Although most people assume they need a 20% down payment to buy a home, there are low down payment conventional loans available, including the Conventional 97 loan program which allows qualifying borrowers to get a conventional loan with as little as 3 percent down.

In fact, this low down payment program can be a competitive option for homebuyers with limited down payment funds who are otherwise considering an FHA loan.

Low down payment home loans: Conventional 97 & FHA loans

Choosing between a conventional mortgage or a loan backed by a government program like the Federal Housing Administration (better known as FHA) may seem a little ambiguous and confusing.

The FHA offers 3.5 percent down payment mortgage loans. That sounds great especially if you don’t have a lot of money to spend upfront on home buying. But conventional loan programs now allow qualifying borrowers to put just 3 percent down for a mortgage.

With so many loan options, how do you choose the right type of mortgage for your financial situation?

“It’s all about who you are talking to,” says Susan Stevenson, president of the Ohio Mortgage Bankers Association. “You really have to educate yourself on the different loans and get options. As a loan officer, I could take the same options and make them look different than someone else. There are a lot of variables in mortgages, and plus it also depends on what kind of house you buy and where you buy it.”

Check your eligibility for a low down payment loan. Start here (Sep 16th, 2024)

Is a low down payment conventional mortgage better than FHA?

FHA loans are backed by the federal government and issued by participating lenders.

When you get a conventional loan, there are no such governmental guarantees. That means the full risk of your potential default on the loan is assumed by the lending bank or loan company — rather than shared by a government agency.

Combined with the smaller down payment requirements, the mortgage lender’s exposure is simply higher on these low-down payment conventional loans. So they don’t issue them to just anyone.

That means the underwriting guidelines are tougher. To qualify, borrowers will need a pretty good credit score, a lower loan-to-value ratio, good income, and future income, and a nearly unblemished credit history.

If you plan on getting one of those 3 percent down payment conventional loans offered by Fannie Mae or Freddie Mac, you need at least a 680-700 credit score, and you need to pay your bills on time, Stevenson says.

“It’s a great program. If you are approved, you can get your down payment through gift money, too,” she says. “The guidelines have been tweaked. It used to be that if you were putting down 5 percent on a conventional loan, that 5 percent had to come from you.”

Stevenson works with all kinds of borrowers who have everything from more than 20 percent down to those who have nothing to put toward a down payment. Believe it or not, there are loans for those who have saved zero dollars. Plus, there are lots of down payment assistance programs to help people across the country to become homeowners.

Other low-down payment programs

USDA and VA loans require no down payments, but you have to be eligible for them. To qualify for a USDA loan (backed by the U.S. Department of Agriculture), you must buy a home in a designated rural or suburban area and have a low to moderate income for the area. And of course, to receive a VA loan (backed by the Department of Veterans Affairs), you have to be a current or retired military person or spouse.

It’s worth noting that these programs are intended to help borrowers finance a primary residence. They’re meant to make homeownership more accessible so it’s unlikely you’ll be able to buy a second home with no money down.

Typical conventional mortgage down payment amount

“Conventional loans are very popular still. Older people usually have 20 percent down because they are downsizing or upsizing, and they are selling a house. They put that money towards a new place,” Stevenson says.

But she usually sees the majority of people putting down between five and 10 percent of the loan amount. With a down payment of at least 5%, conventional loan rates drop compared to the 3% down payment option.

Minimum down payment requirements for jumbo loans

Jumbo loan down payments are typically at least 10 percent of the loan amount but some lenders are likely to require a down payment of as much as 30 percent.

Because these loans are non-conforming (meaning the lender can’t sell them to Fannie Mae or Freddie Mac), the lender is already assuming additional risk by offering a loan above conforming loan limits. As a result, it’s unlikely they’ll be willing to take on the added risk of a loan down payment.

FHA vs conventional mortgage payment showdown

For many people without 5% down, who only have money for a small down payment, the dilemma is whether to get a conventional loan or an FHA loan.

Both loans require mortgage insurance. Conventional loan borrowers making a down payment of less than 20 percent will need to get Private Mortgage Insurance (PMI). The good news is that once you reach a loan-to-value ratio of at least 78 percent, you can cancel the insurance.

The bad news with an FHA loan is you’re stuck paying PMI over the life of the loan unless you refinance.

Here’s an example of how close monthly mortgage payments can be, comparing an FHA 3.5 percent down payment loan with a conventional 3 percent down payment loan:

Stevenson says that if someone is buying a $200,000 home with a conventional loan and a 3 percent down payment, the interest rate might be about 4.62 percent – which is a higher interest rate than the 3.5 percent an equivalent borrower might get on an FHA loan. But remember, all of this really hinges on your credit score — with a higher credit score, you get a lower interest rate.

Fannie Mae charges points — also known as extra fees — to do their 97 percent loans. Typically borrowers pay those fees by accepting a higher rate rather than paying out of pocket. So the rate ends up quite a bit higher than that of the FHA option.

The monthly mortgage insurance premiums or PMI for the conventional loan will be $151 a month.

With an FHA loan on the same $200,000 house, PMI will be a little lower ($137 a month) than with the conventional loan. Before taxes, you would pay $1,148.43 for the conventional loan each month. The FHA would be a little less at $1,018.82. The upfront mortgage insurance for FHA is rolled back into the loan and the monthly mortgage cost is reduced, she says.

But remember that once you hit that 78% loan-to-value point (in other words, once you have 22% home equity), that $151 monthly PMI payment goes away on the conventional loan.

Viewed side by side, here’s what each loan would look like, before taxes, home insurance, and HOA dues:

• 3% down conventional: $1,148 per month
• FHA: $1,018 per month

After 22% equity attained

• 3% down conventional: $997 per month
• FHA: $991 per month (FHA mortgage insurance decreases based on current principal owed)

“Every scenario is going to be different. But those with lower credit scores probably would head toward a FHA loan,” Stevenson says. “If you have a 750 credit score and have 3 to 5 percent down, you most likely would go with a conventional loan.”

And with a conventional loan, you can put down as much as you can afford, which will help lower your monthly payments. But remember not to leave yourself without any money for emergencies such as a busted water heater or broken window. Stuff happens, and you need a fund set aside for such purchases and repairs.

FHA and conventional 97 rate quotes available

It’s hard to tell if an FHA or conventional loan is the best mortgage option for your home purchase just by reading an article. To help you determine which type of loan is best for your financial situation, you can receive live quotes from real lenders now.

The post Conventional Mortgage Down Payment Requirements 2024 first appeared on My Mortgage Insider.

“I’ve been in this business for 30 years. Having 20 percent down is just one of those myths about lending that is out there,” says Jill Hoogendyk, branch manager and mortgage expert at Prospect Mortgage, Phoenix. “Things are always changing. The only reason people usually put down 20 percent is to get out of private mortgage insurance. But we’ve always had loans with 5 percent down.”

Average down payment

Despite the myth that you need a 20 percent down payment, the average American becomes a homeowner with a down payment that is just six percent of the loan amount.

Down payments can be a very personal decision. The size of your down payment will be determined by your financial situation, including whether you want to pay a lower monthly payment, avoid private mortgage insurance, or finish paying for your house quicker.

Minimum down payment by loan program

Here is a look at the down payment options for each type of mortgage:

Conventional loans

You can get a mortgage through a lender that approves loans based on Fannie Mae and Freddie Mac rules – which is most lenders – with as little as 3 percent down. You must have a credit score of at least 620 and offer complete documentation of your funds, job, assets and credit history. By getting a conventional loan, you can avoid the higher-priced FHA loan mortgage insurance which continues the entire length of the loan. With a conventional mortgage, the mortgage insurance premiums stop once the borrower has accumulated 20 percent equity.

Three percent down payment conventional loans are out there. The down payment can be a gift from a relative or a community mortgage program.

“Just remember that the less you put down, the more you will be paying and the higher the interest rate. Conventional loans are very credit score-driven. A 3 percent conventional loan will have much more rigid standards than FHA standards,” she says.

With any mortgage, including a conventional loan, you will run into other expenses that add up to the price of buying a new home. The addition of closing costs, the appraisal, the credit report cost, the first year of insurance, taxes and inspection will cost about 2 percent of the entire purchase price. A conventional loan appraisal will run about $470 in her area, while an FHA appraisal which has a few more requirements, is $490. A home inspection which includes pest inspection can run from $350 to $450.

