What is mortgage prequalification?

With prequalification, lenders determine if you meet the basic financial criteria for a home loan. To qualify first, give a lender basic information about your credit, debt, income, and wealth, and tell them how much you can borrow. “Say” is the keyword here. The information used for prequalification is reported. This means that the lender usually does not review them or review your credit report.

Using the prequalification calculator

Our prequalification calculator can give you an idea of ​​what to expect before talking to a lender. We just need information about you and your finances:

  • Enter your annual income before tax.
  • Enter the length of the mortgage you are considering.
  • Enter the interest rate for your mortgage type or use the current mortgage rate.
  • Choose your credit score range. (Not sure? Get your free credit score.)
  • Tell us about your professional situation.
  • Let us know when you have a down payment.
  • Tell us about any previous foreclosure or bankruptcy.
  • Enter your recurring monthly debt payments.

After you have completed all the required fields, you will see the loan amount we recommend as well as a higher loan amount. We show two prequalification amounts because:

Different loans have different debt income requirements. For example, conventional loans often have more stringent DTI requirements than FHA loans that are insured by the Federal Housing Administration.

It doesn’t always make sense to borrow 100% of a lender’s offer. The maximum loan amount is the higher the lender is willing to lend you, and not what makes sense for your budget. A higher loan amount means a higher monthly mortgage payment. Borrowing too much can make it difficult to deal with unforeseen financial problems like losing a job or having a large medical bill.

What is behind the calculation of the prequalification?

Debt to Income Ratio (DTI) is a formula commonly used by lenders to prequalify mortgages. There are two variations: front-end and back-end.

The starting DTI is the dollar amount of your house-related expenses, including future monthly mortgage payments, property taxes, insurance, and homeowners association fees, divided by your gross monthly income.

Your back-end DTI ratio is the sum of your household expenses plus all other monthly debt, including credit cards, student loans, personal loans, and auto loans, divided by your gross monthly income. Traditional mortgage lenders generally prefer a final DTI rate of 36% or less, but government-funded loan programs may allow a higher percentage.

What is the difference between prequalification and pre-approval?

Unlike pre-qualification, pre-authorization requires proof of your debts, income, assets, credit history, and credit history.

To get pre-approved, you will need to provide documents such as payslips, tax documents, and proof of assets. After the lender has reviewed your financial information, which may take a few days, you will need to produce a pre-approval letter that you can show a real estate agent or seller to show that you are ready and able to buy. a house.

Please note that prequalification does not guarantee prior approval. You can still be rejected if your financial records do not support the numbers you reported.

Does prequalification affect your creditworthiness?

Prequalification does not affect your creditworthiness. Lenders generally base their prequalification on the information you provide and will not receive your credit report.

When a lender checks your credit report, it is considered a “difficult investigation”. Too many difficult inquiries can lower your credit score if it turns out that you are trying to open many new lines of credit in a short period of time. Multiple applications in a short time due to mortgage rate research.

 

Documents required for a mortgage pre-approval letter: a checklist

You don’t need to get a mortgage pre-approved before heading home, but it’s a good idea, especially in a seller’s market where competition between buyers is intense. Unlike a prequalification, a pre-approval letter lends weight to your ad and shows sellers that you have the financial strength to secure their listing.

To get pre-approved, you’ll need to look at your income, employment, assets, and debts, says Bob McLaughlin, former senior vice president, and director of residential mortgages at Bryn Mawr Trust in Bryn Mawr, Pa.

You probably already have a lot of recordings that you need or can easily access. “Document collection should not take more than a week depending on the lender’s requirements and whether you need documents from outside sources such as an attorney or the county government,” said Andy Kush, sales manager. of Patelco home loans. A credit union in Pleasanton, California.

Your lender may want more documents if you are self-employed or if your income comes from multiple sources. Also, be prepared to share information such as your Social Security number that you can use to review your credit reports and results. The name and address of your employer; and your rental date.

Income and employment

The documents required to verify income depend on how you are paid. This step is easiest for workers with a one-stop-shop paycheck who provides an annual W-2 form and who have little or no overtime or shift differences.

