What qualifies as a “good mortgage rate” is in the eye of the beholder. But certain types of home loans offer better interest rates than others. And there are steps you can take to nab a lower mortgage rate in today’s market.

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

Which mortgage types have the lowest interest rates?

Typically, 15-year fixed-rate mortgages offer lower interest rates than 30-year mortgages. Adjustable-rate mortgages are also typically a better deal than 30-year rates, at least in the short term.

Federal Housing Administration (FHA) and Veteran Affairs (VA) loans offer more attractive rates. The average rate of a 30-year fixed-rate FHA loan was 6.41% on December 28, 2023, according to the Federal Reserve Bank of St. Louis. The average 30-year fixed-rate VA loan measured 6.12% that day.

USDA loans — government-sponsored mortgages provided by the U.S. Department of Agriculture — are for borrowers purchasing homes in rural areas. They offer interest rates as low as 4.25% for low- and very low-income borrowers, according to USDA.gov.

Current mortgage rates

The interest rates reported below are from a weekly survey of 100+ lenders by Freddie Mac PMMS. These average rates are intended to give you a snapshot of overall market trends and may not reflect specific rates available for you.

Copyright 2024 Freddie Mac. Averages are based on conforming mortgages with 20% down.

What determines your mortgage rate?

Several factors affect what mortgage rate you can qualify for:

• Market conditions. Mortgage rates track with shifts in 10-year Treasury note yields — and those yields are partly influenced by changes in the Federal Reserve’s benchmark interest rate. A higher benchmark rate means higher borrowing costs for mortgages.
• Your finances. Mortgage lenders take several key factors into account when assessing a borrower’s application. Your credit score, loan amount, down payment, and debt-to-income ratio can all impact the rate that you qualify for.
• Mortgage lender. Rates can vary by lender, which is why it’s a good idea to shop around. Proof: Nearly half of borrowers who compared offers said the first mortgage offer they received was not the lowest rate, a recent LendingTree survey found.
• Loan type. As outlined above, the type of loan you get affects your mortgage rate.
• Loan term. Shorter-term loans typically offer lower mortgage rates. (At the same time, they also have higher monthly mortgage payments.)

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

When should you consider an ARM mortgage?

An adjustable-rate mortgage is a loan that offers a low-interest rate for a set number of years, typically anywhere from 3, 5, 7, or 10 years. When that period ends, the interest rate adjusts, usually once per year, based on market conditions — though in most cases, “adjusts” means the rate increases.

Whether an ARM makes sense for you often depends on your financial circumstances and your plans for the home.

An ARM might be a good option if:

• You plan to sell the home early
• You will be receiving a windfall
• You plan to retire soon

Read more: When does an ARM make sense?

9 tips to get a lower interest rate on your mortgage

1. Check your eligibility for a VA, FHA, or USDA loan

Because VA, FHA, and USDA loans are government-backed, and therefore somewhat less risky for lenders, they often offer lower interest rates than conventional loans.

VA loans are for active or retired military veterans who’ve served 90 days consecutively during wartime, 180 during peacetime, or six years in the reserves (or a veteran’s surviving spouse).

FHA loans are intended to help low- and moderate-income borrowers purchase homes. They are particularly popular with first-time home buyers.

USDA loans are for people purchasing a home in an eligible rural area, which the Department of Agriculture typically defines as a population of less than 20,000. To qualify, you can’t make more than 115% of the area median income.

2. Consider an ARM

An adjustable-rate mortgage has a lower interest rate than a fixed-rate loan — and, as a result, a lower mortgage payment — for a predetermined initial period. To be eligible for a conventional ARM, you typically must have at least a 5% down payment, a credit score of 620 or higher, a debt-to-income ratio of no more than 50%, and a loan-to-value ratio of no more than 95%.

An ARM isn’t right for everyone, but it could be a good fit if you’re a first-time buyer purchasing a starter home that you know you’re going to sell before the introductory rate ends, flipping a house, or feel comfortable with potentially absorbing higher rates and higher mortgage payments in the future.

3. Shop around

Mortgage rate offers can vary from one lender to the next. So, obtain multiple quotes before choosing a lender. According to a Freddie Mac study, borrowers save an average of $3,000 over the life of their loan by getting five quotes instead of just one.

4. Improve your credit score

Typically, the higher your credit score, the lower your mortgage interest rate. Generally, an excellent credit score is anything from 750 to 850; a good credit score is from 700 to 749; a fair credit score is from 650 to 699; and any credit score lower than 650 is deemed poor.

If your credit history has some black marks, taking steps to raise your credit score can help you qualify for a better rate. Reviewing your credit reports for errors and paying down credit card debts are good places to start.

5. Choose your loan term carefully

A 15-year fixed-rate mortgage offers a lower mortgage rate than a 30-year fixed-rate mortgage, but take a close look at your finances to make sure you’d be comfortable taking on the higher monthly mortgage payments that come with a shorter-term loan.

6. Make a larger down payment

Jumbo loans — mortgages that exceed the loan limit of conforming loans set by Freddie Mac and Fannie Mae — typically have higher interest rates. Therefore, making a larger down payment could potentially lower your mortgage rate if it enables you to qualify for a conforming loan instead of a jumbo loan.

In 2023, the conforming loan limit in most areas of the country is $726,200, with some high-cost areas allowing for conforming loans as high as $1,089,300.

7. Buy mortgage points

Mortgage points, also known as discount points, are extra funds paid upfront at closing. Purchasing them can lower your loan’s interest rate and, as a result, reduce your housing payments. Generally, one point costs 1% of your loan amount (so, one point on a $300,000 mortgage would cost $3,000), and each point trims your interest rate by a small amount, typically 0.25 percent per point.

Under the right circumstances, discount points can help you save money over the life of the loan.

8. Get a rate lock

If you’ve been pre-approved for a loan and qualified for a good interest rate, getting a mortgage rate lock would allow you to lock in that low rate for a set period of time — typically 30, 45, or 60 days, protecting you from rate hikes in the near term.

Most lenders offer borrowers free 60-day rate locks upon request; longer rate locks typically cost money, usually a few hundred dollars.

9. Negotiate with lenders

Some lenders may be willing to offer a lower mortgage rate, especially if you’ve received competitive offers from a few different lenders. This is part of the reason that it’s important to shop around for the best rate.

Pro tip: If you can’t get a lender to budge on the interest rate, see if they’re willing to reduce certain closing costs, such as title insurance, loan origination, or underwriting fees.

Low-rate mortgages FAQ

What type of mortgage has the lowest interest rate?