Check your mortgage rates. Start here (Sep 16th, 2024)

FHA loans

The Federal Housing Administration (FHA) backs loans with a down payment amount of as little as 3.5 percent. For an FHA mortgage, that money can be gifted, too, by a relative or through a down payment assistance program. An FHA mortgage loan is insured by the federal government, but not offered directly by the government. Instead, FHA-approved lenders offer loans based on FHA rules.

FHA mortgages have loan limits depending on where you live in the country. Additionally, FHA loans require a one-time upfront mortgage insurance fee plus mortgage insurance throughout the length of the loan or until the borrower refinances. The upfront fee can be financed into the loan.

Check your FHA eligibility. Start here (Sep 16th, 2024)

VA loans

This is a zero down payment mortgage, with no loan limits. These loans are guaranteed by the Department of Veterans Affairs and borrower eligibility is based on their military service. This loan program is an excellent home-buying option for qualifying borrowers since, in addition to no minimum down payment requirement, it offers lower interest rates and no mortgage insurance.

“This is a wonderful loan. People should use it and pay zero down, and use their money for something else like investments,” she says. “Many service people don’t even use their VA benefits. You can even get a VA loan even if you have a 55 percent debt-to-income ratio.”

VA rules state that veterans do not pay certain closing costs such as escrow fees.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

USDA loans

These loans allow 100 percent financing with no down payment through the Rural Development U.S. Department of Agriculture. The house you want to buy must be within an area designated in the program. Some of the eligible USDA loan houses are in subdivisions of big cities, too.

The program is income-driven, meaning you can’t make more than 115 percent of the median income in your household. This type of loan also allows for a gift down payment.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

Down payment assistance & first-time homebuyer programs

A recent analysis by the Down Payment Resource and RealtyTrac found 87 percent of the single-family homes and condos in the U.S. would qualify for a down payment assistance program. The average amount of down payment assistance across all counties is $11,565. More than 2,000 counties have more than 10 down payment programs available to prospective homebuyers.

If this is your first mortgage — or you haven’t had a mortgage in three years or more — then you may qualify for one of the hundreds of housing and community development nonprofits working to help people become homeowners.

Ready to become a homeowner?

Don’t let saving for a 20 percent down payment delay homeownership. A mortgage calculator can help you to understand how different down payment amounts will shape your monthly mortgage payment and speaking with a mortgage lender can help you to find the right mortgage program for you.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post How much is a down payment on a house? (FHA, VA, USDA, Conventional) first appeared on My Mortgage Insider.

Extremely popular in the early 2000s, stated income loans were one of the factors of the housing market collapse. Why? Lenders were approving borrowers based on the income stated on their loan application but didn’t require income documentation to verify if it was accurate. The result: many borrowers could not make their mortgage payments and the result was foreclosure. Now, after the financial crisis, “no-doc mortgages” are a thing of the past.

With the passing of the Dodd-Frank Act of 2010, stated income loans for owner-occupied properties are now illegal. Lenders must fully document a borrower’s ability to repay the loan either with income or assets. (Stated income loans still exist for real estate investors, however, because they aren’t purchasing an owner-occupied home.)

That leaves some borrowers at a disadvantage, especially self-employed individuals or freelancers. But, the good news is that there is a type of loan called a bank statement loan (also referred to as alternative income verification loans) that meet these borrowers’ needs.

Stated income loans for self-employed borrowers

Self-employed borrowers may find it difficult to qualify for traditional mortgages due to their variable income and tougher documentation requirements from lenders. With alternative documentation loans — sometimes called bank statement loans — lenders use different methods to determine qualification but still meet the new ability-to-pay standards as laid out in the Frank-Dodd act.

For bank statement loans, lenders use bank statements (typically 2 years) to confirm a borrower’s income rather than tax returns and recent pay stubs like traditional borrowers. Each lender has its own underwriting requirements to determine net income (income minus business expenses and taxes), so if you don’t qualify with one lender, then there may be another that you will.

Bank statement loans are offered through non-QM lenders (also known as non-qualifying mortgage lenders), which sounds scary but simply means the loan can’t be sold to Freddie Mac or Fannie Mae, which most loans are. Not all lenders offer non-QM loans, so you’ll need to shop around — this list from the Scotsman Guide is a good place to start.

Qualifying for a bank statement loan

In addition to determining your net income, lenders also look at the following things when determining home loan qualification:

• Two-year timeframe. Most lenders require self-employed borrowers have at least two years of experience with consistent income.
• Debt-to-income-ratio. This ratio determines the maximum loan amount. Some lenders may go as high as 55% (traditional mortgages are usually between 36% to 45%), though the actual ratio is lender specific.
• Down payment. These loans tend to require larger down payments than traditional mortgages. A borrower with great credit may still be required to put 10% down (conventional mortgages allow for 3% down), but some lenders may require more.
• Credit score. Expect a higher credit score requirement with bank statement loans (680+). While you may qualify with a lower score, you’ll definitely be charged a higher interest rate.

Also, a note about interest rates. Because these loans are considered riskier, expect interest rates to be 1% or more higher than for traditional mortgages. Though, as more lenders start offering non-QM loans, rates may become more competitive.

Stated income loans for real estate investors

While stated income loans don’t exist for owner-occupied properties and they aren’t intended to buy a primary residence. They’re still available for borrowers looking to purchase an investment property. This is a big help for borrowers like real estate investors, house flippers, wanna-be landlords, and self-employed borrowers looking to purchase a non-occupant property and qualify for a loan program without fully documenting their income or providing tax returns.

Brian O’Shaughnessy, CEO of Athas Capital Group, says that many of his clients use these loan types to buy another rental property to better their cash flow, or they’re flipping a property and need a loan to finance the remodeling stage. In addition, some borrowers use stated income loans temporarily because they expect a large cash advance at the end of the year, but don’t want to pass up an investment property — they use these loans to keep a portion of their own capital to use for other investments.

“Stated income loans are growing. It’s a step up from hard money loans,” O’Shaughnessy says. (Hard money loans are specialized collateral-backed loans, which have high-interest rates and short terms usually around 12 months.)

Qualifying for a stated income loan

Lenders who offer stated income mortgages aren’t qualifying borrowers nonchalantly. There’s still a mortgage application process. Borrowers need to have good credit scores, plenty of cash reserves, and a large down payment. Many stated income loans are based on the equity position of the property, which means that the more the borrower puts down, the easier it’ll be to get the loan.

“With us, a buyer has to put down at least 30% down compared to the regular 20% with a conventional loan. Many of our clients end up putting down 35%-50%,” O’Shaughnessy says. “The loan also has a maximum 70% loan-to-value ratio.”

The borrower’s employment is verified, but the application just has to state monthly gross income. Bank account statements and asset documentation are required to show that the borrower does indeed have the money. Also, similar to bank statement loans, interest rates will most likely be higher than a traditional mortgage loan depending on the lender.

The post Stated Income Loans Available in 2024 first appeared on My Mortgage Insider.

You bet you can. Lenders are happy to use the real estate equity you have built up in your home to give you a loan for other needs.

Access home equity with a cash-out refinance

Taking out a new loan on your paid-off house is a big decision, and you really need to think about the ramifications. If you fall behind on repayment, you could risk foreclosure. Whether it’s the right choice will depend on your personal financial situation.

Any loan that isn’t considered a purchase is called a refinance — despite the fact that there isn’t a loan to pay off.

Lana Jern, Owner of Uptown Mortgage

“Anytime you are taking money against your property, you are taking a debt that you didn’t have before,” Jern says. “How you will repay that loan is something to consider.”

She recommends that if you need a lump sum of cash, you consider another way to find the loan amount than borrowing against your primary residence. It’s possible that another type of loan — such as a personal loan — might offer lower interest rates.

For example, if you need to pay for your daughter’s college tuition and she needs a car, too, there might be several ways to find the funds instead of getting a new mortgage. Maybe your daughter can apply for a student loan through her college or the government, or you can acquire a low-interest car loan for the car she needs.

Before you decide to proceed with a cash-out refi or a second mortgage, consider how mortgage rates compare to the interest rates on other loan options. Though mortgage interest rates are often relatively low, it’s not always worth it to put your primary residence on the line — especially for non-essential expenses.

How to access home equity if you’ve paid off your mortgage

The process of borrowing against your home equity will be similar to the application process for your original mortgage when you purchased the home.

A lender will consider factors including your income, credit score, and debt-to-income ratio before issuing you a mortgage.

Conventional loans, HELOC & more: Refinance options

When you’re getting a cash-out refinance, you have a number of different home loan options to choose from. Different types of mortgages carry different loan terms, and different loan limits and some require monthly mortgage insurance.

