requires acceptable credit, a down payment and closing costs. Additionally, banks impose other requirements. Borrowers have to be employed for at least two consecutive years, and many mortgage loans limit the amount of debt you can have. These requirements protect the bank, but they also make it difficult for some people to purchase.

As a cash buyer, you don’t have to deal with a bank’s strict guidelines. Regardless of whether you have good credit or bad credit, or whether you are self-employed or an employee, you can purchase property and get the keys to your new house.

Who Are All Involved in the Buying/Mortgage Process?


Whether you’re buying or selling a home, you can expect a lengthy process. You’ll go back-and-forth negotiating with a buyer or seller, and as a buyer you’ll work closely with your mortgage lender in preparing your loan package. In all, it can take between 30 to 45 days to close on a sale and mortgage.

Seasoned buyers typically know what to expect from the process. If you’re a first-time buyer, however, you may be overwhelmed and unsure of what to expect from day to day. The good news is that you don’t have to tackle the purchase alone. Even so, it’s important to understand key players in these types of transactions.

  1. Mortgage Lender

Once you’ve made the decision to purchase a home, the first step is meeting with a mortgage lender to see if you qualify for a home loan. The pre-approval step isn’t required, but recommended. You’ll sit down with a mortgage lender and discuss your options. Based on information provided to the lender—such as your income, assets and credit history— the bank determines whether you’re eligible for financing, and you’ll learn how much you can afford to spend on a property. A pre-approval lets you shop for a house with confidence.

  1. Real Estate Agent

You don’t need an agent to buy or sell a home. But if you don’t have a background in real estate, it helps to have representation due to the complicated nature of real estate transactions. A realtor has the skill and expertise to walk you through the process and explain real estate forms, plus your agent can answer questions about the purchase or sale. In addition, buying and selling demands a lot of time and energy—time you might not have. An agent handles a lot of the back-and-forth negotiating and coordinates home showings on your behalf. Additionally, an agent makes his professional recommendations about asking prices, offer prices and contingencies which can help you buy or sell a home quicker.

  1. Home Appraiser

After negotiating an offer, the buyer’s mortgage company schedules an appraisal of the property. The appraisal is a crucial step in the buying process because a mortgage lender doesn’t approve loans for more than a property’s worth. The appraiser is a third-party player who evaluates the property’s condition and then compares the property will comparable sales in the area to determine a fair market value. The sale can proceed if the property appraises at a price that’s equivalent to or more than the asking price. But if the appraisal comes in lower than the asking price, buyers and sellers have to renegotiate the price, or buyers can give the bank a larger down payment to compensate for the difference.

  1. Real Estate Attorney/Title Company

It is common to have a real estate attorney and/or a title company in a real estate transaction. A real estate attorney handles the legal aspects of the sale and reviews the paperwork to ensure everyone is in compliance with state laws. They generally charge a flat fee for their services, usually less than $500. Some real estate attorneys can also oversee title work, so you might be able to use one office for both services. If not, you can hire a title company to handle the actual closing. Closing is where you sign the mortgage paperwork and get the keys to your new home.

  1. Home Inspector

A home inspection is important when buying a home, although it’s also not required. A home inspector—chosen by the buyer—will walk through the property and look for obvious and hidden problems that could end up costing a buyer money. The inspector checks the home’s foundation, electrical, plumbing, appliances, roof, and heating and air conditioning systems, and then compiles a report based on his findings. Buyers can renegotiate with sellers if the inspection reveals problems. The seller can agree to fix these issues, or reduce the asking price to compensate for necessary repairs.

Terms to Avoid When Getting a Mortgage


There are different types of mortgage products available, each with its own set of terms. When applying for a mortgage, it’s important to understand the ins and outs of the loan. Since a mortgage is a big commitment, you should only agree to terms you’re comfortable with.

To avoid mortgage problems or regrets, here are five mortgage terms you might skip.

1.Interest-only home loan

Interest-only home loans were popular in the mid-2000s. With these loans, many people purchased a property and only made interest payments for the first few years of the mortgage term. This approach helped many afford homes as prices skyrocketed. The problem, however, was that mortgage payments would nearly double once interest-only payments ended. Many borrowers couldn’t afford their new payments and this triggered a string of foreclosures.