VA loans typically have the lowest interest rates, narrowly beating FHA loans. But only active or retired military veterans (or a surviving spouse) are eligible for VA mortgages.

How can I get a 3% mortgage rate?

Sorry to be the bearer of bad news, but 3% mortgage rates are no longer available (at least for now). That’s because mortgage rates more than doubled in 2022, with the average rate for a 30-year fixed-rate mortgage closing out the year at 6.42%.

How are ARMs calculated?

To set ARM interest rates, lenders determine the loan’s fully indexed rate — the highest possible interest rate that you’d pay when your ARM’s introductory rate period ends. This figure is calculated by adding the index (whatever that happens to be when your initial rate expires) and a margin (usually 1.75% for Fannie Mae or Freddie Mac loans).

How does an adjustable-rate mortgage work?

An ARM offers a lower interest rate for a set number of years, typically anywhere from 3, 5, 7, or 10 years. When that introductory period ends, the interest rate adjusts, usually once per year, based on market conditions.

Are adjustable-rate mortgages ever a good idea?

ARMs got a bad rap because of their contribution to the housing crash of 2008 and 2009, but they’re not necessarily a bad product — and lenders have tightened their requirements of ARM borrowers, making adjustable-rate loans safer than they were in the past. An ARM could be a good way to save money if you know that you’re going to sell your prospective home before the introductory rate expires.

How do you shop for mortgage rates?

You can shop for mortgage rates by reaching out to lenders on your own to obtain loan estimates, or you can use a mortgage broker, a professional who can shop for mortgage offers on your behalf.

Is it better to have a lower interest rate or APR?

Generally, it’s better to score a lower APR than a lower interest rate. Why? Because APR — short for annual percentage rate — is the annual cost of a loan to a borrower, including the interest rates and fees. That means APR gives you a fuller snapshot of your mortgage costs. Comparing APR offers is relatively easy since the Federal Truth in Lending Act requires lenders to disclose a borrower’s APR in every consumer loan agreement.

The bottom line: Low-rate mortgages

Though mortgage rates have increased in recent months, borrowers can still save on their mortgage loans by making sure they’re getting the lowest possible interest rate.

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

The post Low Rate Mortgages | 2024 first appeared on My Mortgage Insider.

For many seniors, their home represents not just a place to live but also a valuable asset that can help fund their retirement. One financial tool that allows them to unlock their home’s equity is a reverse mortgage.

In this article, we’ll explore how a reverse mortgage works, the different types of reverse mortgages, the benefits and potential drawbacks, alternative ways for seniors to tap their home equity, and answers to some frequently asked questions.

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

How does a reverse mortgage work?

A reverse mortgage is a loan that lets homeowners convert a portion of their home’s equity into cash. Unlike a traditional mortgage, where homeowners make monthly mortgage payments to a lender, a reverse mortgage allows homeowners to receive payments from a lender. These payments can be received in various forms, including a lump sum payment, regular monthly payments, a line of credit, or a combination of these options.

Here’s a breakdown of how a reverse mortgage works:

Eligibility: Generally, to qualify for a reverse mortgage homeowners must be age 62 or older (although some select lenders offer reverse mortgages to individuals as young as 55). This applies to both reverse mortgages offered by private lenders and reverse mortgages through the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) program.

Beyond the age requirement, the home must be your primary residence, the property must be in good shape, you cannot be delinquent on any federal debt, and you must either own the home outright or have a low mortgage balance. And if you’re getting a HECM loan, you’ll be required to receive counseling from a HUD-approved reverse mortgage counseling agency; the counseling session can help you understand the benefits and drawbacks of the loan.

Disbursement Options: You can choose how you want to receive your reverse mortgage funds, whether as a lump sum, monthly payments, a line of credit, or a combination of these methods.

Repayment: The loan becomes due when you sell the home, move out permanently, or pass away. Typically, the balance is paid from the sale of the property. If the proceeds from the sale exceed the loan balance, the excess funds go to you or to your heirs.

Types of reverse mortgages

Generally, there are three types of reverse mortgages:

• HECMs, which are insured by the FHA
• Reverse mortgages funded by private lenders
• Single-purpose reverse mortgage loans offered by state and local governments

Most reverse mortgages are HECMs. Reverse mortgages from private lenders, which are not insured by the federal government, are typically designed for borrowers with higher home values. Single-purpose reverse mortgages can be used only for the purpose specified by the lender, such as for home repairs or property taxes.

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

What are the rules of reverse mortgages?

There are limits on how much you can borrow through a reverse mortgage. The maximum loan amount is determined by a variety of factors, including your home’s appraised value, your age, and current interest rates.

Another critical component: You’ll still be responsible for paying property taxes and home insurance when you take out a reverse mortgage.

Are reverse mortgages a scam?

Reverse mortgages aren’t a scam but many bad actors try to take advantage of homeowners seeking a reverse mortgage.

Watch out for contractors who approach you about getting a reverse mortgage to pay for repairs to your home, says the Consumer Financial Protection Bureau (CFPB). These contractors, who are often unlicensed, will try to strong-arm you into getting a reverse mortgage to pay for home repairs that you don’t need — or they provide a cost estimate that’s much higher than the actual cost of the repair.

Some scams target veterans. The Department of Veterans Affairs (VA) does not offer reverse mortgages, yet some mortgage advertisements “falsely promise veterans special deals, imply VA approval, or offer a ‘no-payment’ reverse mortgage loan to attract older Americans desperate to stay in their homes,” according to the CFPB.

Be on the lookout for foreclosure scams, too. These scams target older homeowners who are at risk of losing their homes to foreclosure. In this instance, the con artist promises relief by providing a reverse mortgage, but the reverse mortgage they offer comes with exceptionally high fees.

Some scammers may also pose as financial planners. These individuals advise you to get a reverse mortgage and to let them manage the funds, but they use the money for their own financial gain.

Pros & cons of reverse mortgages

What alternatives are there to reverse mortgages?

Reverse mortgages aren’t the only way to tap into your home equity. Other options for accessing home equity include:

• Cash-out refinances: Replace your existing mortgage with a loan that’s larger than what you currently owe and pocket the difference in cash
• Home equity loans: Get a second mortgage secured by your house as collateral, providing you a lump sum of cash with a fixed interest rate
• Home equity lines of credit (HELOCs): Borrow funds against your home equity through a revolving line of credit as needed and pay interest only on the money that you borrow

Most home equity loans and HELOCs allow you to tap as much as 80% to 85% of your home equity.

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

Reverse mortgage for seniors FAQ

What is a reverse mortgage for seniors?