The best option for converting your homeownership into cash will depend greatly on your personal finances.

Cash-out refinance: FHA vs conventional mortgages

If you’re sure a cash-out refinance loan is the right option, you can get a Freddie Mac or Fannie Mae mortgage refinance, or you can get one through the FHA loan program (which is backed by the Federal Housing Administration).

The amount of cash you can access will depend on your mortgage balance and your home’s market value.

With a cash-out refinance, borrowers can take out 80 percent of the home’s value in cash. This unaccessed amount of equity is functionally similar to the down payment made when home buying.

With an FHA cash-out refinance, the FHA loan limit is 85 percent of the value of your home. It will still be subject to FHA mortgage insurance which means you’ll have to pay a mortgage insurance premium (MIP) for the life of the loan and an upfront mortgage insurance premium. In addition to the cost of the insurance payments, an FHA cash-out refinance is also likely to carry a higher interest rate, especially for borrowers with lower credit scores.

For some people, taking out a cash-out refinance for an investment can be quite profitable.

“Let’s say you take out $100,000 cash from a refinance and invest it into creating more assets. If you put back more than what it cost you, then great,” she says.

For example, it could be worthwhile to use that cash for valuable home renovations or to make a down payment on an investment property.

For more information on the pros and cons of each, check out these articles:

• Conventional cash-out refinance
• FHA cash-out refinance

Alternatives to cash-out refinance: HELOC & reverse mortgages

A cash-out refinance isn’t the only way to turn your home equity into cash. It’s also worth talking to your mortgage lender about a home equity line of credit (HELOC) or a reverse mortgage.

If you need house repairs, Jern says, a home equity loan may work out better in the long run.

“If your home is paid off, you can apply for a home equity loan without much hassle,” she says. “However, a HELOC should be put in place before any emergency happens. It lasts 10 years, and you never ever have to take money out of it. But if you need it, it is there.”

Keep in mind though, if you haven’t set up a HELOC and your husband breaks his leg and can’t work, the lender won’t then give you the equity line of credit.

It doesn’t cost anything to set up a HELOC. This is a very inexpensive way to set up some security for the future. If you do a cash-out refinance, then you’ll have to pay closing costs. A HELOC is the cheapest money you’ll ever get.

Lana Jern, Owner of Uptown Mortgage

Reverse mortgages can help older homeowners with things like medical expenses. The government doesn’t let you take more than 50 percent out in a refinance than the value of the property. The owners of the house can live in their home the rest of their lives with this sort of loan.

“Reverse mortgages can be an affordable option for older people that allows them to have the lifestyle they want like the ability to travel or take care of their house,” she says.

Check your eligibility for a HELOC here (Sep 16th, 2024)

For more information about these other mortgage options, check out the full articles below:

• Home equity line of credit (HELOC)
• Reverse mortgages

A final note on cash-out refinances

When you get a new mortgage loan you’re taking on more risk. You put all the work into paying off the loan balance on your first mortgage so consider whether you want to re-introduce monthly payments into your budget. And, you’re going through the underwriting process with all the verifications and paperwork required that you did when you bought your home.

The government has put in some laws to protect consumers in situations like cash-out refinancing and HELOCs. Under the Truth in Lending Act, you have the right to rescind your HELOC or refinance loan within three days of closing.

“The government wants people to have time to go home and determine if they can really afford it,” Jern says.

For example, a cash-out refinance might make sense if you’re planning to make home improvements. You might use the money to pay off high-interest debt. This could be a good strategy if you want to do some debt consolidation and pay off credit cards — as long as you don’t accrue more credit card debt again going forward.

Bottom Line: Make sure that a cash-out refinance is the best financial choice for your situation — there may be other financing options available to accomplish your goals.

The post Cash-Out Refinance With No Mortgage | Requirements 2024 first appeared on My Mortgage Insider.

“It can be tough to support a family on one income. But, if a single mom has decent credit, they could qualify for a mortgage,” says Mark Gundersen, a senior loan officer at Shelter Mortgage Company in Saint Charles, Illinois.

If you’re a single mom and looking to buy a home, here are some of the loan programs that might work best for you.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Single parents have a harder time qualifying for some mortgage loans

Single women accounted for 20 percent of all first-time home buyers in 2021, according to the National Association of Realtors Profile of Home Buyers and Sellers.

This makes single women the second most common type of home buyer, behind married couples. Single male buyers came in at just 11 percent of first-time buyers.

Less than a decade ago, only 14 percent of home buyers were single women. But the NAR’s report shows that single women — and single mothers in particular — still face challenges. 

For example:

• Single female home buyers tend to be a few years older than single male home buyers
• The median price of homes purchased by single women is about 25 percent lower than the median price of all homes sold

Yes, the number of single, female home buyers has increased. But these statistics don’t reflect the number of women who tried to buy a home but did not succeed.

Rising home prices complicate home buying for single women

In many real estate markets across the U.S., the rising price of homes is also pushing the dream of homeownership out of reach for many single mothers.

“With the lower end of the housing market — smaller, moderately priced homes — seeing the worst of the inventory shortage, first-time homebuyers who want to enter the market are having difficulty finding a home they can afford,” said NAR Chief Economist, Lawrence Yun.

See if you qualify to buy a home. Start here (Sep 16th, 2024)

Hope for single mothers who want to buy their own home

There is hope for single moms looking to get a new home loan. Local housing finance authorities or “HFAs” (a quick Google search can help find yours) have housing counselors available to talk through options for your financial situation.

Options include loans that are well suited for single-income home buyers, along with grants or loans that can help cover your down payment and closing costs.

These programs can vary by city or state, so it’s important to talk to someone in your area.  

“There are usually income and purchase price limitations depending on the county you are going to buy the house in,” says Gundersen. “But, those who qualify can get down payment assistance and below-market interest rates for some programs.”

Single mother down payment assistance programs 2024

Down payment assistance programs can be great opportunity for single-income families who can afford monthly mortgage payments but might be having a harder time coming up with the money for a down payment.

Down payment minimums vary by loan type. The minimum down payment is typically between 3.5 and 20 percent of the loan amount — and loans backed by the VA and the USDA don’t require them at all!

Still, according to NAR’s 2021 survey, the median down payment amount for first-time homebuyers across all loan types was 7 percent.

For a $300,000 home, a 7 percent down payment would require $21,000 in cash — a huge hurdle for most home buyers.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Single mom first-time home buyer grants

Down payment assistance programs can help single mothers across the U.S. clear their down payment hurdle. 

With over 2,000 DPA programs nationwide, home buyers in every state can find a local program they may qualify for. 

Some examples of assistance programs include:

• Pinellas County, Florida, First-time Homebuyer Program helps with down payment and closing costs assistance with a $7,500, zero percent interest loan that is deferred until you sell, refinance, or payoff the home
• Maryland’s Department of Housing and Community Development offers grants and deferred loans to help with down payments
• The Missouri Housing Development Commission provides forgivable loans to help cover down payments or closing costs

Every U.S. state and territory has some sort of assistance program. Check0 the U.S. Department of Housing and Urban Development’s (HUD) state-by-state guide, to find yours.

Many programs require recipients to attend first-time home buyer classes. A few programs provide help through tax credits or vouchers, but most issue grants and loans.

Grants never have to be repaid. Some loans are forgivable if you stay in the home long enough. Most have low interest rates or charge no interest.

Check your eligibility for a down payment assistance program. Start here (Sep 16th, 2024)

Best home loans for single moms

Mortgage lenders don’t brand their loan products for specific demographics such as single mothers. But several types of loans offer eligibility requirements that may help single mothers to qualify for the home purchase.

For example, each loan type below has low down payment requirements, less strict credit score requirements, and different mortgage insurance requirements.

“You should investigate these loan options for your situation with your lender,” says Gundersen.

FHA loans

FHA loans come with the backing of the Federal Housing Administration (FHA). Because the FHA insures the loan, lenders can usually offer lower mortgage rates and require only 3.5 percent down even when borrowers have less-than-stellar credit. 

You could borrow with a minimum credit score of 580 in most cases. Some borrowers can get approved with a credit score as low as 500, but you’d need to put 10 percent down. And, it’s harder to find a mortgage lender willing to OK such a loan.

FHA loans require at least 3.5 percent down, but home buyers don’t have to use their own money. Family members or friends can contribute — and borrowers can use a down payment assistance grant or loan.  