These products disappear, but have recently made a comeback. Nowadays, some lenders only offer interest-only products on investment loans or jumbo loans. These loans have stricter qualification requirements, so buyers often need a larger down payment and excellent credit.

Even if you qualify for an interest-only mortgage, be aware that your mortgage payment will increase significantly in the future. If you’re unable to refinance at this time, you could get stuck with a monthly payment beyond your range of affordability.

2.Adjustable-rate mortgage

Adjustable-rate mortgages (ARM) aren’t the worse decision, but they can be risky. These loans have an interest rate that resets every year after an introductory fixed-rate period. ARMs are attractive because they start off with rates lowered than the average fixed-rate mortgage. This allows borrowers to enjoy a lower monthly payment and purchase more for their money. But because adjustable-rate mortgages are unpredictable, there’s the risk of interest rates increasing year-by-year. And when your interest rate increases, so does your monthly payment.

These mortgages aren’t as scary if you plan to sell or refinance the property before your first rate adjustment. But even you have a plan in place, there’s no guarantee you’ll be able to sell the home or refinance at a later time.

3.Prepayment penalty

A prepayment penalty is a clause some lenders include in their mortgages. This discourages buyers from refinancing or selling their homes within the first few years of the term. Fortunately, lenders can only impose a prepay penalty up to the first three years of a mortgage. Some prepayment penalties apply when a borrower refinances or sells the house, whereas others only apply when a borrower refinances.

A prepayment penalty doesn’t cost a dime if you keep the mortgage for at least three years. But if you pay off the loan sooner, this penalty could end up costing you several month’s of interest.

4.High interest rate

Every mortgage has an interest rate, and lenders take several factors into consideration when determining a borrower’s rate. When applying for a mortgage loan, it’s important to research and educate yourself on the competition to ensure you’re getting a fair rate. Understand, however, that people with lower credit scores typically pay more interest. A high rate means you’ll pay more on a monthly basis and over the life of the loan. You can avoid a higher mortgage rate by improving your credit beforehand. For example, pay down consumer debt, pay your bills on time, don’t cosign loans, and check your credit report for errors.

How to Prepare for a Mortgage in Your 20s


Your 20s is an exciting time. It’s when you graduate college and secure your first real job; and for many young adults, it’s also a time to think about a home purchase. Unfortunately, tapping the American dream is harder than some people realize.

Mortgage requirements constantly evolve, and after the most recent mortgage meltdown, lenders have tightened the belt, making it harder for some to get a home loan. This doesn’t mean you can’t qualify for a mortgage in your 20s, but it will take advanced preparation.

1.Pay rent while waiting to buy

Managing a mortgage is a huge responsibility. If you didn’t live on your own prior to buying a home, transitioning from your parents’ house to a mortgage can be challenging.

You’re not only responsible for the mortgage payment, but also the costs of home repairs and maintenance. There’s no rule saying you have to be a renter before you can become an owner. But for a smoother transition, consider renting before buying. This way, you can get accustomed to paying rent and managing household expenses. Options include renting an apartment with a roommate, or if you live at home, pay your parents rent.

2. Live at home for as long as you can

You don’t need a massive bank account to purchase a home. Many loan programs allow as little as 3.5% to 5% down. The problem with a low down mortgage is that you’re required to pay mortgage insurance, which can cost hundreds every month. Bu if you’re able to live at home a little longer while working full time, there’s an opportunity to not only pay down costly student loan debt, but also save a larger down payment.

If you put away at least 20% for a down payment, you can purchase a home without mortgage insurance. Plus a higher down payment limits the amount you need to finance.

3.Don’t get too many credit cards

Applying for a credit card is an excellent way to build your credit history, which is something you need to buy a house. But although credit is important and serves a useful purpose, don’t go overboard with credit cards.

Rather than open multiple credit card accounts, limit yourself to one or two credit cards. Manage the card responsibly by paying off your balances in full every month and never paying your bills late. These habits build a strong credit score, which helps you qualify for a low-rate mortgage.

4.Don’t job hop

Your 20s is a time of self-discovery. You’re growing as an adult, and you’re finding your career path. Sometimes, your first job out of college isn’t a right fit. Changing employers early in your career isn’t the worst decision you can make. But if you’re thinking about buying a house in your 20s, don’t job hop too much. Lenders prefer mortgage applicants who remain with the same employer for at least two years. And if they do switch employers, lenders typically require that they remain in the same field.

