Three Reasons Why Your FHA Loan Was Rejected


FHA home loans, which are insured by the Federal Housing Administration, are an alternative to conventional financing and an attractive option for first-time home buyers, although anyone can apply.

These loans are sometimes easier to get than conventional loans, but this doesn’t mean everyone who applies for an FHA loan is approved for financing. Like any mortgage loan, there are minimum requirements, and your FHA loan may be rejected if you don’t fit the criteria.

1.You have a credit score below 620

One advantage of an FHA home loan is that the program only requires a minimum credit score between 500 and 580. This opens the door to homeownership if you’ve had credit problems in the past. But while it is possible to get an FHA loan with a credit score as low as 500, mortgage lenders that offer FHA products can set their own minimum credit score standard, and some lenders don’t approve applicants with scores lower than 620, regardless of a particular program’s minimum requirement.

The upside is that while one lender might reject your FHA home loan application, another lender might approve your loan. Before applying for a mortgage, check your credit report and credit score. If you have a credit score below 620 and you’re considering an FHA loan, speak with multiple lenders and ask about their minimum credit score requirement.

2. You don’t have a down payment

Although FHA home loans are insured by the government, this doesn’t mean you can purchase a home without a down payment. This loan isn’t like other government products that don’t require a down payment, such as VA home loans and USDA home loans.

FHA home loans require a minimum down payment of 3.5%. If you apply for a loan without enough in reserves for a down payment, the bank might reject your application. Your request for an FHA home loan might also be rejected if you don’t have enough reserves to pay closing costs, which can be as much as 2% to 5% of the sale price. Fortunately, FHA home loans allow sellers to pay up to 6% of a buyer’s closing costs.

3. Your debt-to-income ratio is too high

When determining whether you qualify for a mortgage loan, the lender calculates your debt to income ratio to make sure you’re not carrying too much consumer debt. You don’t have to be debt-free to get a mortgage, but if auto loan payments, personal loan payments and minimum credit card payments take a chunk of your income, this can reduce purchasing power and jeopardize a mortgage approval.

One advantage of an FHA loan is that the program allows for a higher debt ratio. With a conventional loan, your total monthly debt payments including the mortgage shouldn’t exceed 36% of your gross income. With an FHA home loan, your monthly debt payments including the mortgage can be as high as 43% of your gross income. This isn’t a hard or fast rule. So if your debt to income ratio is higher than 43%, the lender may still approve your application, but only if you’re well-qualified in other areas. This includes a credit score of at least 680 or higher, three month’s of mortgage payments in reserves or a history of on-time mortgage payments. Keep in mind, however, you’re not likely to get an FHA loan if debt payments are greater than 45% of your gross income.

What is the Right of Rescission


Most of us have experienced buyer’s remorse. Fortunately, when you purchase an item from a store, you can change your mind and return the item within 30 to 90 days for a refund or exchange. You might not associate a return policy with a mortgage, but if you refinance a home loan, you may have the right of rescission, which means you can cancel the loan after signing the documents.

What is the Purpose of a Mortgage Refinance

Mortgage refinancing is a common real estate transaction and involves applying for a new mortgage to replace an old mortgage. You can refinance to take advantage of a lower interest rate, convert an adjustable-rate mortgage to a fixed-rate, or you can refinance and remove someone’s name from a mortgage loan. Whatever the reason, you’ll need to complete a new home loan application and wait until the lender reviews your income, credit and supporting documentation.

The Right of Rescission

It can take up to 30 to 45 days to close on a mortgage refinance, and during this time, you can cancel the loan at anytime. However, the right to change your mind doesn’t end upon signing the closing documents.

When you refinance a mortgage loan, you have three days to rescind, at which point the lender must cancel the mortgage transaction and refund any lender fees you’ve paid. This includes the credit report fee, the title search fee and loan origination fees. The right of rescission begins at midnight the day after you sign the mortgage paperwork, and ends at midnight on the third business day.

As a borrower, you can rescind if you’re not happy with the loan. Maybe you felt pressured by your mortgage lender to proceed with a refinance, or you might second-guess the mortgage terms. Whatever the reason, you can get out of the refinancing without penalty.

What You Should Know About Rescissions?

If you decide to rescind your mortgage, notify your lender in writing within the three-day period. It’s important to note that while the right of rescission applies to mortgage refinances, it doesn’t apply to new purchase transactions. If you’re buying a property, by the time you get to the closing table the seller has likely already found another place to live, moved out of his old home and secured a new mortgage. Therefore, you need to make sure you understand and agree to your mortgage terms before signing the paperwork for a new purchase.

There are other situations when the right of rescission doesn’t apply. This right is only for owner-occupied homes. So you can’t exercise this right when buying or refinancing a vacation home or an investment property. The right to cancel also doesn’t apply when refinancing a mortgage with your original lender. The only exception is if you’re getting a cash-out refinance, which involves borrowing cash from your equity and getting a lump sum at closing. In this case, the cash-out portion is eligible for rescission.