A reverse mortgage is a type of loan that lets seniors convert a portion of their home’s equity into cash. Generally, to qualify for a reverse mortgage you must be 62 or older, the home must be your primary residence, the property must be in good condition, you cannot be delinquent on any federal debt, and you must either own the home outright or have a low mortgage balance.

How much money can you get from a reverse mortgage?

Reverse mortgage lenders use your age, home value, and loan balance to determine how much you can borrow. Typically, the older you get, the more you can borrow.

In addition, HECMs have loan limits, which are subject to change annually. Currently, the maximum HECM is $1,089,300, according to HUD.

How do I find a reverse mortgage lender?

The simplest way to search for a FHA-approved reverse mortgage lender in your area is through the U.S. Department of Housing and Urban Development’s (HUD) database of reverse mortgage lenders. (Select your state, uncheck Title I Property Improvement, and check off HECM.)

When do you have to pay back a reverse mortgage?

The loan becomes due when you sell the home, move out, or pass away.

Can you lose your house with a reverse mortgage?

Generally, no. However, if you fall behind on your property taxes and home insurance, the lender could potentially foreclose on your home.

What is the downside to a reverse mortgage?

The most notable drawbacks of a reverse mortgage are that you accrue interest and pay upfront fees and closing costs to obtain the loan.

What are the 3 types of reverse mortgages?

There are three types of reverse mortgages: Home Equity Conversion Mortgages (HECMs), which are funded by the FHA, reverse mortgages funded by private lenders, and single-purpose reverse mortgage loans offered by state and local governments.

What is the best age to take a reverse mortgage?

The best age to take out a reverse mortgage depends on how much equity you’ve accrued, how much money you’re looking to borrow (since loan limits for reverse mortgages increase as you get older), and how you plan to spend the money.

Is a reverse mortgage a good idea for seniors?

For some seniors, a reverse mortgage can be a good way to unlock their home equity, especially if they’re looking for a way to supplement their income in retirement.

The bottom line: Are reverse mortgages worth it?

A reverse mortgage can be a valuable financial tool for eligible seniors looking to access their home’s equity without selling their home. For example, it may be a good option for seniors looking to supplement social security income. Still, it’s essential to consider the associated costs, risks, and potential impact on heirs before pursuing a reverse mortgage.

It can also be beneficial to meet with a financial advisor or reverse mortgage counselor to fully understand the implications and determine if a reverse mortgage aligns with your retirement goals.

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

The post Reverse Mortgages for Seniors 2024 first appeared on My Mortgage Insider.

An adjustable-rate mortgage (ARM) is a home loan that offers a low interest rate for a pre-set period, typically anywhere from 3 to 10 years. When that period is finished the loan’s rate adjusts based on changes in overall interest rates — though in most cases, “adjusts” means the rate increases.

Adjustable-rate mortgages can offer a good deal for some buyers — depending on their home buying goals, their specific financial circumstances, and overall market conditions. Below, we’ll explore how an adjustable-rate mortgage works and when it makes sense.

Check your eligibility for an adjustable-rate mortgage. Start here (Sep 16th, 2024)

Fixed-rate vs adjustable-rate mortgage: Which is better?

Understanding the differences between a fixed-rate mortgage and an adjustable-rate mortgage can help you determine which loan is right for you. So, let’s take a closer look at how these loans work.

A fixed-rate mortgage is a home loan that lets you permanently lock in your interest rate for the entirety of the loan term. As a result, your monthly payment will stay the same over the life of the loan. Fixed-rate mortgages typically span from 15 to 30 years. They’re good if you’re looking for a consistent mortgage payment. They’re also a good option if you’re planning to own your home for a while.
An ARM, on the other hand, is an entirely different type of mortgage loan product.

How does an adjustable-rate mortgage work?

An ARM has a lower interest rate than a fixed-rate loan — and, as a result, a lower mortgage payment — for a predetermined initial period. When that initial period ends, the rate can fluctuate depending on the current conditions of the mortgage market.

ARM rates and rate caps

Typically, ARMs have significantly lower mortgage rates during their introductory period than rates for fixed loans. As of August 18, the average 5-year ARM offers an introductory rate that’s roughly a whole point lower than the average fixed interest rate for a 30-year mortgage.

There are caps, however, that limit how high the new rate can go on. There are three types of interest rate caps: an initial cap adjustment, a subsequent cap adjustment, and a lifetime cap adjustment.

The initial cap adjustment is the most that your rate can rise the first time that it adjusts. The subsequent cap adjustment sets a limit on the most that the rate can increase in a single adjustment period after the initial adjustment. And the lifetime cap is how high the rate can increase over the life of the loan.

ARM caps are set by mortgage lenders. They’re typically presented in a series of three digits, such as 2/2/5, that represent each cap: the initial cap (2), the subsequent cap (2), and the lifetime cap (5). Most ARMs follow a 2/2/5 structure or a 5/2/5 structure, according to the Consumer Financial Protection Bureau.

For instance, if you have an ARM with a 2/2/5 cap, your rate cannot change by more than:

• 2% when the fixed-rate period ends
• 2% for each adjustment period
• 7% over the life of the loan

Imagine your initial ARM interest rate is 3%. With these caps in place, your rate could not go higher than 5% at its first adjustment; it could not increase by more than two percentage points at any subsequent adjustment; and it could not go higher than 7% over the life of the mortgage loan.

Click here for today’s ARM rates (Sep 16th, 2024)

Refinancing an ARM

An ARM can be refinanced to a fixed-rate mortgage at any time. That offers a nice safety cushion for buyers who decide they’d like to stay in their home longer than they originally planned.

Refinancing an ARM entails replacing your existing loan with a new mortgage. You’ll typically want to refinance your ARM (or sell your home) before the ARM’s introductory period ends, especially if interest rates are higher at that time. When you apply for a refinance, the lender’s underwriter will analyze your income, credit score, assets, and debts to determine your eligibility for a new loan.

When refinancing, expect to pay 2% to 5% of your loan principal in closing costs. For, a $300,000 mortgage, your closing costs for refinancing could run from $6,000 to $15,000.

Different types of ARM loans

Generally, there are three kinds of ARMs: hybrid, interest-only, and payment option.

A hybrid ARM offers an initial fixed interest rate that then adjusts, usually once per year. The initial period typically lasts 3, 5, 7, or 10 years. Most modern ARM loans are hybrid ARMs.

An interest-only (IO) ARM is a loan where the borrower is only required to pay the interest portion of the mortgage for a pre-set period of time — also typically 3 to 10 years. Interest-only payments don’t pay down your mortgage principal.