5.Take a homebuyer education course

Homebuyer education courses are required by some home loan programs, particularly those with zero down or a low-down payment option. But even if your particular loan doesn’t require homebuyer education, it doesn’t hurt to enroll in a course. Some courses charge a fee, but you can also find free courses online.

This is a valuable tool for preparing for the mortgage process. You’ll learn about different types of financing, ways to improve credit, down payment and closing costs assistance options, plus advice on successfully managing a home loan.

Signs You’re Not Ready to Buy a House


There are benefits to owning a property. You don’t have to deal with a landlord raising your rent every year. Homeownership provides a better sense of stability. And as a homeowner, you’re eligible for certain tax deductions.

But despite the benefits, this isn’t a decision to take lightly. Before you embark on this journey, you have to consider whether you’re ready for the responsibility. It can be difficult to assess whether now’s the time, but there are four tell-tale signs that you’re not ready to buy a house.

1.You’re barely getting by

In some cases, buying a home is cheaper than renting. But this doesn’t mean buying is always the right choice. Homeowners are responsible for home maintenance and repairs, which might include getting a new roof, new doors and windows, a new HVAC system and taking care of other minor repairs here and there. To properly maintain a home, you need disposable income to build a cash reserve. And unfortunately, if you’re just getting by as a renter, buying a home isn’t likely to improve your financial outlook—unless the mortgage payment is considerably less than what you’re paying in rent.

2.You don’t have enough saved

Having an excellent credit score makes you a good candidate for a home loan. But if you don’t have money saved up, now’s not the time to get a mortgage.

There are costs with just about every home loan transaction, such as your down payment and closing costs. The good news is that you can purchase with as little as 3.5% down. However, coming up with this case still involves advance preparation and making sure you have a savings plan in place to fund your down payment.

Even if you’re able to qualify for a home loan program with a zero down option, you shouldn’t move forward with a home loan until you have an emergency cushion. Mortgage lenders recommend having at least two or three month’s of mortgage payments in reserves in the event of a hardship like a job loss.

3.Unstable job outlook

You can’t purchase a home unless you have enough income. But having a job and sufficient income isn’t the only thing you need to take into consideration. For example, how’s the stability of the company you work for? If your employer has been cutting back in recent months, or if the company is experiencing financial problems, think carefully before getting a home loan. This is especially true if your gut instinct says your job might be in jeopardy. If you lose your job and you don’t have sufficient income to afford the mortgage, the bank might take your property.

4.You haven’t established credit, yet

If you apply for an FHA home loan, some lenders will approve your application even if you don’t have a credit score. The main problem with getting a loan without credit is that you’ll pay a much higher interest rate than an application with a good credit history, and the lender may require as much as 10% down. Rather than pay more for the property, delay buying for a few years and use this time to build (or improve) your credit score.

A secured credit card is one way to build credit history. These cards don’t require a prior credit history, but they do require a security deposit.

Three Things You Shouldn’t Do with Your Equity


If your home has increased in value and you’re sitting on a sizable amount of equity, you may think this is your golden ticket to do whatever you want. Home equity is the difference between what you owe the bank and the value of your property. As you pay down your home loan, and as your property appreciates in value, your equity increases. And with sufficient equity, you can borrow against your home and use the cash for a variety of purposes.

There are many uses for home equity. Some people get a home equity loan or a home equity line of credit and use the money to renovate or improve their property. This is a smart use for equity because home improvements and renovations can increase the value of your property, resulting in more equity.

A home equity loan or home equity line of credit is also useful for paying off high-interest credit card debt. The interest rate on a home equity loan or line of credit is often cheaper than the interest rate on a credit card, which means you can enjoy lower minimum payments and save money on interest. Additionally, borrowing from your equity is an option if you want to invest in your future, such as continuing your education or starting a business. But while it’s your equity and you can do pretty much anything you want with it, there are unwise uses for your equity.

When you borrow from your equity, you’re essentially borrowing from your net worth. These loans and lines of credit reduce the equity in your home. So while it’s tempting to borrow from your equity, there are times when you shouldn’t gamble with your home.