FHA mortgage insurance is permanent

One of the downsides of an FHA loan is the mortgage insurance premium (MIP). Part of the premium is paid upfront and another part gets added to your monthly payments.

Conventional loans require mortgage insurance, too, unless you put 20 percent down. But private mortgage insurance (PMI) on a conventional mortgage can go away once you pay the loan balance down to 80%.

“For FHA loans, you will pay mortgage insurance till the end of the loan even if you paid off 50 percent of the principal. It’ll be there until you refinance or sell the house,” Gundersen says.

This extra cost can be worthwhile if it allows you to stop paying rent and become a homeowner sooner. Once your credit score and debt-to-income ratio improve, you could refinance out of the FHA loan to eliminate the extra mortgage insurance.

Get an FHA rate quote here (Sep 16th, 2024)

VA loans

If a single mom is eligible for a VA loan — either through her own military service or as a surviving spouse of a vet — it could be the best loan program out there for her.

VA loans are available to military veterans and their families with no down payment required, and the U.S. Department of Veterans Affairs does not require mortgage insurance — just a one-time, upfront funding fee.

On top of that, VA loans tend to have some of the best mortgage rates — which means lower mortgage payments — in the market.

“You are getting an unbelievable deal with this loan, which is well-deserved,” Gundersen says. “You have no mortgage insurance and there are no down payment requirements.”

Check your VA loan eligibility. Start here (Sep 16th, 2024)

USDA loans

The U.S. Department of Agriculture (USDA) offers a variety of loans to help low-income and moderate-income buyers in rural areas. 

But “rural” can be a misnomer. Most ZIP codes in the U.S. qualify as rural, including many suburbs of popular, metropolitan cities. 

USDA loans have very low interest rates and no down payment requirement. Plus, the mortgage insurance premium is lower than that of FHA loans. 

But USDA loans do have maximum income limits. Typically, your annual salary can’t exceed your area’s median income by more than 15%. 

USDA Guaranteed loans come from private lenders, just like any other type of mortgage. The USDA also has a Direct Loan program for low-income buyers. 

Check your USDA loan eligibility. Start here (Sep 16th, 2024)

Conventional loans

Gundersen says that you may end up needing at least a 5 percent down payment of your own money to get approved for a conventional loan. 

But conventional mortgage products like Fannie Mae’s HomeReady™ require only 3 percent down. And, HomeReady lets you document income from a boarder or roommate to boost your loan application. 

Borrowers will need a pretty good credit score and credit history. They’ll also need a lower debt-to-income ratio when compared to an FHA loan.

But if you put less than 20 percent down, you will pay private mortgage insurance for a while — until your loan balance dips to 80% of the home’s value. 

You can choose from 10-, 15-, 20-, and 30-year fixed to pay off the loan’s principal and interest.

Get a conventional loan rate quote here (Sep 16th, 2024)

Home loans for single mothers FAQs

Can I buy a home as a single mom?

Absolutely. The home buying process is open to anyone whose credit score and monthly income meet their lender’s minimum requirements. Single mothers who face financial challenges can find help through local down payment assistance programs. Choosing a loan with a low down payment requirement helps, too. 

Are there programs to help single parents buy a house?

Single parents who want to buy a home can find help through a variety of programs, especially down payment assistance programs and first-time home buyer loans through a local housing authority. These programs are designed to help anyone overcome the financial challenges to becoming a homeowner — so they may not be branded as “single parent loan programs.”

How can a single parent save for a house?

It’s hard to save money when your monthly budget is already stretched thin. You have to be reasonable when deciding how much you can save each month. Once you’ve decided how much you can save, set up automatic deposits into savings on every payday so you don’t have to think about it. And be sure to explore down payment and closing cost assistance programs in your area. They could help you buy without a huge savings account balance.   

Do single parents get help with mortgages?

Anyone with financial challenges — including single parents — can get help buying a house. Local housing authorities offer loan programs; local governments and some non-profits can help with the down payment. 

Does child support count as income for a mortgage?

Yes, child support payments can count as income on your mortgage application. You will have to show proof that you’ve received the payments regularly for the past six months and that the payments are scheduled to continue for at least three more years. Check with your loan officer about your loan program and your lender’s specific requirements.  

How can I improve my credit score for a mortgage?

Making regular, on-time payments on your student loans, auto loans, and credit cards can help improve your credit score in the months before applying for a mortgage. You won’t need perfect credit to get a mortgage, but increasing your score should open up more home loan options and give you access to more competitive interest rates.

Check your home buying eligibility

There are tons of programs that help single moms get approved to become a homeowner instead of a renter.

Get a free eligibility check and be on your way to giving the gift of homeownership to yourself and your kids.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post Home Loans for Single Moms | Grants & Programs 2024 first appeared on My Mortgage Insider.

“They are now living in their dream home, near their family, have increased their retirement nest egg and have no mortgage payments for as long as they live in the home. That is why this 62-and-older couple chose to get a mortgage at this time in their lives,” says Bill Parker, senior loan originator at Wallick & Folk Inc. in Scottsdale, Ariz.

Click to check your home buying eligibility. (Sep 16th, 2024)

Can senior citizens get mortgages?

Senior citizens can get mortgage loans just like everyone else – it all depends on income, credit score, and cash available. Even seniors into their 90s can get mortgages if they qualify financially.

There are varying reasons for wanting a mortgage. Some seniors may want to downsize to a single-story home or a property that requires less upkeep or perhaps they want to be closer to family.

Some seniors even get mortgages to buy homes for their children who couldn’t qualify for a loan.

No matter the reason, senior citizens are more than able to qualify for a mortgage. According to the Federal Trade Commission (FTC), elderly people are protected against discrimination from getting a home loan or any kind of credit based on their age. It’s called the Equal Credit Opportunity Act, a federal law that protects borrowers against bias due to age, race, color, religion, national origin sex, marital status, or even those who get public assistance.

This means that all seniors are eligible to buy a home if they can qualify.

Click to check your home buying eligibility. (Sep 16th, 2024)

What loans are available to senior citizens?

The sky’s the limit when it comes to mortgages for seniors if they qualify and can prove they have enough regular income. That said, loan applications for retirees often look a bit different.

What loan term is best for seniors?

One thing for seniors to consider is how long a loan term they should get. For some, a 30-year mortgage may be a little long.

At the same time, a 30-year loan may be the best option for some based on its lower monthly payments.

The length of the term a senior gets could also depend on requirements that are specific to certain loan types.

Click to check your home buying eligibility. (Sep 16th, 2024)

Loan program options for seniors

Senior home buyers have all the same loan program options as regular home buyers. That mean that the best loan option will depend on the specifics of their personal finances including how much of a down payment they can afford to make or the amount they feel comfortable paying toward a monthly mortgage payment.

For seniors who can, a conventional loan is likely to be a great option.

But for seniors who may have a harder time qualifying for a conventional loan, there are a number of loan program options to help make home ownership possible.

Government home loans for seniors citizens

FHA loans

FHA loans, which are backed by the Federal Housing Administration, are an accessible option for home buyers who may be having a harder time coming up with the money for a down payment.

For borrowers with a credit score of at least 580, it’s possible to get an FHA loan with just 3.5% of the purchase price down. This can be a great option for senior home buyers who are buying a home for the first time.

VA loans

For senior homebuyers who have military experience, a VA loan can be a great option. These loans are backed by the Department of Veterans Affairs and offer a number of significant benefits, including relatively low interest rates, no down payment, and no mortgage insurance.

USDA loans

For seniors who live in rural areas, the USDA program offers zero-down payment loans to borrowers who make less than the median income for the geographic area.

Home Equity Conversion Mortgages (HECM)

For senior homebuyers who need another option, there is the Home Equity Conversion Mortgage. It can be a great option for borrowers who don’t meet the income requirements of a regular mortgage. That can happen when people are living on fixed incomes like pensions, retirement income, or Social Security.

Some senior homebuyers may find themselves in the same position as the couple Parker worked with. They already owned a home worth $550,000 and had no mortgage left on it. They netted about $525,000 from the sale of the house after paying a real estate commission and closing costs. The home they wished to purchase was listed at $605,000.

If not for the HECM, they would have had to use up all of their net proceeds plus another $100,000 of their retirement savings to pay the rest of the purchase price plus closing costs, Parker said.

Instead, they chose a HECM for about $355,000 on the new home, and they only needed $275,000 of the sale proceeds. This allowed them to not only leave their retirement savings intact, but they added the remaining $250,000 of the proceeds from the profits of selling their house into their retirement account.