A payment option (PO) ARM is an adjustable-rate loan that offers several payment choices: paying an amount that covers both the loan’s principal and interest, paying an amount that covers only the loan’s interest, or paying a minimum (or limited) amount that may not even cover the loan’s monthly interest.

Pros & cons of an ARM mortgage

Pros of an adjustable-rate mortgage

The benefits of getting an adjustable-rate loan are that it:

• Creates short-term savings through a low initial mortgage rate
• Works well for temporary homes
• Makes homes more affordable
• May enable you to borrow more money

Cons of an adjustable-rate mortgage

The drawbacks of an ARM are:

• It’s more complex than a fixed-rate loan
• Payments can increase a lot after the initial rate expires
• It makes budgeting more difficult

Qualifying for an ARM

To be eligible for an adjustable-rate mortgage, you typically must have:

• At least a 5% down payment (note: FHA ARMs require only 3.5% down payments)
• A credit score of at least 620
• A debt-to-income ratio (DTI) of no more than 50%
• A loan-to-value ratio (LTV) of no more than 95%

When does an ARM mortgage make sense?

An ARM may be a good fit if you’re a first-time buyer purchasing a starter home that you know you’re going to sell before the introductory period is over, an investor flipping a house, or feel comfortable with payment fluctuations and potentially absorbing higher rates and higher mortgage payments in the future.

Click here for today’s ARM rates (Sep 16th, 2024)

What is an ARM mortgage? FAQs

What is an ARM?

An adjustable-rate mortgage (ARM) is a loan that offers a low interest rate for an initial period, typically anywhere from 3 to 10 years. When the introductory rate expires, the interest rate adjustment means your monthly payment can fluctuate depending on mortgage market conditions.

Why would you choose an ARM?

It may make sense to get an ARM instead of a fixed-rate mortgage if you’re planning to sell the home before the introductory rate period ends, flipping a house short term, or need a low introductory rate to afford a home purchase.

How does an ARM work?

An ARM is a type of loan that offers a low interest rate for a predetermined number of years, typically anywhere from 3 to 10 years. But when that introductory period is over the loan’s rate can adjust depending on changes in overall mortgage rates.

Are ARM rates lower than fixed rates?

Typically, yes — and the difference can be substantial. As of August 18, the average 5-year ARM offered a 4.39% introductory rate, according to Freddie Mac. That week the average rate for a 30-year fixed-rate mortgage was 5.13%.

Is a 7-year ARM a good idea?

A 7-year ARM might be a good way to save money if you know that you’re going to sell the home within the first 7 years.

What are basis points and how do they relate to ARMs?

A mortgage basic point, or “discount point,” is a fee that you pay at closing to your lender—typically 1% of your loan amount—in exchange for a lower interest rate, usually by around 0.25% (25 basis points). Purchasing basis points for an ARM can lower your introductory interest rate, making your monthly mortgage payment more manageable.

Are there limits on how high ARM interest rates can go?

Adjustable-rate mortgages have caps on how high the interest rate can go after the introductory rate expires. These rate caps are set by lenders.

What is the fully indexed rate on an ARM?

The fully indexed rate is the highest possible interest rate that you’d pay when your ARM’s introductory rate period ends. This figure is calculated by adding the index (whatever that happens to be when your initial rate expires) and a margin (usually 1.75% for Fannie Mae or Freddie Mac loans).

Check your eligibility for an adjustable-rate mortgage. Start here (Sep 16th, 2024)

The post What is an ARM mortgage? | Rates & Requirements 2024 first appeared on My Mortgage Insider.

Let’s take a look at these low- and no-down payment home loan options.

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

First-time home buyer loans with zero down payment

There are two types of home loans that enable first-time buyers to put zero money down on a new home: USDA loans and VA loans.

USDA loans: 0% down

A USDA loan is a mortgage program backed by the U.S. Department of Agriculture and guaranteed by the agency’s Rural Development Guaranteed Housing Loan Program. Created in the 1990s, USDA loans offer competitive interest rates and allow for down payments of as low as zero percent.

USDA loans are intended to help homebuyers in suburban or rural areas. These loans are offered to qualified home buyers in towns with a population of 20,000 or less (or 35,000 or less in special cases). About 97% of the nation’s landmass is eligible for USDA loans. You can check the USDA’s website to see if your area is eligible.

Typically, home buyers need a credit score of 640 or higher to qualify for a USDA loan. Also, your income cannot exceed your area’s median income by more than 15%. For instance, if the median salary in your town is $65,000 per year, you could qualify for a USDA loan with a salary of $74,750 or less. (15% of $65,000 = $9,750 → $65,000 + $9,750 = $74,750).

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

VA loans: 0% down

A VA loan is a mortgage backed by the U.S. Department of Veterans Affairs that gives active-duty service members, veterans and surviving spouses the opportunity to make a home purchase with a zero percent down payment.

Another perk: VA loan borrowers don’t have to pay private mortgage insurance (PMI), which can represent considerable savings over the life of the loan. And VA loans typically have lower interest rates than conventional mortgages.

While VA loans have no official credit score requirement, VA lenders typically require a minimum credit score of 640 — though some lenders may allow for a score as low as 620.

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

Pros & cons of low- and no-down-payment home loans

Low-down payment first-time home buyer loans

The following types of home loans allow for low-down payments.

FHA loan: 3.5% down

Federal Housing Administration (FHA) loans are aimed at low- and moderate-income borrowers. Down payments can be as low as 3.5%. That means on a $250,000 house, you’d need to put $8,750 down for an FHA loan. FHA loans typically require a minimum credit score of 580 — though borrowers with a score of 500 to 579 may qualify if they make a 10% down payment.

Remember though, with an FHA loan, you’ll pay a mortgage insurance premium (MIP) to offset some of the lender’s risk.

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

HomeReady & Home Possible loans: 3% down

Both Fannie Mae’s HomeReady and Freddie Mac’s Home Possible loan programs are low-down payment options that allow borrowers to purchase a house with as little as a 3% down payment. But they have different credit score requirements: borrowers must have at least a 620 score to qualify for a HomeReady mortgage, and at least a 660 score for Home Possible. Note that Fannie Mae and Freddie Mac both require borrowers of these loan types to complete an educational course about homeownership if they’re first-time buyers.

Conventional 97 loans: 3% down

A Conventional 97 loan allows you to put 3% down on a conventional mortgage. (The program is named for the 97% of the home value that’s financed by the lender.) You need a credit score of at least 620 to qualify, since Conventional 97 loans conform to Fannie Mae’s underwriting rules.