Five Things You Didn’t Know About Getting a Mortgage

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Getting a mortgage can be intimidating, but you don’t have to go through the process alone. You’ll work closely with your loan officer who can answer your questions and explain each step. But although you’ll have the guidance of a loan officer, it’s important to conduct your own research before you meet with a lender.

Even if you don’t have immediate plans to purchase a home, it’s never too early to prepare for the buying experience. There’s a lot you may not know about mortgages. However, the more you know, the less surprises you’ll have during the application stage.

Here are five things you don’t (but should) know about getting a mortgage.

  1. Lenders use the lowest of your three credit scores

You may already know that you have three credit scores, and you probably know that the lender will pull all three of your credit reports. What you may not know, however, is that many mortgage lenders use the lowest of your three credit scores to determine your interest rate. This isn’t a problem when all three of your credit scores are high. But if two of your credit scores are barely over 680 (which is considered a good score) and one credit score is at 660 (which is considered a fair score), the lender will base your rate on the lower score, which means you could pay a slightly higher mortgage rate.

  1. It can take up to 45 days to close on a mortgage

Years ago, it wasn’t unusual to purchase a house and close on the mortgage within two to three weeks. It’s a much slower process today, and it can take on average between 30 and 45 days to close on a mortgage. You might close sooner, but only if the lender doesn’t have many closings ahead of yours.

  1. There are ways to avoid private mortgage insurance

If you’ve educated yourself on home buying and mortgages, then you’re probably aware that conventional lenders require private mortgage insurance when a borrower puts down less than 20%. The good news is that there is a way to put down less and avoid private mortgage insurance.

Some banks offer piggyback financing where you make a 10% down payment and then receive a first mortgage for 80% of the purchase price and a second mortgage for 10% of the purchase price. With this type of financing, you’ll avoid the extra expense of private mortgage insurance, which has an annual premium as high as 1% of the loan balance. The downside is that piggyback financing requires 10% down, which is more than the minimum 5% down required for conventional financing.

  1. You can refinance an underwater mortgage

If you owe more than your home’s worth, a mortgage lender might reject your application for refinancing. Some banks do not refinance upside down home loans. There are, however, lenders who offer refinancing through the Home Affordable Refinance Program (HARP) which allows refinances up to 125% of a home’s value. Because of this provision, underwater or upside down homeowners can take advantage of lower mortgage rates and lower monthly payments. To qualify for HARP, your mortgage must be guaranteed by Freddie Mac or Fannie Mae.

  1. Cosigned debt can affect a mortgage approval

Some people don’t completely understand the consequences of cosigning a loan for another person. Since a cosigned debt appears on your credit report and you’re responsible for this debt if the primary signer stops paying, mortgage lenders have to factor in this monthly payment when determining how much you can afford to spend on a property. And unfortunately, a cosigned debt can affect your ability to get a mortgage, and reduce the amount you’re able to borrow.

Understanding the Underwriting Process


You’ll work closely with your loan officer after applying for a mortgage. This person can take your information for the application, review the Loan Estimate with you, and answer your questions. But your loan officer isn’t the decision maker—the underwriter is.

The underwriter is the unseen person in the application process, and it’s this person’s job to review your application and decide whether you’re a good candidate for a mortgage loan. The underwriting process isn’t a simple or quick process completed in 20 minutes. It’s a much more complex stage than some people realize. But if you understand how underwriting works, you’ll know what to expect from the lending process.

Getting Your Loan Estimate

The first step to getting a mortgage is getting a Loan Estimate from your loan officer. This is a new form that replaced the Good Faith Estimate and the Truth-In-Lending Disclosure. This three-page document provides information about your loan amount, the interest rate, your projected monthly payment, plus there’s an estimate of how much cash you’ll need at closing. With the estimate, you know what to expect with your mortgage.

You receive the Loan Estimate before an underwriter receives your loan package. Your loan officer will provide this document within three days of receiving your application, and you have 10 days to review the paperwork and decide whether to proceed with the loan.

The Loan Estimate isn’t an official approval. In fact, you get this form before you provide the lender with supporting documentation for the mortgage. You can get a Loan Estimate as long as you provide your name, stated income, Social Security number, address of the property, loan amount, and the estimated value of the property.

It’s only after you decide to proceed with a loan that the loan officer requests copies of your bank statements and most recent tax returns. Once you’ve provided supporting documentation, the loan officer sends your application to underwriting.

What Does an Underwriter Do?

An underwriter has one of the most important jobs in a mortgage office. Their job is to make sure there are no false claims, and to determine if you meet the qualifications for a loan.

The underwriter combs through your credit report and takes into account your credit score and how much you owe elsewhere. Affordability is important when buying a house. Typically, a mortgage loan should not exceed 28% of your gross income for a conventional home loan, and up to 31% for an FHA home loan. The underwriter must determine whether your income can support monthly payments for a home loan.