HECM is a popular loan program option for qualifying senior citizens. If you are 62 or older, are a current homeowner, are residing in your home, and have paid off most or all your mortgage or paid down, you can participate in FHA’s HECM program.

This is FHA’s reverse mortgage program — the only such program insured by the federal government — and it allows people to purchase another primary residence if they have extra cash on hand to pay the difference between the HECM proceeds and the sale price plus closing costs.

Click to see you FHA eligibility. (Sep 16th, 2024)

Home equity loans for seniors

You could use a cash-out refinance but that resets the interest rate and the loan term on your mortgage. If you’ve got a mortgage you’re happy with then refinancing might not be the best option.

For senior borrowers looking to access their home equity, there are a couple of second mortgage options.

1. Home equity loan: This kind of loan will give borrowers a lump sum of cash upfront that they’ll then pay back at a fixed rate over a set period of time.
2. Home equity line of credit (HELOC): Unlike a home equity loan, this type of loan operates as a revolving line of credit, up to a set limit.

It’s important to remember that with a home equity loan, the loan is secured by your home, which means that your home could be on the line if you fail to repay. Given that, it’s important not to take a second mortgage on lightly and to make sure that you’re not using it for anything frivolous.

While it could be worthwhile to make necessary home improvements, it’s probably not the right type of loan for a new car purchase. It could be a good choice if you’re looking to pay off high-interest credit card debt but not if you’re simply going to run up the credit card balances again.

Mortgages are becoming more accessible to seniors

A few years ago, the biggest players in residential mortgages started allowing seniors to use imputed income from their retirement funds, IRAs and other retirement assets to qualify for the loan they wanted.

This policy change allows seniors to use the balances in these accounts to supplement their earnings on paper without ever taking out any money. Before this change, some seniors were turned down for loans because their debt-to-income didn’t match high standards even though they had great equity in their homes, had some savings, and had good credit scores.

Click to check your home buying eligibility. (Sep 16th, 2024)

Get advice before choosing a loan

Sometimes the elderly become prey to predatory mortgage lenders. Under the Truth in Lending Act (TILA), lenders have to disclose the cost and terms of a loan along with a lot of other information. The Real Estate Settlement and Procedures Act (RESPA) prohibits the payments of unearned fees and kickbacks.

According to the National Consumer Law Center, equity-rich and cash-poor elderly homeowners are a big target for unscrupulous mortgage lenders. It is recommended that before signing anything, you talk with a trusted accountant or attorney about the terms and costs any potential home purchase and new mortgage.

Click to see today’s rates. (Sep 16th, 2024)

The post Best Home Loans for Senior Citizens in 2024 first appeared on My Mortgage Insider.

VA loan benefits have some amazing features as it is — no down payment, no private mortgage insurance, and low interest rates — that are available to eligible veterans, active-duty service members, and surviving spouses. But the potential of other benefits for those with a service-connected disability are also very valuable.

One of the best benefits includes a waiver of the upfront VA Funding Fee. The fee helps the U.S. Department of Veterans Affairs keep the loan guaranty program running.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

What is the VA funding fee?

The VA funding fee is a percentage of the total loan amount that is paid to the U.S. Department of Veterans Affairs upon closing.

This fee was established to enable the VA home loan program to be financially self-sustaining.

How much is the VA funding fee?

The amount of the funding fee is typically between 2.3% and 3.6% of the total loan amount, but this is variable based on the size of the down payment, the type of loan (refinance or purchase), and the nature of the borrower’s military service.

For example, a veteran or active-duty service member putting no money down will pay 2.3% of the loan amount if they are a first-time user of a VA loan. That’s a savings of roughly $4,600 for a $200,000 loan. The money can be rolled into the loan. If this person already had a VA loan, the price would go up to 3.6 percent. Reservists or National Guard veterans also pay 2.3% percent for first-time use.

About one-third of VA loan borrowers are eligible for a funding fee exemption, which means they pay no funding fee toward the purchase of their new home. The funding fee represents a significant portion of the closing costs for a VA loan, which means the savings can be substantial.

The funding fee for a refinance loan is much smaller. Borrower can expect to pay a funding fee of 0.5% when refinancing, regardless of how many times they do it.

Though the funding fee is due at loan closing, a VA lender will allow you to finance it into the overall amount of the loan — which means you’ll pay off the funding fee as you make monthly payments toward your mortgage.

VA funding fee exemptions

While most borrowers will pay a funding fee, some borrowers are eligible for a funding fee exemption.

Talk to your lender about a funding fee waiver if you:

• Receive VA disability compensation
• Receive active duty or retirement pay even though you’re eligible for disability pay
• Are the surviving spouse of a veteran who died in the line of duty or from a service-related disability
• Are on active duty and have received the Purple Heart

A VA mortgage lender will be able to help you determine by status, including by requesting your Certificate of Eligibility (COE). A funding fee waiver can make becoming a homeowner easier.

What that means for VA borrowers

Veterans with a 10% to 100% disability rating don’t have to pay the VA funding fee, which can mean huge savings.

If a first-time homebuyer is buying a $300,000 home with a VA mortgage loan and qualifies for disability, the 2.3% funding fee is not charged. That saves the borrower $6,900.

Check your VA mortgage rates. Start here (Sep 16th, 2024)

Tax exemptions could save big money for disabled veterans

Once a disabled veteran buys a house, they can be eligible for property tax exemptions and credits that help them out even more financially. The Disabled Veterans Property Tax Exemption varies from state to state. Check out the VA eBenefits portal to find what you might be eligible for in your area.

Some states – for example Texas, Virginia, Florida, and Hawaii — offer a full property tax exemption for veterans who are 100% disabled as a result of service. Other states offer certain dollar amounts of property tax exemptions for veterans disabled from 10% and up.

Tennessee gets specific by saying that a disabled veteran may receive a property tax exemption of up to the first $100,000 of his or her primary residence if the veteran is 10% disabled, has lost the use of two or more limbs, or is blind in both eyes as a result of service.

Disabled veterans buying a house might get income tax help

With a VA loan, some participants might also get another benefit in the form of a Mortgage Credit Certificate (MCC). This certificate permits a qualifying applicant purchasing a home to claim a tax credit that may reduce the applicant’s federal income tax liability.

If they meet the qualifying income limits, veterans can get a 20% tax credit off the amount of annual mortgage interest paid. A tax credit is taken directly off of the actual amount of federal tax due, which is even more beneficial than a tax deduction that simply deducts mortgage interest paid from your taxable income.

After that, the veteran can still write off the remaining 80% of the mortgage interest paid each year as a tax deduction.

Disabled veterans: How to qualify

To qualify, disabled veterans must have a VA Disability Awards letter which states what their monthly benefit amount is and their disability rating.

Disabled veteran home loan FAQ

Can I buy a house with 100% VA disability?

A borrower’s disability status has no effect on their eligibility for a VA loan. However, veterans with a 100% disability rating may qualify for a funding fee exemption, which could see them money on the overall cost of their new home.

Does the VA offer 100% financing?

VA loans offer 100% financing, require no mortgage insurance, and feature more flexible qualifying requirements than some other loan programs.

What fees are waived with a VA loan disability?

If you receive VA compensation for a service-related disability then you may be eligible for a VA funding fee exemption.

Do disabled veterans get lower interest rates?

While disabled veterans don’t get access to lower interest rates than any other VA borrower, the VA guarantee means that VA loans are safer for lenders. Because of this government agency-backing, VA lenders are able to offer lower interest rates than on other types of loan.

What credit score do you need for a VA loan?

While the VA itself sets no minimum credit score, each lender will have their own qualifying standards, in order to be confident you can pay back the loan.

What is the maximum you can borrow with a VA loan?

There are no loan limits for VA loans. A VA lender can help you request your Certificate of Eligibility, which indicates your VA entitlement — or the amount of money the VA will guarantee toward your loan.

Is a VA loan better than an FHA loan?

Ultimately, the best loan for any borrower will depend on the specifics of their financial circumstances and goals. However, the VA loan program requires no down payment or mortgage insurance, which could represent significant savings compared to the FHA loan program, which requires both.

Bottom line: Disabled veterans could save

There are substantial VA home loan benefits available to qualifying military borrowers. These benefits – including zero down payment, no private mortgage insurance, and competitive interest rates — could put homeownership within reach of many vets and service members, and allow them to begin building home equity.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

The post VA Loans for Disabled Veterans | 2024 first appeared on My Mortgage Insider.