As with many other low-down payment mortgage loans, the downside is that you must pay private mortgage insurance (PMI) if you put less than 20% down on a conventional home loan. On average, PMI ranges from 0.58% to 1.86% of your loan amount per year, depending on your credit score and the size of your mortgage. But you can stop paying PMI once your loan balance reaches 80% of the appraised value of your home.

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

Piggyback loan: 10% down

A piggyback loan — also called an 80-10-10 mortgage — is when you take out a first and second mortgage for a home simultaneously. The second loan “piggybacks” on the first loan to cover a bigger percentage of the home’s purchase price. The first mortgage is for 80% of the home’s purchase price, the second loan is for a value of 10% of the price, and you make a down payment for the remaining 10%. As a result, a piggyback loan allows you to avoid paying PMI.

Benefits of private mortgage insurance (PMI)

While private mortgage insurance makes a home loan more costly, PMI allows you to qualify for a mortgage without forking over a 20% down payment. This enables you to stop renting sooner and start building equity in a home. This can be especially valuable if you live in an area with a booming real estate market, where prices are rising faster than you can save a down payment.

It’s worth mentioning that PMI premiums were tax deductible in 2021 and 2022, and Congress may expand the deduction into the 2023 tax year. However, you should consult with a tax professional to see how the rules apply in your specific situation.

Low down payment mortgage options for bad credit

If you have a subpar credit history, you may still be able to qualify for a low-down payment home loan. That’s because FHA mortgages require a minimum credit score of only 500 (with a 10% down payment), while VA and USDA loans typically require a minimum credit score of 640 with zero down payment.

Remember that while many of these loan programs have minimum requirements, individual mortgage lenders set their own thresholds. That means if you are having trouble qualifying with a particular lender, you may be able to shop around.

Buy a second home with a low down payment loan

Government-backed loans, such as USDA, VA, and FHA loans, are intended to help borrowers purchase a primary residence and cannot be used for a second home. Conventional 97 loans also can’t be used to buy a second home or investment property.

Standard conventional mortgages and piggyback mortgages allow you to purchase a second home with a down payment as low as 10%.

Down payment assistance programs

For borrowers struggling to accrue the money for a down payment, many federal and state down payment assistance programs can help to bring home ownership into reach. Depending on where you live and your financial situation, you may qualify for down payment grants, reducing your out-of-pocket down payment cost. Or, you could qualify for a low- or no-interest loan toward your down payment. Many of these loans are forgiven over time, so you don’t have to repay them if you stay in the home for five to 10 years.

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

Low down payment mortgage FAQ

What is the minimum down payment for a mortgage?

The minimum down payment for a home loan depends on the type of mortgage you’re applying for. Minimum down payments could be zero down (USDA and VA loans), 3% down (conventional loans), or 3.5% down (FHA loans). Buyers with a little more cash can choose to put 5% or 10% down.

Are there zero-down mortgage loans?

Yes, VA loans and USDA loans allow eligible buyers to put zero money down.

Are there income limits on no-down payment mortgages?

Yes, there are income limits for no-down payment mortgages. To be eligible for a USDA loan, your income cannot exceed your area’s median income by more than 15%. VA loans don’t have official income requirements, but they typically require a debt-to-income ratio of 41% or less.

Which loan programs do not require a down payment or private mortgage insurance?

Only the VA loan requires no down payment and no private mortgage insurance. The USDA loan also allows zero down payment but comes with upfront and monthly mortgage insurance fees. Some lenders create their own proprietary mortgage programs with no down payment and/or no PMI, but these typically charge higher interest rates.

Do I have to be a first-time home buyer for a low- or no-down payment mortgage?

Generally, you don’t need to be a first-time buyer to qualify for a low- or no-down payment mortgage.

How much does a down payment lower a mortgage?

Naturally, how much you put down directly affects the size of your home loan. For instance, if you’re planning to make a 10% down payment on a $300,000 home, your mortgage would be $270,000 (90% of $300,000 = $270,000), while a 15% down payment would reduce your mortgage to $255,000 (85% of $300,000 = $255,000). A smaller loan amount will have lower monthly mortgage payments.

What is a low-down payment mortgage?

A low-down payment mortgage is any home loan that allows you to make a down payment of less than 20%. The FHA loan, Fannie Mae HomeReady loan, Freddie Mac Home Possible loan, and Conventional 97 loan are all examples of low-down-payment mortgages.

What type of mortgage has the lowest down payment?

VA and USDA loans have the lowest down payment requirements — both allow qualified borrowers to make down payments as low as zero percent. However, these programs have special eligibility requirements. Borrowers who don’t qualify for USDA or VA loans can often use a conventional loan with just 3% or 5% down.

Can I get a mortgage with 5% down?

Yes; most mortgage lenders allow you to use a conventional loan with just 5% down and no special eligibility requirements.

How low of a down payment can you put on a house?

You can put as little as zero percent down on a home if you qualify for a VA or USDA loan. If you don’t qualify for a zero-down mortgage, the lowest down payment option is typically 3%.

What credit score do I need to buy a house with no money down?

You usually need a credit score of at least 640 to qualify for a USDA loan. For a VA loan, you typically need a minimum credit score of 580.

Do you have to put a down payment on a house?

No. If you can qualify for a USDA or VA loan, you don’t have to put forth a down payment to purchase a home.

How much money do you need to put down on a second home?

You can put less than 20% down on a second home or investment property—potentially as low as 10%—depending on the type of loan you get. Note: Government-backed loans, including USDA, VA, and FHA loans, cannot be used to purchase a second home.

Do I have to put down 20% on a second home?

Typically, no. Many conventional loan lenders allow you to put as little as 10% down on a second home, but requirements can vary from lender to lender.

How hard is it to get a second mortgage?

To get approved for a second mortgage, you usually need a credit score of at least 620. Also, you typically need a debt-to-income ratio of no more than 43%, although some lenders may allow DTI ratios of up to 50%.

What does “owner financing available” mean?

When you browse properties for sale online, you may come across listing descriptions that say “owner financing available.” Owner financing is when a home seller provides you with the financing to purchase the house they are selling. This can help facilitate the transaction since closing costs are typically less with owner financing and there’s no formal loan underwriting process since no lender is involved in the sale.

Can I put less than 20% down on an investment property?

Yes. To qualify for a loan on an investment property, you typically need to make a down payment of at least 15%.

The bottom line: When is a low down payment mortgage the right choice?

A low-down-payment loan may be a good option if you’re able to afford the monthly payments of a home loan but haven’t yet accrued the savings needed for the down payment. It can also be the right choice if you want to keep more cash in the bank for emergency expenses or other investment opportunities.

Of course, you’ll make lower monthly payments with a large down payment, but a low-down payment loan can enable you to begin building equity sooner — particularly if you live in an area with a booming real estate market and rapidly increasing home prices.