Tax Returns: Copies of both your most recent federal and state returns may be required.

Income:

W-2 Beneficiaries: Copies of the W-2 forms and your last two payslips. If your earnings include overtime, bonuses, or differential pay, you might need your last year-end payslip.

Self-Employed, Self-Employed, and Independent Contractors – Self-employed borrowers, including sole proprietorships, partnerships, and suburban businesses, need a year-to-date cumulative income statement and two-year records, including the Form 1099 that you used to report the income. and explain the taxes.

Real estate income. Document the rental income, address, lease, and current market value of a rental property when you use that income to qualify for a mortgage.

Were

Bank Statements – Copy 60-day bank statements for each account whose assets you use to qualify for the mortgage. Also, add blank pages with instructions.

Pension and brokerage accounts: two months of IRA statements, investment accounts (stocks and bonds), and certificates of deposit. The latest 401 (k) quarterly statement shows the purchased balance. As with bank statements, including all pages, including blank pages.

Debt

Monthly Debt Payments – Lenders look at your payment obligations to calculate your debt-to-income ratio. List all monthly debt payments, including student loans, car loans, mortgages, and credit cards. Include the name and address of each creditor, their account number, the loan balance, and the minimum payment amount. If you don’t have a credit history, utility bills or records of other recurring payments can be used to qualify for a mortgage.

Home Debt: If your current property is mortgaged, secure your last bank statement with the loan number, monthly payment, loan balance, as well as the name and address of the lender and the policy statement page.

Other records

Rent: Tenants are required to provide proof of payment for the past 12 months and landlord contact information for the past two years.

Divorce: Prepare your divorce decision and any court order regarding child support and child support, if applicable.

 

FHA Rating Requirements for Homes and Condos

The FHA housing requirements state that FHA approved condominiums and apartments must be safe, sound, and secure in order to qualify for an FHA loan. The assessors decide whether the minimum FHA ownership requirements are met.

In order to take advantage of an FHA loan, the borrower and the property must meet certain criteria.

You must meet the financial requirements of your lender and the property must meet the FHA housing requirements set by the Department of Housing and Urban Development (HUD).

All homes are subject to HUD’s “minimum ownership standards”, and new construction must also meet the agency’s “minimum ownership standards”.

The FHA property rules ensure that the home is structurally sound, livable, and worth at least as much as you wish to borrow.

Basic requirements for the FHA enclosure

HUD’s minimum real estate requirements are as follows: Homes purchased with FHA loans must be safe.

In this case, “safe” means something other than “safe from thieves”. Rather, the home should be a safe investment, which means that it will hold value for the life of the loan.

FHA Assessment Checklist

For a complete list of FHA assessment guidelines, see the HUD Single Family Policy Manual. But, fair warning, this is a fairly dense read. Here are some important points:

The foundation must be structurally sound.

The water must come from the base.

Utilities, including water, sewerage, heating, and electricity, should be activated during the assessment.

  • All devices must function properly.
  • The water pressure must be sufficient and hot and cold water must be available.
  • The paint cannot be chipped, peeled off, peeled off, or broken.
  • Sockets and switches must work properly.
  • Windows must be opened, closed, and locked.

The roof cannot leak and must have a useful life of at least two years.

Attics and crawl spaces must be ventilated and free from damage.

There is no active termite infestation.

The property must be reasonably free from environmental hazards, odors, and excessive noise.

 