There are so many mortgage lenders, and the differences between lenders and loan programs aren’t always clear.
The right home loan for you will depend on your personal finances and your plans for the home. Other factors, like your location and work history, could impact your decision, too.

Let’s get to work finding the best first-time home buyer loan for you.

Check your home buying eligibility. Start here (Sep 16th, 2024)

First-time home buyer loans

First-time home buyer loans exist to make financing more accessible for borrowers who are buying their first home.

Most home buyers have gotten loans before: personal loans, credit cards, auto loans, and student loans, for example. A mortgage loan is similar. The lender provides upfront cash, and you pay the money back over time.

But mortgages are different from other types of loans, too. For example, mortgage lenders are more thorough. They’ll ask you to prove your income — not simply state your income. They’ll also want to know about your monthly bills. They’ll even want to see your bank account to ensure you have a down payment saved up.

Lenders need information about your financial life because they’re taking a risk by loaning you hundreds of thousands of dollars. They need to make sure you can afford the loan payments.

First-time home buyer programs are often even more careful about checking and double-checking your borrowing credentials.

Types of mortgage loans for first-time borrowers

Mortgage loans for first-time buyers fall into two broad categories: government-backed loans and conventional loans. While these loan types are explicitly for first-time home buyers, they tend to be the best options.

Government-backed mortgage loans

First-time home buyers often think government-backed loans, such as FHA and VA loans, come directly from the federal government. This isn’t true. The mortgage still comes from a private lender. The government only insures, or backs, the loan.

With government insurance in force, lenders can be more flexible about which borrowers they approve. This means many first-time borrowers can qualify, without having to pay huge down payments or high-interest rates.

Government-backed mortgages are a great choice for many first-time borrowers — even though most government programs charge upfront fees. We’ll explore the major government-backed home purchase loans below.

Conventional loans

Conventional loans do not have the direct backing of the federal government. Without federal insurance, lenders rely more on the borrower’s own credentials. In most cases, conventional borrowers with excellent credit and large down payments get below-average mortgage rates.

Several conventional loan programs, such as Fannie Mae’s HomeReady and Freddie Mac’s Home Possible, can offer great deals to first-time buyers who have low down payments. In most cases, these loans require borrowers to pay for private mortgage insurance, or PMI, each month.

To use these programs, buyers must use the new home as a primary residence, and the loan amount must fall within the conventional loan limit. In 2024, that loan limit is $766,550 for most single-family properties. These loans are almost always 30-year, fixed-rate mortgages.

We’ll take a look at those specific conventional programs next.

Low down payment conventional loans

Years ago, first-time home buyers who didn’t have large down payments needed government-backed loans.

Now, conventional loans also include a suite of loan products that work well for first-time buyers. Most conventional lenders around the nation offer the following loan options:

Conventional 97

Conventional 97 loans require a minimum down payment of only 3% — well below the 20% many borrowers think they’d need for a conventional loan. This minimum even beats an FHA loan’s minimum down payment of 3.5%.
Unlike FHA loans, the Conventional 97 program works only for first-time buyers including anyone who hasn’t owned a home in the past three years. The minimum credit score with most lenders is 620.

HomeReady

Fannie Mae’s HomeReady is another 3% down conventional loan program. It’s designed for repeat or first-time home buyers with low-to-moderate income levels. You’d need to earn 80% or less of your area’s median income to qualify.

If you’re eligible to use this program, you may be able to document income from a boarder or roommate to increase your loan size. HomeReady can also offer reduced private mortgage insurance premiums.

Lenders look for credit scores of at least 620. If everyone on the application is a first-time homeowner, at least one borrower will need to take a homebuyer education course.

Check to see if you qualify to buy a home with the HomeReady Mortgage. Start here (Sep 16th, 2024)

Home Possible

The Home Possible loan from Freddie Mac resembles Fannie Mae’s HomeReady. Repeat and first-time buyers who earn 80% or less of their area’s median income can qualify, and the loan requires a minimum down payment of only 3%.

One key difference: Home Possible requires a credit score of 660 while HomeReady works for borrowers with scores as low as 620. Despite this higher minimum credit score, Home Possible can be more credit flexible. For example, lenders can use rental history to help qualify borrowers when they have a “thin” credit history (meaning they haven’t borrowed or used credit cards much in the past).

Note, though, that borrowers who rely on rental history will need to make a 5% down payment — more than the typical 3% down on these loans.

HomeOne

Home One is a 3% down loan program that works only for first-time home buyers. In most cases this means a buyer who hasn’t owned a home in the past three years.

Unlike Home Possible and HomeReady, Home One has no income limits. First-time buyers at any income level can use the program.

Lenders do look for higher credit scores — 660 is a typical minimum for this loan.

Low down payment government loans

Conventional loans offer great options for first-time buyers, but many buyers still choose government-backed loans, and for good reason. Some of these mortgage programs work with no money down. Others open the home buying process to buyers with below-600 credit.

FHA loans

The FHA loan program isn’t strictly a first-time home buyer program. It’s designed to make homeownership more accessible for anyone who wants to buy a primary home. Mortgage insurance from the Federal Housing Administration helps accomplish this goal.

With the FHA’s backing, buyers with credit scores as low as 580 can buy a house with as little as 3.5% down — a big help for many first mortgage seekers.

Borrowers help pay for the FHA’s backing in the form of upfront and monthly mortgage insurance premiums. For borrowers who wouldn’t qualify for a mortgage otherwise, these premiums are money well spent.
Even some first-time buyers who qualify for conventional loans can find lower interest rates through the FHA.

Check your FHA eligibility. Start here (Sep 16th, 2024)

VA loans

Veterans and active duty military service members can buy homes with no money down — and no monthly mortgage insurance premiums — through the VA loan program.

If you qualify for a VA loan, it’ll be hard to find a better deal with another type of mortgage. Along with zero down and no PMI, VA loans typically have lower interest rates than other home loans.

Private lenders underwrite these loans, but they’re insured by the U.S. Department of Veterans Affairs.

Borrowers will need to pay an upfront insurance fee, called the VA Funding Fee. This one-time charge equals 2.3% of the loan amount for first-time borrowers with zero down. And, it can be rolled into the loan amount to avoid paying in cash at closing.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

USDA Guaranteed loans

Like VA loans, USDA loans don’t require a down payment. But not just anybody can apply for a USDA loan.

This loan product is insured by the U.S. Department of Agriculture for the purpose of rural development. Only buyers who live in rural areas, as defined by the USDA, can apply.

Also, buyers need a credit score of 640 or higher and annual income below 115% of their area’s median income.

Like FHA loans, USDA Guaranteed loans require an upfront and an ongoing mortgage insurance fee. The USDA’s fee is lower than the FHA’s for most borrowers.

When lenders offer USDA loans, they’re participating in the USDA Guaranteed Loan program. The USDA also runs a Direct Loan program for low-income buyers in rural areas. The USDA itself lends money to buyers through the Direct Loan program.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

Good Neighbor Next Door program

Public school teachers, firefighters, police officers, and other public servants may be able to buy homes for half price through the Good Neighbor Next Door program. The U.S. Department of Housing and Urban Development (HUD) operates this program.

Only certain homes in certain areas are eligible. The neighborhood must be an area in need of revitalization, as defined by HUD. The home must also be a foreclosure that had been financed with an FHA loan.

Still, if things line up right, these homes sell at half price. That leaves a lot of room in the budget for improvements.

HUD keeps a database of eligible homes here.

HomePath Ready Buyer program

If you’re thinking about buying a foreclosure to save money, check out Fannie Mae’s HomePath Ready Buyer program. This program manages a database of foreclosed homes that first-time home buyers can choose from.

Even though the program is managed by Fannie Mae, a government-sponsored company that regulates conventional loans, buyers can use conventional, USDA, or VA loans to finance their new home purchase.

First-time buyers can also get 3% of their home loan amount as closing cost assistance. This lowers another barrier to homeownership.

Native American Direct Loan (NADL)

Military veterans who are also Native Americans — or whose spouses are Native American — might qualify for a Native American Direct Loan.

The Department of Veterans Affairs, which insures VA loans, offers Native American Direct Loans to veterans who qualify. Veterans can use the loan to finance a home on federal trust land.

These loans require no down payment and have low closing costs. Like VA loans, they also offer competitive interest rates.

State first-time buyer programs

Almost every state operates a Housing Finance Agency, or HFA, that exists to help first-time buyers achieve the goal of homeownership.

These agencies help connect first-time buyers with the best mortgage programs, including down payment assistance programs that provide grants and loans.