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

The post Can you buy a house with no money down? | 2024 first appeared on My Mortgage Insider.

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

Are there home repair grants for seniors in 2024?

There are a variety of government programs that offer home repair grants to seniors. These grants are designed to help aging homeowners make home repairs, modifications, and upgrades, allowing them to create safe and comfortable living spaces where they can age in place.

That’s good news for the nearly eight out of 10 adults 50 and older who said they want to stay in their homes as they age, a recent AARP survey found, yet roughly a third of those individuals said their houses need modifications to be able to do so safely and independently.

What is a home repair grant?

Home repair grants for seniors are financial assistance programs that help older adults make repairs, renovations, and modifications to their homes. These grants are typically provided by government agencies, non-profit organizations, or private foundations, with the goal of ensuring seniors can continue to live independently in their homes.

Home repair assistance grants for seniors often cover a wide range of repairs and modifications that make homes safer and more functional, from fixing structural issues and addressing safety hazards to accessibility improvements to upgrading plumbing and electrical systems.

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

Types of home repair grants

Here is an overview of six major home repair grants, including eligibility requirements and the types of repairs covered by each program.

U.S. Department of Agriculture (USDA) Single Family Housing Repair Grants

Also known as the Section 504 Home Repair program, this USDA repair grant program provides loans to elderly and low-income homeowners. The program is intended to support rural development. Homeowners age 62 or older can use the grant money to address health and safety hazards in their home, like a leaky roof or faulty electrical wiring. Borrowers will need to demonstrate their household income is less than the area median income. The maximum grant is $10,000, but your property must be located in an eligible rural area. And here’s an important piece of fine print: If you sell your home in less than three years, then repayment of the grant will be required. You can visit the USDA Income and Property Eligibility website for full eligibility requirements.

VA Specially Adapted Housing (SAH) Grant

This program, offered by the U.S. Department of Veteran Affairs, offers grants for veterans and service members with certain service-connected disabilities to help them build, purchase, or remodel an adapted home that meets their physical needs. Such home repairs include installing ramps, widening doorways, or making other changes that help provide independent living. The maximum SAH grant is currently $109,986. (The amount can change from year to year.) Check out the VA’s website for complete eligibility requirements.

Housing Improvement Program (HIP)

Also known as the Housing Program (HP), the HIP helps members of federally recognized Indian tribes make select home repairs and improvements. The grants provide up to $60,000 in repairs and renovations to improve the condition of a homeowner’s dwelling to meet building code standards. To qualify, you must be a member of a federally recognized Tribe, live in a Tribal servicing area, and meet certain income limits. For full eligibility requirements, go to the Bureau of Indian Affairs website.

Federal Emergency Management Agency (FEMA) Grants

FEMA’s Individuals and Households Program (HIP) provides home repair grants to victims of presidentially declared natural disasters, such as a hurricane, tornado, earthquake, or wildfire, who are uninsured or under-insured. To qualify, your property must be determined to be uninhabitable after a FEMA inspection. Learn more about the agency’s grant program on the FEMA website.

HOME Investment Partnerships Program

This grant program, funded by the U.S. Department of Housing and Urban Development (HUD), helps qualifying low-income people rehabilitate their homes. To qualify, the property’s post-rehabilitation value must not exceed 95 percent of the area’s median purchase price for a single-family home as determined by HUD. Learn more about the HOME Investment Partnerships Program on HUD’s website.

HUD Community Development Block Grant (CDBG) Program

This HUD program offers states, cities, and counties grants to help provide housing and cover home repair costs for low- and moderate-income people. Jurisdictions with a population of less than 200,000 and non-entitlement cities and towns of less than 50,000 residents can apply. Find out more about the CDBG program on HUD’s website.

Who is eligible for a home repair grant?

To qualify for any of the six grant programs outlined above, you must meet specific eligibility requirements. These criteria often consider age, income, the nature of repairs or modifications needed, and other factors.

Cash-out refinance: An alternative home repair option

Another way to foot the bill for home repairs is with a cash-out refinance. This entails refinancing your mortgage for more than what you owe and pocketing the difference in cash. Mortgage lenders generally let you borrow up to 80 percent of your home equity.

So, let’s say your home is worth $400,000, and you currently owe $300,000 on your mortgage. That gives you $100,000 in home equity, which means you can borrow $80,000 through a cash-out refinance.

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

Home repair grants for seniors FAQ

What is a home repair grant?

A home repair grant provides funds to eligible homeowners who need financial assistance to make certain home repairs and/or modifications. These grants are typically provided by government agencies, non-profit organizations, or private foundations, with some specifically aimed at seniors.

What can you do when your house is falling apart and you can’t afford to fix it?

If your home is in desperate need of repairs for safety reasons and you can’t afford to pay for them, a home repair grant can help you cover the costs. But make sure to read the grant program’s eligibility requirements and stipulations before applying.

Who is eligible for a government home improvement grant?

Eligibility requirements can vary by grant program and many grants set restrictions on the types of repairs that can be made. For example, a USDA Single Family Housing Repair grant can only be used to “remove health and safety hazards” in a home, like a leaky roof or faulty electrical wiring, according to the department’s website.

Are there alternatives to home repair grants?

If you’re a senior in need of funds to make home repairs, a home repair grant is just one of a number of options you can seek out. Alternatives include cash-out refinances, personal loans, home improvement loans, home equity loans, and home equity lines of credit (HELOCs).

Which home repair grants are best for seniors?

The best loan program for each borrower will depend on the specifics of their financial situation, and the same is true for senior borrowers. To determine the best option for your specific circumstance, you’ll need to consider all your single-family housing repair loans and grant options.

The bottom line: Home repair grants for seniors

For seniors looking to improve their home and quality of life, there are a number of options to make upgrades and renovations, including a number of grant options that could put home upgrades within reach.

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

The post Home Repair Grants for Seniors in 2024 first appeared on My Mortgage Insider.

Here we explore how much it costs to renovate a house in 2024, ways to fund your home renovations, tips on how to save money, and frequently asked questions.

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

How much does it cost to renovate a house?

Home renovation costs are rising. Together, Americans spent an estimated $567 billion on home upgrades and repairs in 2022, a 15% jump from 2021, according to the Joint Center for Housing Studies of Harvard University’s Improving America’s Housing 2023 report.

At the time of writing, renovating a 1,250- to 1,600-square-foot home costs an average of $49,963, according to 2023 data compiled by Angi.com, a home improvement resource. But renovation project costs can vary widely depending on the size, age, and condition of your home, the scope of the work, and the materials used.