1.Don’t use your equity to buy luxuries

If you’re going to tap your home equity, make sure you’re not using your equity for luxuries. This can include buying high-ticket electronics, going on vacations or purchasing other unnecessary items. Understandably, it’s your money. But your home is one of your biggest assets. So if you’re going to take money from your equity, put it towards something that will improve your home, life or finances. For example, debt consolidation, a college education or home improvements.

2.Don’t get a home equity loan if you plan on selling the property

Think carefully about your future plans before getting a home equity loan or line of credit. If you know you’ll sell the house in the next couple of years, you’re better off waiting until you have a buyer for the property. You can get a home equity loan beforehand. Just know that once you sell the property, the proceeds from the sale must be enough to pay off your first mortgage and the second mortgage. Since a home equity loan and line of credit reduces your equity, you’ll have a smaller profit upon selling the property.

3.Don’t borrow too much from your equity

You might be able to borrow up to 80% of your equity, but it’s important that you only borrow what you need, and you should only borrow what you can afford. There are two reasons for this. For starters, a home equity loan creates a second lien on the property. And second, if you get a home equity loan that’s too expensive and you have difficulty affording the monthly payment, there’s the risk of default. If you default on a second mortgage, you can lose your prope

How is Refinancing Different From Getting an Original Mortgage


Mortgage refinancing is the process of getting a new home loan to replace an existing one. You’ll fill out a new mortgage application and the bank will check your credit. But although refinancing and getting an original mortgage are basically the same process, there are slight differences between these transactions.

1.You need at least 5% equity for a refinance

If you apply for a traditional refinance, your property will need at least 5% equity. There are no rules on the amount of equity needed when getting an original mortgage, although you can’t get an original mortgage for more than the value of a property.

When you buy a house, your mortgage lender sends an appraiser to the home. If the appraiser determines that the house is worth $200,000 and you agreed to a sale price of $200,000, you can proceed with the mortgage despite having minimum equity. This isn’t the case with a traditional refinance.

There are options for refinancing a property with little or no equity. If you’re eligible for the Home Affordable Refinance Program (HARP), you can refinance up to 125% of your property’s value. But this option isn’t available to everyone. To qualify, your home loan must be guaranteed by Freddie Mac or Fannie Mae.

2.You don’t need a down payment with a refinance

Typically, a down payment isn’t required when refinancing a mortgage loan, although you can give the bank a down payment. The only time a lender requires money down with a refinance is when the value of a house is less than the mortgage balance.

When you get an original mortgage for a new purchase, the mortgage lender will almost always require a down payment between 3.5% and 5%, depending on whether you’re getting an FHA home loan or a conventional home loan. Some home loan programs do not require a down payment, such as a VA and a USDA home loan. But you have to meet specific requirements to take advantage of these products.

3.You have different options for managing closing costs

There are closing costs regardless of whether you’re getting an original mortgage or refinancing. In some cases, you don’t have to pay closing costs out-of-pocket.

With a refinance, the lender can wrap closing costs into the mortgage loan, or the bank may pay your closing costs if you agree to a higher mortgage rate. Likewise, there are ways to avoid paying your own closing costs when applying for an original mortgage. If you get a conventional or an FHA home loan, both options allow sellers to contribute a percentage to your closing costs. Additionally, an FHA home loan lets you include closing costs in your mortgage balance.

4.Refinancing changes the terms of an original mortgage

One of the biggest differences between these transactions is that refinancing changes the original terms of your home loan. As mortgage rates drop, you can refinance to a lower interest rate and take advantage of a lower monthly payment, which frees up cash for other purposes. Refinancing is also a way to switch to a completely different mortgage product. You can convert an adjustable-rate to a fixed-rate, reduce or extend your home loan term, or switch from an FHA home loan to a conventional loan.

What is an FHA 203K Mortgage?


Since buying a home isn’t cheap, some people purchase fixer-upper houses which lets them get more for their money. These properties typically cost less than move-in ready homes, but often times, buyers need cash to renovate these properties.

Rather than get a mortgage and a second loan to cover the costs of renovations, an FHA 203(K) mortgage allows you to combine a first mortgage with a renovation loan. This FHA home loan product is an affordable choice because it has limited closing costs and you only need a 3.5% down payment. The minimum amount you can borrow for home improvements is $5,000, which can be used for a variety of updates. However, before you submit an application for this loan, there’s a few things you should know.