The underwriter will study your tax returns for the past two years, as well as contact your employer to confirm that you work for the company and to verify your income. The lender will also request your tax return transcript directly from the IRS. If you are self-employed, the underwriter may require additional information, such as a year-to-date Profit and Loss statement.

The underwriter approves the loan if you meet the requirements and qualifications, but the process isn’t over yet. The bank will also schedule an appraisal on the house you’re buying or refinancing. The purpose of the appraisal is to learn the value of the property. As a rule, the bank will not lend more than a property’s worth.

The Takeaway

The underwriting process can take a few days or several weeks, depending on how many applications are ahead of your. It’s also important to note that it isn’t unusual for the underwriter to have questions for you. Don’t panic. The good thing about getting a mortgage is that your situation doesn’t have to be perfect. If you respond to the underwriter’s questions in a timely manner, and provide all necessary documentation, you shouldn’t have a problem.

How Does a Late Payment Affect Your Credit


A mortgage is considered good debt, and having a mortgage on your credit report is a sign of financial stability. However, a mortgage only contributes to your financial health when you manage it responsibly. This includes borrowing what you can afford and making your payments on time. But even if you have every intention of being responsible with a home loan, you might submit a late payment.

Whether you accidentally forget about your mortgage, or you pay late due to financial hardship, a late mortgage payment has repercussions. Here is what you can expect from a late payment.

Your Lender May Charge a Late Fee

Mortgage payments are due on the first of every month with a 15-day grace period. If you don’t pay your mortgage within the grace period, you’ll be charged a late fee. The late fee can be as much as $40-$50, depending on the lender.

A late fee adds to your mortgage expense because you’re required to pay the late fee along with your monthly payment. But although a late fee is a financial blow, missing a mortgage payment by only a few days doesn’t affect your credit.

Because of how credit reporting works, mortgage lenders cannot report a late payment to the credit bureaus until a borrower’s payment is 30 days past due. For that matter, you don’t have to stress about your credit if you accidentally forget a payment.

But what if you’re having ongoing financial hardship and your mortgage becomes 30 days past due? What can you expect?

Credit Damaged Caused By a Late Payment

Unfortunately, being 30 days or more late on your mortgage will have an impact on your credit score. The gravity of the impact depends on different factors, such as the number of days you’re late and your credit score before defaulting. Typically, the higher your credit score, the more points you’ll lose. For example, if you had a 780 credit score before you were 30-day past due, your FICO score might drop as much as 90 points. But if you had a 660 credit score prior to being 30 days past due, your FICO score may only drop 60 points. Either way your credit score suffers and it’ll take time to recover.

It might take as long as three years to recover from damage caused by a mortgage that’s 30 days past due, and seven years to recover from damage of a payment that’s 90 days past due.

What Can You Do?

The best way to protect your credit is to avoid a late mortgage payment. Of course, we’re sometimes victim of circumstances. But you can reduce the likelihood of mortgage payment problems by purchasing a home within your means—even if it means spending less than your pre-approved amount. This way, you can have a financial cushion and build your cash reserve, which can help keep your head above water during hard times. Ideally, everyone should have at least three to six month’s income in reserves. If you can’t save this much, aim for at least three month’s of mortgage payments in reserves.

Home Buying Mistakes that Can Hurt Your Retirement


As you look ahead to the future, you might be somewhat apprehensive about retirement. On one hand, you look forward to this time in your life. But on the other hand, you worry about having enough income after leaving the workforce. These type of concerns are understandable; and the fact that you’re thinking ahead proves you’re financially savvy.

The truth is, some of the decisions you make today will have a tremendous impact on your later years. And while you may not draw a connection between buying a home and retirement, the way you approach homeownership can affect your future. And unfortunately, some home buying mistakes can hurt your retirement.

  1. Buying too much house

You work hard, so it’s understandable why you’d want to purchase your dream house. Home is a haven, and you deserve to have everything you’ve always wanted in a house—your own private paradise. But it’s also important not to buy “too” much house.

You shouldn’t buy a house at the expense of saving for retirement. Retirement planning should be a priority. The earlier you start saving, the better. A mortgage lender may approve you for a large amount, but you need to ask yourself an important question: Will spending more and buying a larger home interfere with my ability to prepare for retirement?

Putting all your money into a house is dangerous because you may have little—if anything—left to prepare for the future. Sometimes, less is more.

  1. Tapping your retirement account for a down payment

If you have a 401(k) or an individual retirement account, you’re allowed to borrow money from these accounts as down payment on a house. But although the money is available, make sure you weigh the pros and cons.

Taking money from a retirement account reduces earning potential. As a result, there’s a chance you’ll retire with less than you need. Unless, of course, you’re disciplined and able to repay what you take. If you’re young, you might have plenty of time to repay yourself and keep your retirement plan on track. But if you’re middle-aged or retiring in the next 10 or 15 years, consider other ways to get funds for a down payment. For example, some community banks offer portfolio loans which require zero down, or you may qualify for local grant programs that offer down payment and closing costs assistance. Talk with your lender or realtor for information.