Cost estimates to completely renovate a house

Remodeling a whole house costs an average of $10 to $60 per square foot, according to a nationwide survey of home contractors by HomeAdvisor. At the time of writing, completely remodeling a 2,500-square-foot home could cost anywhere from $25,000 to $150,000, with a high-end custom remodel potentially exceeding that spend.

Homeowners looking to do a gut renovation, or make significant structural changes, can expect to pay more.

Homeowners can expect to pay a general contractor, as well as — depending on the project — electricians, plumbers, and interior designers. In addition to labor costs, materials, and new appliances will factor into the total cost of a house remodel.

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

Home renovation cost by type

Let’s look at the average cost for specific types of home renovations at the time of writing, based on HomeAdvisor data:

Add a room

Building a new room, like an additional bedroom or a living room, typically costs $80 to $200 per square foot, including materials and labor.

Renovate a bathroom

The average bathroom remodel costs $125 per square foot. A primary bathroom renovation can run up to $28,000.

Renovate a kitchen

A full kitchen remodel costs on average $26,800, or approximately $150 per square foot, with typical costs running between $14,612 and $41,325. An upscale kitchen remodel, using the most high-end materials, can exceed $130,000. The average gut job, which entails a new layout, costs $30,000 to $80,000.

A kitchen renovation could include new light fixtures, new flooring, upgraded faucets, new cabinetry, or new countertops.

Remodel a garage

Remodeling a garage costs an estimated $6,000 to $22,000 on average. Building a garage from scratch runs an average of $28,351, or between $16,418 and $40,285.

Exterior remodel

Exterior updates cost between $5,000 to $15,000 on average, depending on the type of work and the size of the house. More specifically, painting the exterior of a 1,500-square-foot house costs an average of $1,810 to $4,466 — and painting a two-story home could cost as much as 50% more than to paint than a one-story home.

Financing a home renovation project

Cash from savings is the most common source of home improvement funding, accounting for nearly four out of five projects, the Harvard University study found. But if you’re not sitting on a ton of savings, there are several ways to finance a home renovation: a home equity loan, a home equity line of credit, or a cash-out refinance.

• Home equity loan. Also known as a second mortgage, a home equity loan allows you to access the equity you’ve built in your home by using your home as collateral. Home equity loan rates can vary depending on how much equity you’ve accumulated, your credit score, and your debt-to-income ratio. Typically, you can borrow up to 80% of your home’s appraised value, minus what you owe.
• Home equity line of credit. A home equity line of credit, or “HELOC,” allows you to open a line of credit against your house, providing access to cash of up to 80% to 90% of your property’s appraised value. Unlike home equity loans, HELOCs have variable interest rates.
• Cash-out refinance. A cash-out refinance allows you to refinance your current mortgage for more than what you currently owe and pocket the difference in cash. Generally, you can borrow up to 80% of your home’s appraised value.

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

Common home renovation costs

These are the most common types of home renovation expenses, at the time of writing:

• Labor. Labor is often the largest home renovation cost. Typically, consumers spend about $20 to $150 per hour for labor, according to Angi.com.
• Materials. An estimated 82.5% of construction materials saw a significant cost increase in 2022, according to construction cost data tracking firm Gordian. Steel prices rose at the fastest rate (up 22%), followed by wood (16%), concrete and masonry (15%), electrical conduit (12%), and insulation (11%).
• Permits. Nationally, a building permit costs $1,602 on average, HomeAdvisor says, but costs can vary depending on where you live and the type of project you’re doing. Contact your local building permits agency for prices.
• Taxes. Don’t forget to factor in taxes when crafting your budget. (Pro tip: Certain home renovations, such as solar panels and home office improvements, may qualify for a tax deduction.)
• Unforeseen costs. A good rule of thumb is to set aside an additional 10% to 15% to accommodate for surprise expenses, such as mold lurking behind drywall in an older home.
• Type of house. Whether you live in a single-family house, a townhome, a condominium, or a co-op can impact your home renovation costs.

Additional home renovation costs

These extra expenses can add a significant amount to your home renovation costs:

• Temporary living arrangements. If you’ll need to stay at a hotel or a rental while the work is being done, make sure to budget for your living arrangements.
• Floor plan changes. If you’re looking to change your home’s floor plan, you’ll need to hire an architect. Most residential architects charge between $70 and $250 an hour depending on their level of experience and area of expertise, HomeAdvisor says.
• Foundation repairs. Repairing foundation problems typically costs from $2,171 on the low end up to $7,811, according to HomeAdvisor. Repairing small issues, such as minor cracks, can cost as little as $500; major repairs, on the other hand, can cost $10,000 or more.
• Mold or asbestos remediations. Professional mold remediation typically costs between $1,300 and $3,150, HomeAdvisor reports, depending on the type of mold, how big the mold problem is, and where the mold is located. Asbestos removal costs $1,191 to $3,236 on average, depending on the size of the area, labor, materials, and other factors, HomeAdvisor found.

How to estimate home remodel costs

Determining how much a home renovation is going to cost can be a challenge, since costs can vary widely depending on where you live, the age and condition of your home, the materials you select, and other factors. But to get a ballpark estimate, you can refer to HomeAdvisor’s True Cost Guide and Remodeling Magazine’s Cost vs. Value Report. Both guides let you see average costs both nationwide and in your zip code.

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

Tips to save on home renovation costs

Looking for ways to curb your home renovation expenses? Consider these cost-cutting strategies:

• Choose lower-cost finishes. Selecting less-expensive materials can help you save money. Case in point: Ceramic tile for a bathroom remodel costs about $1 to $15 per square foot, whereas marble costs about $15 to $190 per square foot, Angi.com says.
• Hit the recycling center. Nationwide, Habitat for Humanity operates more than 1,000 ReStores, which sell used materials at lower prices.
• Shop around for contractors. Get multiple quotes before hiring a contractor for the job.
  Do some work yourself. A little DIY can go a long way. Consider tackling prep work, such as cleaning and sanding surfaces, prior to bringing in a professional to complete the job.
• Find deals on appliances. Independent retailers and appliance outlets often offer lower prices than major home improvement stores.

How much does it cost to renovate a house FAQ

What’s the difference between a house rehab, renovation, and remodel?

Many people use the terms house rehab, remodel, and renovation interchangeably, but they differ slightly. Generally, a home rehab entails making home improvements while preserving the historical and character-defining features of the home. Renovation is when you improve the condition of a home by repairing, altering, or adding features. And remodeling is a complete makeover of a room or house.

Is $100,000 enough to renovate a house?