1. You don’t have to be a first-time home buyer

FHA home loan products are an excellent choice for first-time homebuyers because they require little money down. But you don’t have to be a first-time buyer to take advantage of an FHA home loan, including an FHA 203(K) mortgage. Whether you’re a first-time homebuyer or a repeat buyer, you can get a rehab loan for a fixer-upper.

2. You need a credit score of at least 640

Getting a standard FHA mortgage loan typically requires a minimum credit score between 580 and 620, depending on the lender. In some cases, you can get an FHA home loan with a credit score as low as 500. But if you want to apply for an FHA 203(K) loan to purchase a fixer-upper property, you’ll need a credit score of at least 640.

3. You can finance up to six months of loan payments

Not only does an FHA 203(K) mortgage let you finance the purchase of a property and the cost of renovations in a single loan, you can also include up to six months of mortgage payments in the loan. This is an option if you’re planning extensive renovations and you’re unable to live in the property for several months.

This is a major plus.The ability to finance mortgage payments means you don’t have to worry about paying two house payments at the same time.

4. There are limits to how you can spend the money

If you’re planning to apply for an FHA 203(K) mortgage, you can use funds to update or improve a variety of properties, including condos, single-family homes, and two to four-unit properties. You can purchase appliances, paint and other items to fix up your home. But unfortunately, you can’t use funds from an FHA 203(K) loan to cover the cost of luxury items, such as installing a swimming pool in your backyard, or putting in a tennis court or a basketball court. You can, however, use funds for new siding, a new HVAC system, remodeling the kitchen and bathrooms, adding a second story, and other construction projects such as adding a new patio or deck.

How You Can Benefit From a Reverse Mortgage


If you have a paid off mortgage and you’re over the age of 62, you might be a candidate for a reverse mortgage. A reverse mortgage is a way to get cash without selling your home or applying for a cash-out refinance. You can borrow from your equity, and you don’t have to repay funds until you die or sell the property.

A reverse mortgage is similar to a home equity loan. But unlike a home equity loan, a reverse mortgage doesn’t require prepayment of principal or interest, although you are responsible for homeowner’s insurance and taxes. And since a reverse mortgage is a government product, you’re protected if your home’s value declines. If your loan amount is more than the value of the house at repayment, the government pays the difference.

As a retiree on a fixed income, a reverse mortgage provides cash when you don’t have other options. Here are four benefits of getting a reverse mortgage.

1. Supplement your income

In all likelihood, your income will decrease after retiring. Even if you receive distributions from a retirement account (401(k) or IRA) and income from Social Security benefits, the amount you receive monthly may not be enough to support your current expenses. Rather than downsize to a cheaper home, get a reverse mortgage and use funds to supplement your income. The lump sum you receive can bridge gaps in your budget and provide extra cash to keep your head above water.

2. Home improvements

Homes require ongoing maintenance and repairs. But after retiring, you may lack disposable income to keep up with home maintenance. The good thing about a reverse mortgage is that funds you receive can go toward improving your property. This can include getting a new roof, new siding, updating your kitchen and bathrooms, and taking care of other repairs. If you can manage and easily afford home repairs and maintenance, it’ll be easier to keep the home. And depending on the type of updates you make to the property, using a reverse mortgage for home improvements can raise your property’s value.

3. You never lose ownership of the property

Although you’re borrowing money from your home’s equity with a reverse mortgage, the lender does not take the deed to your property, so you’ll maintain ownership of the home. You can continue to live in the home for as long as you like, and you’re never required to make a mortgage payment or repay the reverse mortgage. If you sell the home, you’ll pay back the loan using proceeds from the sale. If you die, your estate repays the loan. Your heirs can use cash from a life insurance policy, or they can sell the home and pay off the loan.

4. Pay off other debts

If you have credit card debt, an auto loan or other types of debts, a reverse mortgage can simplify your finances and pay off these balances. Using a reverse mortgage to get rid of debt can reduce your monthly expenses and improve cash flow.