  1. Paying off a mortgage early

Paying off a mortgage before retiring can significantly reduce your monthly expenses, which means you won’t need as much income in retirement. This can remove some of your financial stress, allowing you to retire without the heavy burden of a mortgage on your shoulders. However, you should only pay off a mortgage early when extra payments don’t interfere with retirement planning. The same way you shouldn’t buy “too” much house at the expense of your retirement account, you shouldn’t pay off your mortgage at the expense of your retirement account.

Rather than put extra money toward paying off a mortgage early, you could put this extra money toward maxing out IRA or 401(k) contributions. This approach can grow your retirement account substantially, providing enough income to sustain you after retiring.

Five Questions to Ask Before Committing to a Mortgage


A mortgage loan is a major commitment. It’s not like a credit card which you can pay off and cancel the account, nor is it like an auto loan which can be paid off in only five years.

Home loans are a 30-year commitment, on average. The only way to get out of a mortgage is to sell the property or refinance the loan, which aren’t simple processes. So before agreeing to a mortgage, you need to be absolutely sure about your decision.

Here are five questions to ask before committing to a mortgage loan.

  1. What are my mortgage costs?

Recent changes in the mortgage industry now require loan officers to provide borrowers with a Loan Estimate, which removes any surprises about mortgage-related costs. This document explains all the figures you need to know, including the mortgage amount, your interest rate, the down payment, and what you can expect to pay at closing. You’ll review the document with your loan officer. From this meeting, you can decide whether you’re prepared for the cost of buying a home, and if you are, you can expressed your intent to proceed with the home loan.

  1. How does this mortgage compare to other types of loans?

There are different mortgage loan products available, and it’s important to know how these loans compare to each other. You might automatically pick a conventional loan thinking it’s the best choice. Yet, an FHA, USDA or a VA home loan might be a better fit, if you’re eligible for these programs.

Your loan officer can provide information on different loans, and the requirements for these programs. This includes down payment requirements, credit requirements and other requirements, such as those related to seller concessions. If you don’t have money to pay your own closing costs, you can ask the seller to pay these expenses for you. However, each mortgage program limits how much sellers can contribute to a buyer’s closing costs.

  1. Is there a way to lower my costs?

If mortgage-related costs are higher than anticipated, ask your loan officer about ways to lower your costs. The lender will assign an interest rate based on your down payment and credit history. But you might qualify for a better rate—which can reduce your overall mortgage costs— if you put down a larger down payment, or if you improve your credit, such as by paying off credit card debt to improve your credit utilization ratio.

  1. Can I afford the monthly payment?

This is a question only you can answer. It’s true that the bank determines the max you can borrow for a house. But this doesn’t mean you should borrow at the top of your budget. Take a look at your entire financial picture and decide what you can reasonably afford. Remember, the loan officer and underwriter aren’t paying the mortgage every month—you are. Borrowing more than you can afford increases the likelihood of experiencing mortgage payment problems.

  1. Can I lock my rate?

Mortgage rates can change at any hour, minute and second of the day. For that matter, your mortgage lender will give you an opportunity to lock your rate. This guarantees that you’ll receive a particular rate at closing. There is, however, a right and a wrong time to lock your rate.

Since rate locks expire within 45 to 60 days, you don’t want to lock the rate too soon. You should only lock your rate if you plan to close on a property within the rate lock period, or else you may have to pay to re-lock the rate. Rate lock fees vary by lender.

Why Home Sellers Should Pay a Buyer’s Closing Cost


Both buyers and sellers have expenses in a real estate transaction. As the home seller, your biggest cost is the real estate agent’s commission, plus you’ll have to cough up cash for attorney fees, the title transfer fee, and the termite and moisture report. But since these costs are typically deducted from the profit, chances are you won’t need to bring cash to closing. It’s a different story for home buyers.

Buyers pay a variety of closing costs, which can range from 2% to 5% of the sale price. These include the loan origination fee, the appraisal, credit report fee, title search fee and a host of other mortgage-related expenses. Some buyers also pay their own closing costs, but others ask home sellers to cover this expense.

You may feel it’s not your responsibility to pay a buyer’s closing costs. They’re the ones purchasing the property and getting the loan, so it only makes sense that they pay their own costs, right? Your feelings are just. But don’t quickly reject the idea of paying a buyer’s closing costs. Here’s why.

  1. Paying the closing cost increases interest

Buying a property is expensive. And saving money for both a down payment and closing costs is too much for some buyers to handle. They go into the process with the intent of asking the seller to cover their costs.

You’re not required to pay a buyer’s closing costs. However, agreeing to pay these costs can result in a faster sale. If you don’t offer this type of assistance, the buyer will move on and find a seller who will. Of course, if you’re not in a huge rush to sell the property, you can always hold off and wait for a buyer that doesn’t need assistance. But if you need a fast sale, offering this concession can peak a buyer’s interest.