Other helpful first-time buyer resources

Help is available to first-time buyers who feel overwhelmed by the home-buying process. This help can come from a variety of places, including:

• A real estate agent: A local agent can help guide you through the entire home-buying process, from finding the right home to negotiating a contract.
• Mortgage preapproval: A preapproval from a mortgage lender is a rehearsal for the real mortgage application process. Borrowers who get preapproved will know how much they can borrow, and they’ll get an estimate of their monthly mortgage payments.
• Down payment assistance: Local governments and non-profit organizations can help you meet your loan’s down payment requirement, Some programs give out grants you’d never have to repay; most offer loans. Some loans are forgivable.
• Closing cost assistance: Closing costs range from 3% to 6% of the home’s purchase price. Organizations that offer down payment assistance usually offer closing cost assistance, too.
• Down payment gifts: Other people — friends and family members, for example — can help you make your down payment. Make sure your loan officer knows you’ll be using gifted money.
• Co-borrowers: If you have a low credit score, you may need a co-borrower to boost your eligibility. Co-borrowers take responsibility for the loan if you don’t repay it.
• Homeownership education: Many lenders offer home buyer education courses (they may even be mandatory as part of your loan), that can help you navigate the process of buying a home.

Becoming a homeowner is a big deal, and a lot of first-time borrowers need help completing the process.

The effort can be worthwhile. Along with the pride of ownership, owning a home means building home equity which can help create a more stable financial life in the future.

“We see homeownership as an exciting and still powerful tool for building wealth and increasing family stability. That’s why homeownership is a good thing,” said Daniele Samalin, vice president of Housing Partners Network and president of HPN’s Framework, the mobile-friendly homebuyer education course.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Best mortgages for first-time buyers FAQs

What is the best loan for a first-time home buyer?

There’s no single best mortgage for all first-time home buyers because each buyer faces unique challenges. Conventional mortgage programs like HomeReady and Home Possible can help income-challenged buyers, while FHA loans are great for credit-challenged buyers. If you’re a veteran or service member, a VA loan is usually best.

What credit score is needed for first-time buyers?

Technically, the lowest possible credit score needed for first-time buyers is 500. But in reality, it would be hard to get approved with a score that low. You’d need to make a 10% down payment on an FHA loan, and you’d need to find a lender that will agree to work with you. A score of 580 makes buying with 3.5% down possible. Higher credit scores create more mortgage options. A FICO score of 620 is high enough for most conventional mortgages.

What is the minimum down payment for a house?

Minimum down payment amounts vary by loan type. USDA and VA loans, for example, require no money down. Conventional loans can go as low as 3% for first-time buyers. FHA loans require at least 3.5% down.

Who is considered a first-time home buyer?

Naturally, borrowers who have never owned a home qualify as first-time home buyers. But even if you’ve owned a home before, you can use many first-time buyer programs — as long as you haven’t owned property in the past three years.

Who qualifies for first-time home buyer programs?

Most programs limit their benefits to people who have never owned a home or to previous homeowners who haven’t owned a home in the past three years. A few programs also have income limits. If you earn too much, you won’t have eligibility to borrow. You also need to meet minimum credit score requirements for your lender and loan program; typically a score of 580-620 or higher is needed.

Which is the easiest first-time home buyer loan to get?

FHA loans feature relaxed credit qualifying rules. Scores as low as 580 can still qualify for a 3.5%-down loan. Debt-to-income ratios (DTI) for FHA borrowers could go as high as 50%. FHA loans work for anyone who wants to buy a primary residence — not just first-time home buyers.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post Best First-time Home Buyer Loan Options 2024 first appeared on My Mortgage Insider.

Pros & cons of tapping home equity

Traditionally, seniors don’t tap into their home equity for retirement income.

“I believe many people in their 70s and 80s look at it as welfare,” says Mary Russell, broker/owner at Mortgage Results in Aptos, Calif. “They feel they won’t be able to leave anything for their kids, and their kids are against it, too, because it takes away from their inheritance. That’s not true.”

Russell has worked with many people during their retirement years to use the equity in their homes. It all comes down to the fact that if they have equity in their home, they can use it to live a better life, pay for remodeling or a grandchild’s college or do anything else they want.

According to a recent survey by Voya Financial, 85 percent of non-retirees said they want to own their own home in retirement. However, a quarter of retired respondents revealed they still had a mortgage, and over half of this group had a balance of $50,000 or more.

Best options for accessing home equity

Here are a few options that seniors can use to access home equity:

Cash-out refinance

A cash-out refinance is a new mortgage results in the borrower getting cash in hand at closing or paying off debt that was not used for the purchase of the home. Cash-out refinances can help improve cash flow by paying off other debts with higher interest rates or payments.

These refinances can also be good sources of funding for education for children or grandchildren. The money can be used for just about anything including home improvements, investments or medical bills.

Home equity line of credit (HELOC)

A HELOC works like this: a lender agrees to give up to a certain amount based on the homeowner’s equity over a fixed time. This allows the retiree revolving access to approved funds. Unlike credit card debt, HELOCs are secured by equity and present less risk to lenders, according to the Urban Institute study titled Seniors’ Access to Home Equity.

Charitable home remainder annuity

It’s another planning tool, Russell says. It lets you convert your real estate into lifetime income. It reduces your income taxes now and estate taxes when you die. You pay no capital gains tax when the asset is sold. Basically, you will your home to a charity in return for an annuity that lasts the homeowner’s lifetime or another set amount of time.

Sell the home

This can give seniors a chance to downsize, rent or buy into a retirement community or long-term care community.

Home-share

This growing trend helps retirees share their extra private spaces with the appropriate adult guests. Many states, cities and senior organizations have begun to help match seniors which helps bring in extra income, reduces the load of household chores and gives instant companionship.

For instance, the New York Foundation for Senior Citizens’ free Home Sharing Program helps link these home sharers. One of the home-sharers must be age 60 or older. Professional social work staff comprehensively screen and check the references of all host and guest applicants.

Russell says that each retiree who is looking to increase their income should talk with their financial professionals and family members to talk about options and what would be best for their situation – financially and emotionally.

Reverse mortgage

Also called Home Equity Conversion Mortgages or HECMs, are government-insured loans allowing those 62 and older to extract from their home equity. There are many types of reverse mortgages; ones that pay off our existing mortgage and give you extra cash; others that give out monthly payments; and others that give a lump sum.

Russell works with many who use reverse mortgages to change their lives. She believes many people are confused and turned off of reverse mortgages because of past bad media. The Department of Housing and Urban Development and the Federal Housing Administration (FHA), which are responsible for many of the reverse mortgages, released new rules and regulations, she adds.

“In the past, people felt that the bank owns their house, and they will take it away from them,” she says. “And in the past, they used to. If one of the spouses died, the other was kicked out. That can’t happen anymore with reverse mortgages.”

According to the National Reverse Mortgage Lenders Association, today’s reverse mortgages are determined by a formula based on the home’s appraised value, the youngest borrower’s age and current interest rates. And counseling is required for all HECMs.

Reverse mortgages can help seniors get money for their grandchildren’s education, they can travel the world, they can repair their home, or they can get home healthcare. There are so many options when using a reverse mortgage, Russell adds.

One client who used a reverse mortgage was the mother of one of Russell’s friends, who was 94. She wanted to stay in her home but nursing expenses to keep her there had risen to $14,000 a month. She owns a $1.5 million home in California without any payments left on it. A reverse mortgage gave her $14,000 a month so she can stay in her home and have the nursing taken care of.

“Now, her daughters don’t have to bring mom into their homes, and everybody wins. That one did my heart good,” Russell says.

The bottom line

Seniors who wish to tap their home equity in order to supplement their retirement income have a number of options available to them. A lender can help you determine which one is best for your unique financial situation.

The post 6 Ways Seniors Can Tap Home Equity To Supplement Income first appeared on My Mortgage Insider.

Converting all your monthly payments to one bill can simplify your life. Plus, if your credit card or car loan is carrying a high-interest rate, you might be able to benefit from a lower mortgage interest rate.

Debt consolidation using home equity is one option to consider. Let’s explore your cash-out refinance options for debt consolidation.

Check your cash-out refinance options. Start here (Sep 16th, 2024)

What is a cash-out refinance?

A cash-out refinance involves taking out a new mortgage to replace your existing mortgage. The new mortgage is for a larger loan amount than what you currently own on your home loan. You’ll receive the difference in cash that can be used for whatever you like, including to pay off other high-interest debt you may have.