What is the Purpose of the Closing Disclosure Form


Settlement or closing is the final stage when buying a property. This takes place after you’ve negotiated a sale price with the seller, and completed the home inspection and appraisal. You’ll attend closing at a title company or a real estate attorney’s office, and upon signing the paperwork, you’ll get the keys to your new place.

Before you get to this point, your mortgage lender is required to give you a Closing Disclosure form at least three days prior to closing. This form is similar to the Loan Estimate you received when you applied for the mortgage. But while the Loan Estimate provides a rough estimate of your loan terms and costs, the Closing Disclosure form has your final terms and costs.

The Closing Disclosure is a new form that borrowers began receiving in October 2015. Prior to receiving this form, they were given a final Truth-in-Lending form and a HUD-1 Settlement Statement. The Closing Disclosure combines information from both of these forms and it’s designed to alleviate any surprises at closing. Borrowers are given sufficient time to familiarize themselves with their loan terms.

The Closing Disclosure form answers several questions about your mortgage loan. It has detailed information about your home loan terms, including your loan amount, interest rate, and your monthly principal and interest payment. You’ll also find information on whether your loan has a prepayment penalty, which is a fee some lenders charge when borrowers pay off their loans within the first three years.

This section also reveals whether the loan has a balloon payment, and you’ll find information about your projected monthly payment, which includes principal and interest, mortgage insurance and taxes, and homeowners insurance. At the bottom of this section, you’ll see information regarding cash you’re required to pay at settlement for the down payment and closing costs.

Buying a house involves spending some of your own money. The Closing Disclosure form has detailed information about your closing costs. The second page of the form has a breakdown of your mortgage-related costs. This includes information on how much your lender charged for the loan origination, the application fee and the underwriting fee. You’ll also receive a breakdown of other fees, such as the appraisal fee, the credit report fee, the tax monitoring fee, the title search fee, the pest inspection fee, etc.

In addition, the second page provides a list of other costs associated with the mortgage. These include government recording fees and transfer tax fees, as well as prepaid items: homeowner’s insurance premium, prepaid interest and property taxes, and homeowner association fees. If you’re selling a property, other costs in this section may include real estate commissions and home warranty fees, if applicable.

The third page has a table that compares the Loan Estimate costs with your final costs so you can see what has changed. This page also has a table that summarizes the transaction and provides additional information about your loan. You’ll learn whether your loan allows assumptions or has a negative amortization feature, plus there’s information about your lender’s policy on late payments and partial payments.

Signs You’re Ready to Upgrade to a Bigger Mortgage


Some people are determined to live their American dream and they’re willing to do whatever it takes to purchase a bigger home. But unfortunately, some of these same people make the mistake of buying more house than they can afford, and they end up house poor.

Only you can decide the best time to upgrade to a bigger home and a bigger mortgage. The problem with upgrading is that we often don’t know what our new costs will be until after we’ve moved into a new place. Nonetheless, there are clues to help you decide the right time to move into a bigger mortgage.

  1. You’re consistently saving money every month

One indication that you’re ready to upgrade to a bigger mortgage is having disposable income and consistently saving every month. You should never upgrade to a bigger mortgage at the expense of saving money. When you move into a bigger house, not only do you have to worry about a higher mortgage payment, but also higher utility costs and maintenance costs.

Closely examine your budget to see how much you’re currently bringing in and compare this with what you’re paying out every month. You should only upgrade if you’re currently able to pay your mortgage with no trouble, and if you have more income than expenses.

  1. Upgrading doesn’t interfere with your ability to continue saving

But even if you currently have enough in your budget to upgrade to a bigger mortgage, make sure you don’t stretch your budget too thin and overextend yourself. People who are house poor typically spend all their money on their mortgage and they don’t have disposable cash to build a cash reserve or save for retirement. Although upgrading to a bigger mortgage may limit how much you’re able to save, it should never interfere with your ability to save.

  1. You’ve paid off some of your debts

The more debt you have, the harder it will be to purchase a bigger home and afford a larger mortgage. You don’t have to be debt-free to buy a house, but if you’re looking to make an upgrade, you owe it to yourself to pay off as much of your consumer debt as possible. This not only increases purchasing power, it also makes it easier to manage higher housing costs.