  1. You have plenty of equity

In most cases, offering to pay a buyer’s closing costs isn’t an out-of-pocket expense for you. The money is taken directly from your profit. So if you have plenty of home equity, paying this expense shouldn’t create too much of a financial hardship. However, before agreeing to pay closing costs, do the math and assess how much you need to walk away with. This is especially important if you’re putting the profit toward a payment on your next place. Remember, the sale price of the house must be enough to cover the mortgage payoff and the realtor’s commission. If you agree to paying a buyer’s closing costs prematurely, your net profit could be less than anticipated, and you could end up paying the buyer’s expense out-of-pocket.

  1. You don’t have to pay all of the closing costs

Agreeing to assist a buyer with closing costs doesn’t mean you have to pay “all” of their expense. The more you offer, the faster your home may sell. Still, only offer what you can afford. A borrower may ask for $6,000 in closing cost assistance, but you can counter and only offer $3,000 in assistance. The good news is that different mortgage programs limit how much you’re allowed to contribute in seller concessions. You can contribute up to 4% with a VA loan, up to 3% with a conventional loan and up to 6% with an FHA loan.

How to Increase Borrowing Capacity When Buying a House


Different variables affect borrowing capacity when applying for a mortgage loan. Loan officer and underwriters take different factors into consideration, such as your income and current debts, and then determine what you can realistically afford. Unfortunately, some borrowers are pre-approved for less than anticipated. The good news is that there are ways to increase borrowing capacity and qualify for a larger mortgage.

  1. Claim more of your income on your tax return

When applying for a mortgage loan, the lender will not only request your most recent paycheck stub, the bank also looks at your tax returns from the past two years and uses the average of both years to decide how much you’re eligible to receive.

At the end of the day, it doesn’t matter how much you “say” you earn, lenders determine qualifying amounts based on what’s on paper, so it’s important to claim a sufficient amount of income. This is especially important if you’re self-employed and write off several business expenses. While your business expenses may be legitimate and allowed, the more expenses you write off, the lower your income appears on paper.

If you’re planning to buy a house in the next couple of years, consider limiting your number of write-offs to boost your net profit. You’ll pay more in income taxes for these years, but a higher income makes it easier to qualify for a mortgage and increases borrowing capacity.

  1. Add your spouse to the mortgage

If you’re the breadwinner and your spouse only works part-time, you might look into getting a mortgage in only your name. This is an option, but if your income alone limits borrowing capacity, considering adding your spouse’s name to the mortgage. Even if your spouse earns a lot less than you, a joint mortgage can work in your favor. This is because the lender will use your combined incomes to determine how much you can afford.

Of course, the bank will also pull your spouse’s credit score and use the lower of your two numbers to determine the mortgage rate. Therefore, it’s only a good idea to add your spouse to the mortgage if he or she has good credit.

  1. Lower your debt

Paying off credit cards and other loans also increase borrowing power. The amount you receive for a home purchase is affected by how much you owe elsewhere. Your total debt payments (including the mortgage payment) should not exceed 36% to 43% of your gross income. If you have auto loans, high credit card payments and personal loans, these debt payments can push your total debt-to-income ratio close to or over the limit, which affects how much you receive from a mortgage lender. For example, after looking at your current debts, a lender may conclude that you can only afford to pay $1,000 a month for a mortgage. However, if you paid off some of these debts, you might increase borrowing capacity by a couple hundred dollars a month, helping you afford a mortgage of $1,200 or $1,300 a month.

  1. Increase your credit score before applying for a mortgage

Getting the lowest mortgage rate possible can increase borrowing capacity. One of the best ways to ensure a low rate is to improve your credit score before borrowing. You can qualify for a mortgage loan with less than perfect credit. You only need a score of 620 for a conventional loan, and a score of 500 for an FHA loan. Just know that a low credit score can result in an interest rate that’s one or two percentage points higher than the rate offered to someone with excellent credit. A two-percent difference increases your mortgage payment and limits how much you’re able to borrow.

  1. Choose the right kind a mortgage

You can also increase borrowing power by selecting the right type of mortgage loan. Traditionally, home loan payments with a conventional mortgage cannot exceed 28% of a borrower’s gross income. If you were to apply for an FHA home loan, you can get a mortgage payment up to 31% of your gross monthly.

Five Misunderstandings About FHA Home Loans

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As you explore mortgage options, you may think a conventional loan is the only way to go. There are, however, a plethora of loan programs available. Getting a mortgage approval can be a complicated process, especially since it involves adhering to strict lending standards. FHA home loans make it easier to realize your dream, but there are some misunderstandings about this home loan program.

  1. FHA isn’t a mortgage lender

FHA home loans are guaranteed by the Federal Housing Administration. It’s important to know, however, that the FHA does not lend money. To get this type of loan, you will have to submit a home loan application through a mortgage lender. The key is choosing a mortgage lender that offers FHA financing. The bank underwrites your application and lends funds, but the FHA protects your lender if you default on the loan.