FHA Rating Requirements for Homes and Condos The FHA housing requirements state that FHA approved condominiums and apartments must be safe, sound, and secure in order to qualify for an FHA loan. The assessors decide whether the minimum FHA ownership requirements are met. In order to take advantage of an FHA loan, the borrower and the property must meet certain criteria. You must meet the financial requirements of your lender and the property must meet the FHA housing requirements set by the Department of Housing and Urban Development (HUD). All homes are subject to HUD’s “minimum ownership standards”, and new construction must also meet the agency’s “minimum ownership standards”. The FHA property rules ensure that the home is structurally sound, livable, and worth at least as much as you wish to borrow. Basic requirements for the FHA enclosure HUD’s minimum real estate requirements are as follows: Homes purchased with FHA loans must be safe. In this case, “safe” means something other than “safe from thieves”. Rather, the home should be a safe investment, which means that it will hold value for the life of the loan. FHA Assessment Checklist For a complete list of FHA assessment guidelines, see the HUD Single Family Policy Manual. But, fair warning, this is a fairly dense read. Here are some important points: The foundation must be structurally sound. The water must come from the base. Utilities, including water, sewerage, heating, and electricity, should be activated during the assessment. All devices must function properly. The water pressure must be sufficient and hot and cold water must be available. The paint cannot be chipped, peeled off, peeled off, or broken. Sockets and switches must work properly. Windows must be opened, closed, and locked. The roof cannot leak and must have a useful life of at least two years. Attics and crawl spaces must be ventilated and free from damage. There is no active termite infestation. The property must be reasonably free from environmental hazards, odors, and excessive noise.

The FHA housing requirements state that FHA approved condominiums and apartments must be safe, sound, and secure in order to qualify for an FHA loan. The assessors decide whether the minimum FHA ownership requirements are met.

In order to take advantage of an FHA loan, the borrower and the property must meet certain criteria.

You must meet the financial requirements of your lender and the property must meet the FHA housing requirements set by the Department of Housing and Urban Development (HUD).

All homes are subject to HUD’s “minimum ownership standards”, and new construction must also meet the agency’s “minimum ownership standards”.

The FHA property rules ensure that the home is structurally sound, livable, and worth at least as much as you wish to borrow.

Basic requirements for the FHA enclosure

HUD’s minimum real estate requirements are as follows: Homes purchased with FHA loans must be safe.

In this case, “safe” means something other than “safe from thieves”. Rather, the home should be a safe investment, which means that it will hold value for the life of the loan.

FHA Assessment Checklist

For a complete list of FHA assessment guidelines, see the HUD Single Family Policy Manual. But, fair warning, this is a fairly dense read. Here are some important points:

The foundation must be structurally sound.

The water must come from the base.

Utilities, including water, sewerage, heating, and electricity, should be activated during the assessment.

  • All devices must function properly.
  • The water pressure must be sufficient and hot and cold water must be available.
  • The paint cannot be chipped, peeled off, peeled off, or broken.
  • Sockets and switches must work properly.
  • Windows must be opened, closed, and locked.

The roof cannot leak and must have a useful life of at least two years.

Attics and crawl spaces must be ventilated and free from damage.

There is no active termite infestation.

The property must be reasonably free from environmental hazards, odors, and excessive noise.

 

Requirements for a mortgage and HELOC

If your home is worth more than your mortgage balance, you have equity. If you’re lucky or smart to find yourself in this situation, here’s how you can convert that equity into purchasing power.

Ways to unlock your home

The two most common ways to gain access to the equity in your home are through a home equity loan or home equity line of credit. The loans offer a lump sum at a fixed rate of interest which is repaid over a period of time. A HELOC is a revolving line of credit that you can draw, repay, and withdraw for a specified period, typically a decade. It often starts with an adjustable-rate, followed by a fixed rate.

A third option is paid refinancing, where you refinance your existing mortgage into a loan for more than what you owe and keep the difference in cash.

Home equity loan terms vary depending on the lender. However, these standards are typical:

  • The equity in your home of at least 15% to 20% of its value, which is determined by an appraisal
  • Debt-to-income ratio of 43% or possibly up to 50%
  • Credit score of 620 or higher
  • Strong history of paying bills on time
  • Your debt to income ratio

To assess your mortgage loan application, lenders calculate your debt-to-equity ratio to determine if you can afford to borrow more than your existing obligations.

To find this number, add up all of your monthly debt and other financial obligations, including mortgages, loans and leases, and child support, divide it by your monthly income, and then convert this number to a percentage. For example, if you earn $3,000 per month and make payments totaling $ 1,200, your DTI is 40%.

What Debt-to-Income Ratio Do Lenders Need? For a fixed-rate term home loan, federal regulations set the limit at 43% DTI.