  1. You have plenty of equity

When considering upgrading to a bigger mortgage, consider how much equity you currently have. Your home is your biggest asset, and your equity can contribute significantly to your net worth. Equity is the difference between what you owe your mortgage lender and the value of your property. The more equity you have in your home, the more cash you’ll walk away with once you sell the property. Depending on your equity, you might be able to put a sizable down payment on another property. If so, you might upgrade to a larger home, yet receive a mortgage payment comparable to what you’re currently paying.

How a VA Home Loan Can Save You Thousands


VA home loans are available to veterans, active duty military service members and qualifying spouses. This loan offers different repayment options like other types of mortgages, including 15, 20 and 30-year terms, plus the option of a five-year adjustable-rate mortgage. But even if you’re eligible for a VA home loan, there’s no rule that says you have to take advantage of this program. You might shop around and research other loans, such as a conventional loan or an FHA home loan. Every loan program has attractive features, but if you’re looking to save thousands on your mortgage, a VA home loan maintains the upper hand.

  1. No money down option

A VA mortgage is one of the best programs around because these loans don’t require a down payment from borrowers, although you’re always free to give your lender cash toward the purchase. A down payment reduces the amount you need to finance and it can help you negotiate a better interest rate. Additionally, skipping a down payment can save you thousands of dollars when buying a home.

Take a conventional loan for example. If you were to purchase a $200,000 house with a conventional loan, you’re required to put down a minimum of 5%, which means you would need at least $10,000 for the purchase. An FHA home loan requires 3.5% down and you would need at least $7,000 for the same loan. Since there’s no down payment with a VA home loan, you can keep your cash reserve and put this money toward other uses, perhaps updating a home to your taste. And the fact that you don’t need a down payment means you can purchase a home sooner. This is an opportunity to take advantage of low mortgage rates and enjoy long-term savings.

  1. Fewer closing costs

There are expenses with every mortgage, and while a VA home loan doesn’t require a down payment, you may have to dip into your wallet to cover your own closing costs. The good news is that getting a VA home loan saves money because the VA limits how much lenders can charge borrowers. Loan origination fees are typical with a mortgage. In the case of VA financing, your lender cannot charge more than a 1% origination fee, and they’re not allowed to charge you for certain costs, such as a brokerage fee, a prepayment penalty, processing fees, a pest and termite inspection, and attorney fees.

  1. No private mortgage insurance

If you don’t mind paying a down payment and your primary concern is getting the lowest mortgage rate, after comparing loans you might find a conventional or FHA home loan with a cheaper rate than the one you were quoted for a VA home loan. However, before you decide to skip a VA loan and choose a different product, it’s important to remember that unless you put down a 20% down payment, you’ll have to pay mortgage insurance with both an FHA home loan and a conventional loan.

The VA doesn’t require mortgage insurance when borrowers purchase with no money down or less than 20% down. This insurance protects your lender in case of default. Annual premiums for private mortgage insurance with a conventional loan can be as much as 1% of the purchase price, and annual premiums are .85% of the purchase price with an FHA loan. Mortgage insurance can add $100-$200 to your mortgage payment every month, depending on your purchase price. If you can avoid this added expense, you can potentially save thousands every year.

Here’s Why a Mortgage Lender May Request Additional Documentation


If you want to buy a house, the sooner you gather your financial paperwork, the sooner you can apply for a mortgage. A home is a major purchase, and since the bank is lending hundreds of thousands of dollars, you’ll have to provide the loan officer with countless documents. In fact, the amount of paperwork involved with a home purchase is more than what most landlords request.

It doesn’t matter who you are or what you do, you’ll have to supply copies of your tax returns for the past two years as evidence of consistent income, plus you’ll need to hand over your pay stubs from the past 30 days. The lender also pulls your credit report and reviews your bank statements for the past two months to get an idea of how much you have in reserves for your down payment and closing costs.

This information is usually enough to assess whether you qualify for a mortgage. But sometimes, underwriters request additional information from borrowers. If this happens to you, there’s no reason to panic. It’s the underwriters job to calculate your risk, and to do this, he needs a complete understanding of your financial profile. If you get a call from the lender requesting additional information, provide this information as soon as possible to avoid any delays.

But what type of additional information may an underwriter request? Here’s a breakdown of possible reasons why your lender may request additional documentation from you.