  1. FHA home loans require a high credit score

Some people do not apply for a mortgage because they think their credit score isn’t high enough to qualify. You can get a conventional loan with a credit score as low as 620, although you’ll need a credit score of at least 680 to 700 to get a favorable interest rate. The good news is that you can get an FHA home loan with a credit score as low as 500 to 580, depending on the lender. So even if you’ve made a few credit mistakes in the past and you’re slowly rebuilding your credit history, you may qualify for financing as long as your credit has been outstanding for the past 12 months.

  1. FHA home loans require 20% down

If you believe buying a house requires a 20% down payment, this misconception will keep you on the sidelines and delay a home purchase. Although 20% is the traditional down payment amount for a home, there are programs that require much less. FHA is one of these programs. These loans only require 3.5% down.

  1. You have to be a first-time homebuyer

Since FHA home loans have lower credit score and down payment requirements, some people think these loans are only available to first-time homebuyers. This couldn’t be farther from the truth. These loans are an excellent match for first-time homebuyers and repeat homebuyers. You can also refinance from one FHA mortgage to another FHA mortgage, or refinance from a conventional mortgage to an FHA mortgage.

  1. FHA doesn’t have income limits

Additionally, there are no income limits with FHA home loans. There’s also a misconception that these loans are specifically for low-to-moderate income borrowers. However, anyone can apply for financing regardless of their income level, providing they meet the bank’s lending requirements and earn enough to afford the mortgage payment. There are FHA loan limits, however. These limits vary by state and depend on the type of dwelling (i.e. one-family home, two-family home, etc.). The limit for a one-family home can be as low as $271,050 or as high as $625,500.

What Does It Take to Get a VA Home Loan


It is important to understand how different mortgage programs work. A mortgage loan officer or broker can point you in the right direction. And after getting a clear picture of your financial situation, your loan specialist may recommend a VA home loan. These loans are ideal because they feature no money down and you don’t have to pay private mortgage insurance—a major plus if you have limited resources.

Here are five steps to buying a home with a VA loan.

  1. Determine eligibility for this program

VA home loans are one of the cheapest mortgages available. But unfortunately, not everyone qualifies for these loans. VA home loans are guaranteed by the U.S. Department of Veterans Affairs. But to be eligible for financing, you have to be a veteran, active-duty military, a reservist or the spouse of an eligible service member. Before you can apply for a VA home loan, your lender will confirm eligibility for this program. Lenders offering VA financing can assess VA records electronically to confirm your service record.

  1. Apply for a loan

In many cases, a lender can confirm eligibility in a matter of minutes. Once this information is received, you can fill out a loan application to get pre-approved for a mortgage. Although the VA guarantees funds, your lender provides the funds. The pre-approval process can take days or weeks, depending on the lender’s backlog of mortgage applications. You’ll need to hand over your recent paycheck stubs, tax returns for the previous two years and bank statements for the past two months so the bank can review your assets. An underwriter will check your credit and evaluate this information to determine if you’re eligible for financing. Your pre-approval letter states the max you can spend on a property and your interest rate.

  1. Sign up for pre-purchase counseling

The VA offers free counseling to help you prepare for home ownership. You’ll learn your responsibility as a borrower, debt management and other financial tips. Pre-purchase counseling is not a requirement for a VA home loan, but it is worth consideration, especially if you’re a first-time home buyer. You can complete pre-purchase counseling online.

  1. Wait for an appraisal and home inspection

After you find a property and a seller accepts your offer, the next step is a home inspection and appraisal. A home inspection isn’t required, but recommended. A home inspector conducts a thorough inspection of the property, including the interior, exterior, electrical, plumbing, appliances, HVAC system, roof and foundation. The inspection can reveal problems with the property. You can include a clause in your purchase stating that the sale is contingent on a clean inspection report. If the home requires maintenance or repairs, you can request that the seller addresses these issues before closing, or you can ask the seller for a credit toward repairs.

After the home inspection, your VA lender will send an appraiser to the property to assess the home’s condition and value. This is an important process because the bank will not lend more than a home’s value.

  1. Attend closings

Closing times vary. If the lender doesn’t have many applications ahead of yours, you might be able to close in as little as two to three weeks. But if there’s a backlog, it might take as long as 45 days. Closing is the last stage and it can be exciting and stressful. Your mortgage lender will send your paperwork to the closing agent. This is where you sign the documents and get the keys to your new home.

Three Ways to Be Mortgage-Free Before Retiring


Regardless of whether retirement is 10, 20 or 30 years off in the future, the earlier you start planning, the better off you’ll be financially. Planning can include enrolling in an employer’s 401(k) or opening an individual retirement account. And with regard to expenses, you may set a goal of paying off your mortgage before retiring.

Some may argue that rushing to pay off a mortgage before retirement isn’t the best idea. Keeping a mortgage means the ability to write off mortgage interest, which can reduce your taxable income now and once you retire. Rather than pay off a home, some also argue that it is better to contribute extra funds to a retirement account and build a bigger nest egg.