With HELOC, lenders have more discretion, which means you can look around if your DTI is higher. Comerica offers home equity lines of credit with DTIs of up to 50%, says Winston McEwen, deputy director of Comerica Bank’s banking center in Cupertino, Calif. According to its website, Chase has set a debt income limit of 43% for HELOC.

This set of standards requires consumers to exercise their best judgment. Even if you qualify, carefully consider the amount of debt you owe. When you take out a home loan, you risk your home as collateral, which means the bank could keep the home if you fail to repay your loan on time.

Role of credit scores

Lending strategies vary. “What one lender considers a ‘good score’ may not be viewed as a great score by another,” said Ethan Dornhelm, FICO vice president of valuation and analysis. In Comerica, for example, the minimum FICO for home equity loans is 680, McEwen says.

Refinancing of ashes

A less popular option for accessing home equity is to refinance yourself with a new mortgage and then extract some of the equity in cash. Your refinance rate depends on the current mortgage rate. Zimmerman said the borrowers he works with avoid this type of refinancing because they will end up paying a higher interest rate than they are currently paying.

 

How the Federal Reserve Affects Mortgage Rates

The Federal Reserve is one of the many influences on mortgage rates, along with inflation, economic growth, and other factors.

The Federal Reserve does not set mortgage rates but indirectly affects mortgage rates.

Many factors determine mortgage rates, including the rate of inflation, the rate of job creation, and whether the economy grows or slows down. The Federal Reserve’s monetary policy also plays a role and is determined by the Federal Open Market Committee.

What the Federal Reserve does

The Federal Reserve is the country’s central bank. It manages the economy with the dual objective of promoting employment growth while controlling inflation.

The FOMC pursues these monetary policy objectives: to manage the money supply and the cost of credit. The most important monetary policy instrument is the federal funds rate, the interest rate that banks charge each other for short-term loans. While there is no “federal mortgage rate,” the federal rate affects interest rates on long-term loans, including mortgages.

The FOMC meets eight times a year about every six weeks to change monetary policy. Most meetings do not result in changes to the federal rate. At the end of each meeting, the committee makes a statement explaining its reasons. The meeting minutes will be released three weeks later, giving Fed nerds even more details.

Are Mortgage Rates Following Fed Rates?

The Fed and the mortgage market act like dancing partners: sometimes the Fed leads, sometimes the mortgage market leads, and sometimes they dance alone.

The prime rate and mortgage rates generally move in the same direction. However, it is difficult to say whether mortgage rates will follow Fed action or vice versa.

The federal funds rate affects interest rates on longer-term loans, including mortgages.

The FOMC prefers to inform investors whether it intends to raise or lower short-term interest rates. Committee members make their intentions known by adding notices in their public speeches. When the committee meets, there is general consensus among investors on whether the Fed will cut rates, raise rates, or leave them unchanged.

As that consensus consolidates ahead of an FOMC meeting, mortgage rates generally diverge in the direction the Fed is likely to take. By the time of the meeting, mortgage rates often already reflect the trend. expected rate change.

At the same time, mortgage rates rise and fall daily in response to the ups and downs in the US and global economies to which the Fed is responding. Sometimes the Fed and mortgage rates move in opposite directions.

What is the current federal rate?

The targeted federal funding ratio has been between 0% and 0.25% since an emergency shutdown on March 15, 2020. The emergency was the COVID-19 pandemic and the resulting disruption to economic activity.

“The effects of the coronavirus will have a short-term impact on economic activity and threaten the economic outlook,” the interest rate committee said.

At its regular meeting on July 28-29, 2020, the FOMC said the trajectory of the economy “will largely depend on how the virus evolves.” He said he plans to keep the federal government rate near zero until employment and inflation return to normal.

The Fed has started buying government bonds and mortgage-backed securities valued at hundreds of billions of dollars in order to keep liquidity in the financial system and keep long-term interest rates low.

Federal funds rate and HELOC

While the Fed doesn’t set mortgage rates, it has a direct impact on mortgage interest rates, which typically have adjustable rates.

HELOC rates are tied to the Wall Street Journal Prime rate, the prime rate for business loans from the largest banks. The key rate in turn moves with the federal key rate.