  1. You have an unusual deposit in your bank account

Your mortgage lender needs to see at least 60 days of bank statements from all your accounts. Getting a mortgage involves closing costs and a down payment, and the bank needs to know how you plan to cover these expenses.

When reviewing your bank statements, the underwriter will specifically look for any unusual large deposits within the past 60 days. If you have suspicious deposits into your account, the underwriter will call and ask for an explanation. Be prepared to provide documentation for any inheritances, settlements, or work bonuses you receive. If you receive a large deposit as a gift for your down payment, the lender will need a gift letter from the giver.

  1. You’ve had a divorce

This might come as a surprise, but if you’re divorced the lender will likely need to see a copy of your divorce decree. It doesn’t matter how long it’s been since the divorce. This information is important because the divorce decree has information that doesn’t appear on your credit report, such as specifics about support payments.

If you’re receiving alimony or paying alimony to an ex-spouse, the lender needs this information to accurately calculate how much you can afford to spend on a property. And don’t think you can hide a divorce from the lender. The bank will run a background check, which will reveal past martial statuses.

  1. You’re not a U.S. citizen

When applying for a mortgage, the lender will typically only ask for a copy of your drivers license and you’ll have to provide your Social Security number on the application. Understand, however, that if you check the box stating that you’re not a U.S, citizen, the lender will request a copy of your birth certificate.

  1. You’re self-employed

If you’re self-employed, lenders will use your previous two year’s tax returns to determine mortgage eligibility. However, some lenders may also request a year-to-date profit and loss statement. This is more likely to happen if you’re purchasing a property after the first quarter of a new year. Since you don’t have paycheck stubs like an employee, the lender uses this statement to verify your current income.

  1. You’ve had a short sale, bankruptcy, mortgage modification, etc.

A lender may also request additional documentation if you’ve had a previous short sale, bankruptcy, mortgage modification or foreclosure. This information appears on your credit report, but the lender may need to know specifics about the transaction. So don’t be surprise if the underwriter requests a settlement statement for a short sale, trustee sale information for a foreclosure or statements that explain the details of a mortgage modification and bankruptcy.

What Happens to a Mortgage in Divorce


Divorces are complicated and messy, especially when spouses have to divide assets and reach other financial agreements. If you owned a home together, you have to make decisions regarding the mortgage. Getting a divorce doesn’t automatically dissolve a home loan. So it’s important to understand your options.

1. Sell the house

Selling a home is one of the fastest ways to dissolve a joint mortgage, so that neither party is responsible for the property. The problem, however, is that there’s no way to predict how long it’ll take to sale the property. It could sell in a couple of weeks or a couple of months, which means you could be married to the mortgage long after the divorce finalizes. But once the house sells, you can split the profit and go your separate ways.

2. Refinance the mortgage and keep the home

Sometimes, one spouse chooses to keep the family home after a divorce. This is doable, but it can get tricky when there’s a joint mortgage involved. If both of your names appear on the mortgage, and one of you decides to remain in the home, the person who remains will have to refinance the property in order to remove the other’s name from the mortgage and deed.

This process isn’t as simple as it might sound. The spouse remaining in the home has to apply for a new mortgage to replace the old one, and qualify for the mortgage using his or her own income, credit and assets. A mortgage lender will not approve a refinance unless the borrower has sufficient income to manage the payments without a joint borrower’s income.

3. Sign a quit claim deed

Understand that refinancing a mortgage doesn’t remove an ex’s name from the deed. It only removes his or her name from the mortgage loan. To take an ex-spouse’s name off the deed, this person will have to sign a quit claim deed to relinquish ownership of the property. This form should only be completed and signed after a lender approves your refinancing. Your ex-spouse must attend the loan closing and sign the quit claim deed in front of the lender. The document is notarized and processed with the loan paperwork.

4. Request a short sale or a deed in lieu of foreclosure

Selling is often the most logical solution, but finding a buyer can be challenging, especially if property values have fallen and you owe more than the property is worth. If you can’t sell or refinance the property, ask your lender about a short sale or a deed in lieu of foreclosure, which are alternatives to foreclosure. A short sale lets you sell the property for less than you owe, and with a deed in lieu of foreclosure, you voluntarily transfer ownership of the home back to the bank.

Both actions damage your credit, but the damage is typically less severe than an actual foreclosure proceeding.