Only you can decide the best approach for your money. However, paying off your mortgage doesn’t interfere with retirement planning, eliminating this expense could be the smartest move to secure your future.

The truth of the matter is, your income is likely to decrease after you retire. If you bring a mortgage into retirement, the expense could be too much for your income, and you may have to downsize or sell the house to make ends meet.

If you want to remain in your house after retiring, make choices that’ll result in the least amount of expenses. Here are three ways to be mortgage-free before retiring.

  1. Get a biweekly mortgage

With a biweekly mortgage, you pay one half of your mortgage payment every two weeks. This results in one extra mortgage payment a year. Although a simple move, this payment schedule reduces the amount of interest you pay and can decrease your mortgage term by up to seven years.

If you don’t want to commit to a biweekly schedule, choose a regular schedule and make extra principal payments. Additionally, if you purchase a house later in life and you don’t want a 30-year mortgage, review your budget to see whether you can afford a 15-year or a 20-year mortgage. You’ll not only pay off the mortgage balance sooner, a shorter terms helps you build equity faster.

  1. Refinance your mortgage

If you’re adamant about paying off your mortgage before retiring, another option is refinancing the mortgage to take advantage of a lower interest rate and a lower monthly payment. But instead of refinancing for another 30 years, select a term that’s closest to the remaining term on the mortgage. So if you’re already 10 years into paying off the loan, refinance the mortgage for only 20 years to maintain the same pay off schedule. If you qualify for a lower interest rate, your mortgage payment will decrease. Rather than make the smaller payment, continue to pay the original mortgage amount, but apply extra funds to the principal only.

  1. Don’t borrow from your equity

If you have substantial home equity, it can be tempting to get a second mortgage or a cash-out refinance. Just know that borrowing against your home’s equity increases your mortgage debt and reduces your home equity. The more second mortgages you receive, the longer it’ll take to pay off your house, and you’re more likely to carry mortgage debt into retirement.

Should You Apply for a Mortgage Without Your Spouse?


There’s no rule that says spouses have to put both of their names on a mortgage. It’s perfectly okay for only one spouse to apply for a home loan. In this case, both names can still appear on the deed.

If only one spouse works and the other is a stay-at-home dad or mom, the question of who will apply for the mortgage may not be up for debate. But what if both spouses work and generate income? Is it better to have one or both names on the loan? The answer depends on the situation

Benefits of a Joint Mortgage

Before deciding whether to have both your names on the mortgage, you need to understand the benefits of a joint mortgage. When applying for any type of loan, including a mortgage, qualifying amounts are largely based on a borrower(s) income. In the case of a mortgage loan, the house payment can be no more than 28% to 31% of a borrower’s gross monthly income. This percentage includes principal, taxes, interest, insurance and homeowner association fees.

One of the perks of applying for a mortgage with your spouse is that the lender uses your combined income to determine affordability. If you earn $45,000 a year and your spouse earns $20,000 a year, you’ll qualify based on $65,000 a year. This increases purchasing power, allowing you to buy more house. Getting a joint mortgage may seem like a no-brainer, but there is a sound reason to only have one person’s name on the loan.

How Credit Scores Affect Mortgage Rates and Approvals

Not only will the mortgage lender look at both incomes, the lender also looks at both of your credit scores. There is a misconception that when two people apply for a mortgage the lender uses the average of both credit scores to determine eligibility and the interest rate. This, however, is a myth.

Your credit scores say a lot about your credit habits; and the reality is, a low credit score can disqualify you from getting a mortgage, or result in a higher interest rate. If you and your spouse apply for a mortgage together, the lender pulls both scores, but only uses the lowest score for qualifying purposes. So if you have an 820 credit score and your spouse has a 620 credit score, your mortgage rate will be based on the lowest of the two scores, which means you could end up paying a higher interest rate. What’s worse, if the lowest of the two scores is below the bank’s minimum credit score requirement, your application may be rejected, despite the fact that one person has a high score.

Should You Include Your Spouse on a Mortgage?

Applying for a mortgage together can possibly result in a bigger loan. But if you know your spouse has a poor credit score, you might consider applying for a mortgage in only your name, at which point the lender only uses your income and credit score.

Of course, this may not be an option, especially if your income alone isn’t enough to qualify for a home loan. But if you’re in a position to get a mortgage without the help of your spouse, getting the mortgage in your name only can help you receive the most favorable interest rate, which can save you thousands over the life of the loan.

Mortgage Rates Explained


Understanding mortgage interest is important when buying a house. But some borrowers don’t realize the impact interest rates have on financing. Getting an affordable mortgage isn’t only about the sale price of a home, it also has a lot to do with your interest rate.

Interest is the cost of borrowing money. A low rate can result in cheaper monthly payments and reduce how much you pay over the life of the loan. With regard to borrowing money, there are two costs you need to understand: interest and APR.