When the FOMC cuts the policy rate, HELOC rates also decrease. The 1 percentage point reduction on March 15 will save $100 per year or $8.33 per month in interest payments on a HELOC with a balance of $10,000. He cut the key rate from 4.25% to 3.25%.

 

Quicken Loans Mortgage Review 2020

Perfect choice for convenience and fast customer service. Quicken Loans offers almost all of the services offered by your local online lender.

Quicken Loans becomes Rocket Mortgage

Innovation surpasses the innovator. Rocket Mortgage is quickly achieving a status in the industry that may soon eclipse its parents’ notoriety if it hasn’t already.

Any conversation NerdWallet has had with the executives of Quicken Loans is dominated by references to Rocket. But many borrowers – Quicken Loans officials say “the majority” – still access the lender’s services the traditional way: with an old-fashioned phone call.

Regardless of the nameplate, the integration between the two channels seems practically perfect. This gives users the advantage of being able to choose how to interact with the lender.

Quicken Loans mortgage products

Quicken Loans offers a comprehensive selection of fixed and adjustable rate home loans, mortgage refinances, FHA, USDA and VA loans, and jumbo loans for higher priced homes.

What is the “non-banking” difference? Like almost all non-depository lenders, Quicken Loans does not offer home equity loans or home equity lines of credit. Since they do not have the capital of bank deposits to finance mortgage loans, non-bank lenders sell loans to investors. The industry’s biggest investors, government-sponsored Fannie Mae and Freddie Mac, don’t buy mortgage products.

Although Quicken Loans does not offer reverse mortgages, an affiliate, One Reverse Mortgage does. Reverse mortgages are often used by older homeowners to use their home equity to plan for retirement.

Speed ​​up loan refinancing

Like many lenders, especially in recent years, Quicken Loans has made vigorous efforts to win the refinance. The ubiquitous online ads urging homeowners to “switch to a 15-year fixed mortgage” were part of an ongoing marketing campaign.

The mortgage business of Quicken Loans has been recognized for its efforts with the highest volume of mortgage refinancing loans of any lender in the country as outlined in the Mortgage Disclosure Act of 2018.

Tap the Refinance button on the Quicken Loans home page to access the Rocket Mortgage user interface, where you will be asked to specify your refinancing goal: withdraw money, reduce payments, or shorten the term. of the loan.

You will need to create an account to continue.

Quicken Loans Customer Service

Despite all the attention paid to home loan technology, Quicken Loans says most clients start and end the mortgage process over the phone with a banker. More than 3,000 mortgage lenders are ready to help, says Joel Gurman, executive vice president of mortgage banking.

“From the borrower’s perspective, they have a single point of contact. This licensed banker will be the same person they talk to throughout the process, ”says Gurman.

Quicken Loans mortgage process

My Quicken Loans, or MySQL, the original application for Quicken Loans borrowers, has been dropped. Rocket Mortgage now serves as an online link for the paperwork section of the process.

“If the client has time to review their pre-approval letter or loan application documents, they will be referred to Rocket Mortgage for registration, review, and electronic signature,” says Regis Hadiaris. , the product manager of Rocket Mortgage.

Rocket can verify employment, income, and financial assets by accessing direct deposit information provided by 98% of financial institutions in the United States, that is when you use direct deposit for your salary. Alternatively, income and employment information for about 60% of U.S. workers can be imported through employer databases.

Gurman says mortgage bankers use the same technology to provide faster processing and a shorter time to close the loan.

Fast loan rate

Quicken Loans mortgage fees are on average about 0.50% of the loan amount. State mortgages that are backed by the FHA, VA, or USDA may be a little higher, but according to Quicken Loans, your lender fees will not exceed 1% of the amount.

 

First-class buyer: why take it?

A first-time buyer class can be the grant ticket, down payment assistance, and a lower monthly payment. Find the right mortgage, mortgages

First-class of buyers

Most of all of the products presented here come from our partners who pay us. This can affect the products we write about and where and how the product is displayed on a page. However, this does not affect our grades. Our opinions are ours.

You have been offered a first-class buyer, possibly through a lender, friend, or real estate agent. And you think, “What’s the point?”