How to get a cash-out refinance for debt consolidation

Let’s explore how you can move forward with a cash-out refinance.

Requirements for a cash-out refinance

If you’ve decided that a cash-out refinance is the right move for your debt consolidation needs, the process starts by making sure you meet the requirements.

In order to move forward with a cash-out refinance, you’ll need to:

• Have more than at least 20% equity in the home
• Have a credit score of at least 620
• Have a debt-to-income ratio of 43% or less
• Be willing to submit to a new appraisal

If you meet those basic requirements, then you may be able to obtain a cash-out refinance.

Step-by-step guide to getting a cash-out refinance

The process of getting a cash-out refinance is very similar to getting a traditional mortgage. Here’s a breakdown of the steps you’ll need to take:

1. Shop around to determine which lender is offering the best rates
2. Submit an application with the best lender for your situation
3. Provide all requested documents, including your pay stubs, W-2 forms, and tax documents
4. Agree to a home appraisal
5. Wait for the loan underwriter to review your documents and check your credit report
6. If approved, all that’s left is to sign your closing documents

If all goes well, your cash-out refi should move forward within a few weeks. Depending on the lender, you may need to pay your closing costs upfront. If that’s the case, be prepared to bring that money to closing.

Pros & cons of using a cash-out refinance for debt consolidation

Every financial product has advantages and disadvantages. Here’s what to know about using a cash-out refinance for debt consolidation.

Click here for your cash-out refinance rates (Sep 16th, 2024)

Using a cash-out refinance for debt consolidation

A cash-out refinance — sometimes described as a debt consolidation mortgage — is one relatively popular way to get debt under control.

Because a cash-out refinance loan is secured by your home, it’s important to understand that it does come with high stakes.

“If you do use home equity and then get more debt, you put your home at risk,” says Scott Halliwell, a certified financial planner with USAA.

But he admits that sometimes life throws out unexpected things such as medical bills, and not everyone who needs debt consolidation does it because of bad debt.

“Through no fault of their own, sometimes people face a financial train wreck. Sometimes, a debt consolidation loan can help them out,” he says.

But for those who got themselves into this financial trouble by racking up credit card debt to buy bigger and better things, then he warns that debt consolidation will not help unless bad spending behaviors and attitudes are changed.

“People can change. But that normally requires some kind of life change such as they get a second income with a spouse, they get an inheritance, or they get a new job with a big pay increase. Those events become the catalyst to fix their spending problem,” he says.

Check your eligibility for a cash-out refinance. Start here (Sep 16th, 2024)

Run the numbers of a cash-out refinance before jumping in

The first thing Halliwell suggests borrowers do is call their current lender and get an amortization table. Many of these tables are available online now, too. This can help you understand the long-term costs of a refinance.

“It can be very valuable to start there and look at your current loans. You can figure out if you leave the current loan alone or you consolidate and how much it will cost you or save you,” he says.

He also said talking to a financial planner, your accountant or even someone in your family who understands finances is a good step to take before signing any new loans.

“At least this way, you are making some level of an informed decision. Know what the financial ramifications are instead of just knowing the payment plan,” he says.

Halliwell would only encourage someone to get a debt consolidation loan if it results in paying less interest over time. For instance, you probably wouldn’t want to consolidate a car loan that you’ve been paying on for four years and only have one year left.

“Most of the car payment is now going toward principal. You don’t want to stretch that back out to a 30-year loan,” he says.

Evaluate your reasons for getting a cash-out refinance

Enrica Bustos, a former housing counselor at Adams County Housing Authority in Commerce City, Colorado, feels that using the equity in your home to pay off credit cards is a bad thing.

“It’s just better to live within your means and pay off those credit cards one at a time,” she says.

She feels that the equity of your home should only be used in extreme cases, like a medical emergency or urgent home repairs.

“Everyone wants the biggest and best right off the start. That’s how so many get into financial trouble,” she says. “No one ever realizes that they can work up to that. Debt consolidation loans do allow people to pay off their credit cards. But they can use them again.”

Bustos has seen too many people never cut up those cards and then eventually max them out again.

“Instead of debt consolidation, I recommend doing a crisis budget. They need to pay off one credit card at a time. This way, they don’t touch the equity in their home,” she says.

When she works with credit counseling clients and they are thinking about a debt consolidation loan, she talks with them about the extra costs they will incur especially by doing a refinancing loan.

“They don’t realize they will have to have another appraisal which costs money. They will have closing costs, too. Is paying $4,000 for closing costs to get $8,000 off of your debt really worth it?” she says. “The fine line about debt consolidation is: How will the person go forward? Will they charge up the card again?”

Check your eligibility for a debt consolidation refinance. Start here (Sep 16th, 2024)

Alternatives to using a cash-out refinance for debt consolidation

When consolidating debt, a cash-out refinance loan isn’t the right solution for everyone. But that’s okay. There are other debt consolidation solutions out there, including:

Home equity loans

If you want to tap into your home’s equity without touching your current mortgage, a home equity loan is an option. A home equity loan is a “second mortgage,” which means you’ll pay it off by making a second monthly payment in addition to your existing mortgage.

Since it’s a second loan, you won’t have to make any changes to your current mortgage. That’s great news if you already have a rock-bottom interest rate on your home loan. You’ll still be able to access your home’s value at the current market rates.

Home equity lines of credit

A home equity line of credit (HELOC) is another type of second mortgage, also tied to the equity you have in your home. Unlike a home equity loan, a HELOC is a new revolving line of credit rather than an upfront lump sum. It works more like a credit card in that you can borrow up to a stated limit.

Personal loans

If you aren’t comfortable using your home as collateral or simply don’t have enough equity built in your home, a personal loan can allow you to access a lump sum of cash that can be used for debt consolidation.

Since these are unsecured loans, they aren’t tied to your home equity but they also carry higher interest rates and lower limits. Still, depending on how much interest you’re paying on your existing debts, they could potentially save you money and you won’t have to worry about foreclosure if you miss a debt payment.

Should you use a cash-out refinance for debt consolidation?

A cash-out refinance is a useful opportunity for homeowners with substantial equity in their homes. If you have enough equity, a cash-out refinance is an option. It’s usually not a good idea to get a cash-out refinance if you will be stuck with a significantly higher interest rate than your current mortgage.

But in some cases, it makes sense. For example, if you have high-interest debt, you might find that the fixed-rate mortgage which comes with your mortgage is more affordable.

Run the numbers before jumping in to determine whether or not this is a helpful option for your debt consolidation needs.

Check your cash-out refinance options. Start here (Sep 16th, 2024)

Cash-out refinance FAQs

What are the requirements for a cash-out refinance?

If you want to get a cash-out refinance, you’ll need to have more than 20% equity in your home and a credit score of 620 or higher. Additionally, when you include the new loan, you shouldn’t have a debt-to-income ratio of more than 43%. Be prepared to submit your home to a new appraisal and verify your income.

Is debt consolidation refinance considered a cash-out refinance?

Yes, a cash-out refinance can be used as a debt consolidation refinance. When you pursue a cash-out refinance, you’ll have the option to pay down other debts with the proceeds.

Can you pay off collections with a cash-out refinance?

Yes, you can use the funds you obtain from a cash-out refinance to pay off collections. After your cash-out refinance is complete, you’ll have the freedom to use the funds however you see fit.

When should you not do a cash-out refinance?

A cash-out mortgage refinance isn’t always the right solution for your finances. When you pursue a refinance, you’ll have to pay closing costs to finalize the loan.

Additionally, you’ll need to consider the new interest rate attached to your mortgage. If mortgage rates have gone up, then it might not be the right time to take out a mortgage.

Another consideration is the type of debt you’re hoping to pay off with the funds. For example, consolidating federal student loans is usually not the right move. If you refinance federal student loans, you’ll eliminate the extensive borrower protections available.

Can you refinance a debt consolidation loan?

If you took out a debt consolidation loan, it’s possible to consolidate it with your mortgage loan through a cash-out refinance. But you’ll have to decide if that’s the right choice for your financial situation.

Do you count debt in DTI when consolidation?

When you pursue cash-out refinancing, lenders will look at your debt-to-income ratio. Typically, a DTI ratio higher than 43% will disqualify you from taking out a new mortgage. All of your debt, including the debt you plan to take out, will be included when calculating this ratio.

Check your eligibility for a debt consolidation refinance. Start here (Sep 16th, 2024)

The post Should I Open a Cash Out Refinance to Consolidate Debt? first appeared on My Mortgage Insider.