You may use these terms interchangeably, but there are slight differences. Interest is the cost of borrowing the principal, whereas the annual percentage rate (APR) is the annual cost of borrowing money and includes the interest rate and fees (broker fees, mortgage insurance and points, etc.)

Economic Factors That Influence Rates

Whether you’re shopping for your first mortgage or you’re a repeat buyer, you may already know that mortgage rates can fluctuate on a day by day basis.

Banks and other mortgage lenders originate home loans, but in most cases, these lenders do not keep loans in their portfolio. Instead, they sell all or a percentage of their loans to agencies such as Fannie Mae or Freddie Mac. These loans are then sold to investors.

Mortgage interest rates are determined by what investors are willing to pay on the secondary market. Lenders adjust their rates accordingly based on economic factors. Most banks keep their mortgage rates competitive to attract customers, although rates can vary slightly from lender to lender.

What Determines Your Individual Rate?

But although investors in the secondary market influence mortgage rates, different factors determine your individual rate. These include the size of your down payment, your mortgage term and your credit score. To put it plainly, your mortgage rate will be largely based on your risk level. If mortgage lenders view you as a low risk, you’ll receive a better rate.

Giving your lender a larger down payment—perhaps 10% or 20%—is one way to negotiate a better loan rate. The more you have at stake, the less likely you are to walk away from the mortgage. Likewise, you may qualify for a better mortgage rate if you have a high credit score. Borrowers with the highest scores are less likely to default and jeopardize their excellent credit rating.

Another factor that determines your rate is the mortgage term and the type of mortgage. Some lenders offer lower rates for 15-year and 20-year mortgages. You also have the option of a fixed-rate or an adjustable-rate. Fixed-rate mortgages feature a rate that doesn’t change, resulting in predictable payments. An adjustable-rate mortgage has a temporary fixed-rate period followed by annual rate adjustments.

With an ARM, the rate may be fixed for the first three, five or seven years, and then reset every year thereafter. These mortgages are attractive because they have lower rates during the initial years, allowing you to start off with a lower home loan payment. The main problem with an adjustable-rate mortgage is that your payment can go up as your interest rate increases.

What Closing Costs Do Sellers Pay?


Selling a home can result in a big payday. But although profit from a sale can increase your net worth and provide a nice down payment for your next home, it’s important to understand the costs associated with selling a home.

Real estate transactions can be expensive for both buyers and sellers. As the seller, your real estate closing attorney will provide a HUD-1 settlement statement a few days prior to closing which explains your costs. The good news is that settlement expenses are typically deducted from the profit. As long as you have enough home equity, you don’t have to dip into your bank account. If you don’t have sufficient equity, you’ll need to bring cash to the closing table.

Here is a list of costs you can expect as a home seller.

  1. Real estate commission

As the seller, it’s your responsibility to pay the realtor commission. The typical commission for real estate transactions is 6% of the sale price split evenly between the buyer’s agent and your agent. You might be able to negotiate a lower commission, such as 4% or 5% split evenly between both agents.

  1. Loan payoff

Your closing expenses also include the mortgage payoff, at which point the buyer’s mortgage lender transfers funds to your lender. This amount may be higher than the actual remaining balance because you’re responsible for paying prorated interest. The sale price must be enough to pay off the first mortgage and any second mortgages, such as a home equity loan or a home equity line of credit.

  1. Transfer and recording fees

The buyer pays the majority of the settlement fees, such as the title search fee, the loan origination fee, the home inspection and the appraisal. But in some cases, you may be responsible for the transfer and recording fees. These fees are necessary to transfer ownership of the property to the new buyer, and to record the transfer in city records. The fee for both varies depending on your city and state.

  1. Attorney fees

Real estate transactions are complicated, and in addition to working with a real estate agent and a mortgage lender, you’ll need a real estate attorney or closing agent to handle the settlement. After there’s a signed contract between you and the buyer, the real estate attorney steps in and manages the escrow, which can include negotiating contingencies and working with the title company. Real estate attorney fees vary, but can range from $300 to $1,000.

  1. Prorated property taxes and homeowners association dues

You’re responsible for any real estate taxes and property owner association dues up until the date of settlement. If there are any outstanding balances, these amounts are included on the HUD-1 statement and must be paid at closing.

  1. Termite and moisture inspection report

A termite and moisture inspection report is typical in real estate transactions. At some point before closing, your real estate agent will schedule an inspection. A company inspects the property for wood destroying insects and signs of excessive moisture, such as water stains on ceilings and rotting wood. The company that conducts the inspection can identify problems and recommend a solution so that you can move forward with closing. A termite and moisture inspection report may cost between $60 and $125.

  1. Home warranty premium

Some homebuyers ask sellers for a home warranty. A home warranty provides coverage of the home’s main components, such as the electrical system, plumbing, appliances and HVAC. If a problem arises after closing, new buyers can contact the home warranty company and request a service call for a flat fee. Annual premiums for home warranties average between $400 and $500.