But what if you had a little change for the classroom? Indeed, it is possible.

A homeownership course and certificate you receive after graduation can be your ticket for a grant or filing assistance. At the very least, it can show you how you can save hundreds if not thousands of dollars on a mortgage.

All of these can result in a lower monthly mortgage payment.

What is a first-class buyer?

This is a content course taught by the US Department of Housing and Urban Development. While HUD does not offer grants or help with down payments, many states, local governments, and nonprofits will need it.

These training workshops are designed to help borrowers qualify for a mortgage and guide the home buying process.

What is covered in a first-time buyer class?

Melinda Opperman is Executive Vice President of Credit.org, a nonprofit provider of personal finance education. The company offers home buying courses in Southern California and online through ehomeamerica.org.

Opperman says both newbies and so-called boomerang buyers who are recovering from past financial difficulties find the lessons worth it.

Many buyers who take the course, especially those who are returning home after losing their home, say, “I didn’t know about this. I would have done things very differently, ”says Opperman.

A typical class covers topics such as:

How many houses can you afford?

What do you need in your home (“You have animals, so you can

I really need a back yard. However, you might not need a three-car garage, ”Opperman suggests as an example.)

  • What home loan products to consider.
  • How to compare brokers and lenders.
  • How to improve your credit score.

When should you take a buyer training course for the first time?

While many borrowers view the class as a requirement of the lender in order to qualify for a specific loan or assistance, Opperman says many participants wish they had taken the course much earlier in the home buying process. Potential buyers should take the course before doing anything.

MELINDA OPPERMAN, PRESIDENT OF CREDIT.ORG

In fact, he says, potential buyers should take the course “before they do”.

“If you decide to buy a house, take a class,” says Opperman. “We’ll show them how to compare prices with different lenders. How to interview and find a real estate agent, then compare three different real estate agents. “

The course helps buyers “avoid going into homes that are out of reach,” Opperman adds.

Participants who complete the course will receive a HUD-approved certificate that will help qualify borrowers based on their financial eligibility for grant and down payment assistance programs.

How much does a class of buyers cost?

Some training courses for home buyers are free. If there is a fee, classroom lessons can cost anywhere from $15 to $30, according to Opperman, more than offsets the cost of materials.

Online courses, which can last anywhere from six to eight hours, can range from $75 to $125, but offer the flexibility to take the course at your leisure and at your own pace.

How to find a training course for home buyers

It is a good idea to check with the housing agency in your state that offers first-time homebuyers assistance programs. 

 

Down payment help: how to get help buying a home

First-time buyers can request down payment assistance through national and local programs. Grants and unsuccessful loans are available.

If you want to own a home but don’t have enough money to pay a down payment, a national or local down payment assistance program can help.

Most states and many counties and cities offer interest-free loans and grants to help first-time homebuyers with down payment and closing costs.

How do down payment utilities work?

Help comes from government housing finance agencies and city and county government programs to meet affordable housing needs. The programs are often offered in conjunction with first-time mortgages.

The types of support for graduation fees and down payment vary by program. Common forms of support include:

Subsidies. Some programs offer a direct cash donation.

Interest-free loans. Loans are given for a certain period, eg. B. five years. It is not necessary to repay the money as long as the borrower still owns and lives in the apartment after the deadline.

Interest-free loans and deferred payments. Terms and conditions vary, but loan payments for the down payment and closing costs are generally not due until the home is sold, the mortgage is refinanced, or the mortgage has matured. .

Low interest loans. Loans must have a certain period eg. B. 10 years, to be repaid. They make homeownership more affordable by spreading the down payment and closing costs over several years.

Who can benefit from early payment aid?

Most down payment assistance programs are for first-time buyers, but they don’t exclude if you’ve previously owned a home. The programs generally define a first-time home buyer as a buyer who has not owned a home in the past three years.

Some local programs cater to specific groups such as teachers, police, rescue workers, or city workers, while others are open to regular qualified buyers.

The requirements for each program vary, but in addition to being a first-time buyer, you will typically need to:

Take a training course for home buyers.

Respect the income limits. Many programs cater to low and middle income residents, so a borrower’s household income must be below a certain threshold.

Shop at an approved location.

Stay below the maximum home purchase price, which is typically a percentage of the median home purchase price in an area.

Donate some of your own money towards the purchase.

How to apply for mortgage down payment assistance

How to start:

Find out about the assistance programs offered by your state’s real estate finance agency. For more information on the programs you live in, see Programs for new buyers by state.

Check with your city and county to see if they have any local grant programs for first-time buyers. For example, three dozen scholarship programs for new buyers are offered in the cities and counties of Lone Star State.

Visit the website of the local government agency or organization that administers the program for down payment assistance requirements and a list of approved mortgage lenders.

Apply for a mortgage from a lender licensed to work with the scholarship program. Local agencies can recommend experienced loan officers to help people apply for the grants they manage

 

5 benefits of a down payment for a VA loan

A deposit for a VA mortgage is not required. However, if you save 5% or 10%, you can pay less overall, get a lower monthly payment, and compete better with other buyers.

We know that mortgage loans from the Department of Veterans Affairs do not require a down payment. Why the hell would you make one Here are five great reasons to put money into a VA loan.

1. You pay lower VA finance fees

VA fees are initially required for VA mortgages, whether or not you make a deposit. But.

“The finance rate has stopping points where it falls above 5% or over 10%,” said Mark Connors, VA Lender Liaison.

For example, a qualified regular military borrower would first see the VA finance rate increase from 2.15% to 1.50% with a deposit of 5% or more. A deposit of at least 10% would reduce the fee to 1.25%.

Casey Fleming, author of “The Loan Guide: How To Get The Best Possible Mortgage,” and mortgage broker in San Jose, breaks down the bill for buying a $250,000 home. The zero initial finance rate is $5,375, he says. Although a 5% deposit requires $ 12,500, your finance charge is reduced by $1,812.50, he explains.

2 and 3. You have a lower monthly payment and less interest

With a deposit, your monthly payment and lifetime costs are lower. Fleming creaked the numbers again.

Assuming an interest rate of 3.50% on a 30-year mortgage of $250,000, the monthly payments and the lifetime cost of each loan are factored in, not including closing costs, which can vary.

With a 10% deposit, not only are your monthly payments over $100 lower, but you also save over $15,000 in interest charges and pay almost half the initial finance charge compared to making a down payment. .

“So if you pay an advance, you can save thousands of dollars over the life of the loan,” Fleming says.

4. You can navigate a competitive market better

Living in a competitive real estate market can present challenges for the non-down payment payer. Places like San Francisco, Dallas, San Diego, Denver, and even Columbus, Ohio, have too many buyers who don’t have enough sellers.

If you have an “in-game skin” by putting money first, show the sellers that you are a serious buyer.

If you have an “in-game skin” by putting money first, show the sellers that you are a serious buyer. Some of your deposit can also be used for cash: cash that you deposit into an escrow account to do business with a seller.

“Make the biggest deposit possible with the offer,” said Joe Parsons, a loan officer at PFS Funds in Dublin, California. “Even though you are not required to make a deposit and the closing cost could be as low as $ 5,000, a deposit of $10,000 would not be inappropriate and the veteran will get a refund of any excess funds to the fence. Believe in credibility. “

5. You immediately have equity in your home

Without a down payment, you probably don’t have equity in your home right off the bat. If property values ​​fall, it is “upside-down”. It is when the market value of a house is lower than it should be. In this case, you could have real problems if you have to move and cannot earn enough if you sell your existing home to buy another.

If you have an embedded value in your home, you also have financing options, such as B. a home equity line of credit or a home loan. Being able to capitalize on your home can be a real budget saver when major repairs or upgrades are needed.

You may not have a choice

In some situations, you will have no choice but to pay a deposit: If the price of the house is less than the purchase price, you must leave enough to make up the difference.

If the home you want to buy costs more than the VA approved VA credit limit, you must leave enough to make up some of the difference. “VA guarantees the loan as long as the borrower pays 25% of the amount over the credit limit in cash,” Parsons says.