A six-figure budget can go a long way when renovating a house, but it may not be sufficient, depending on the scope of the work, the condition of your home, labor rates in your area, and what building materials you choose. For example, building a home addition can surpass $100,000 depending on the type of room being added, the square footage of the addition, and the materials, according to HomeAdvisor.

Is it cheaper to renovate a house or build from scratch?

In most cases, it’s more affordable to renovate than to tear down a home and build a new home from scratch, since renovating allows you to avoid costly demolition expenses.

What is the most expensive room to renovate in a house?

Generally, a kitchen renovation is the most expensive, with a mid-scale kitchen remodel running anywhere from $30,000 to $65,000, HomeAdvisor reports.

Is a full house renovation worth it?

This depends on your goal. A full house renovation might make sense if you’re looking to flip a property and turn a profit, but it may not be a good idea if you’re on a shoestring budget or planning to take on high-interest credit card debt to foot your renovation expenses.

Which remodeling projects have the highest ROI?

Not all remodeling projects are equal with respect to return on investment. New kitchens and bathrooms typically deliver the best ROI. Some of the worst remodeling projects for a home’s resale value include backyard patios, sunrooms, home office additions, and in-ground swimming pools — although ROI for specific projects can vary depending on where you live. (Adding an in-ground pool in steamy Phoenix, Arizona, would yield a better return than adding an in-ground pool in chilly Minneapolis, Minnesota).

Bottom line: When is a home renovation worth it?

Certain home renovations are worth it, at least from a return-on-investment perspective, while others aren’t.

It can be a good way to improve your home value but take a close look at your renovation budget before you begin a renovation to make sure you have enough funds to get the job done. No one wants to live in — or purchase — a home that looks like a construction site.

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

The post How Much Does It Cost to Renovate a House? first appeared on My Mortgage Insider.

Unless you’re sitting on a boodle of cash, buying a second home — whether for an investment property or a vacation home — will require you to make a down payment for a mortgage.

To qualify for a conventional loan on a second home, you’ll likely need to put down at least 10% — though some lenders require down payments of 20% to 25%. The down payment requirements will depend on factors like your loan type, credit score, and debt-to-income ratio.

But there are also ways you can purchase a second home without making a down payment. Here’s what to do.

Check your eligibility to buy a second home. Start here (Sep 16th, 2024)

The difference between a mortgage on a primary residence and a second home

Your primary residence is the place you call home for most of the year. For most conventional loan borrowers, qualifying for a mortgage on a primary residence requires a minimum down payment of 3% of the home’s sales price, a debt-to-income (DTI) ratio below 45%, and a credit score of 620 or higher.

Qualifying for a mortgage for a second home is a whole different story. Why? Because lenders are assuming more risk when they finance a second home mortgage. This makes sense since you’re adding another large, nonessential payment to your household’s expenses.

Typically, to qualify for a conventional mortgage on a second home you must have the following:

• Minimum down payment of 10%
• Credit score of at least 680 (although you might qualify with a 640 credit score if you make a down payment of 25% or more)
• Debt-to-income ratio of up to 43% (though some lenders may allow you to stretch up to 50%, depending on your credit score and the size of your down payment)
• At least two months of cash reserves

How to finance a second home

Generally speaking, there are two ways to finance the purchase of a second home: you can either get another mortgage or tap the existing home equity in your primary residence. You can access your equity with a cash-out refinance, a home equity loan, or a home equity line of credit (HELOC).

Cash-out refinance

A cash-out refinance entails refinancing the current mortgage on your primary home for more than what you currently owe and pocketing the difference in cash. In most cases, you can borrow up to 80% of your home’s value.

You’ll be getting a whole new mortgage, which means it will impact the mortgage interest rate you’re currently paying on your home, and you’ll be resetting the clock back to zero on the loan.

Home equity loan

A home equity loan is a second mortgage, borrowing against the equity you have in your home. You receive a lump sum of money upfront, which you begin paying interest on immediately.

Typically, you can borrow 80% of your home’s appraised value, minus what you already owe. If your house is currently worth $400,000, and you owe $200,000 on your mortgage, that gives you $200,000 in home equity, which means you could borrow up to $160,000 with a home equity loan.

Since a home equity loan is a second mortgage — meaning it’s in addition to the first mortgage you have on your current home — it won’t impact the terms or duration of your existing loan. You’ll make monthly payments on the home equity loan in addition to your existing monthly mortgage payment.

Home equity line of credit (HELOC)

A HELOC allows you to open a line of credit against your house, giving you access to up to 80% or 90% of the property’s appraised value in cash. It’s a rotating line of credit, which means you withdraw money as needed, up to the limit. After a certain period, you’ll begin repaying the loan in installments.

A HELOC offers more flexibility than a cash-out refinance or home equity loan since you can withdraw money whenever you need it, as opposed to taking one lump sum of cash.

One important factor to consider when choosing between a home equity loan or a HELOC is that a home equity loan has a fixed interest rate, whereas a HELOC has a variable interest rate. That means the interest rate you’re paying could vary over the life of the loan, depending on market conditions.

Check your eligibility to buy a second home. Start here (Sep 16th, 2024)

4 ways to fund a down payment on a second home

There are four ways that you can fund a down payment on a second home: savings, a cash-out refinance, a home equity loan, or a HELOC. Each funding option has pros and cons.

1. Savings

Using savings to fund a down payment is perhaps the simplest route to take. Plus, you don’t have to pay interest since you’re not borrowing money for a down payment from a bank.

But dipping into your savings also means that you’re reducing the amount of cash you have on hand to pay for things like emergency expenses and maintenance costs for your second home.

2. Cash-out refinance

A cash-out refinance gives you access to a large chunk of cash at a relatively low-interest rate, but your overall debt load will increase and you’ll be changing the terms of your existing mortgage.

Moreover, cash-out refinances typically have closing costs between 2% and 5% of your loan amount. These cover refinancing costs like lender fees, appraisal, and other expenses.

3. Home equity loan

A home equity loan provides predictable monthly payments since this type of loan comes with a fixed rate. However, closing costs typically run 2% to 5% of the loan amount, and home equity loans usually have higher interest rates than cash-out refinances or HELOCs.

4. HELOC

A HELOC requires you to pay interest only on the amount that you borrow or “draw” from the credit line, which can potentially save you a lot of money in interest. HELOCs also offer the option of interest-only payments.

But HELOC interest rates — while lower than home equity loan rates — are higher than cash-out refinance rates. Additionally, HELOC rates are variable, meaning you could face higher monthly payments in some months as the rate adjusts based on market conditions.

Can you buy a second home with no down payment?

It is technically possible to purchase a second home without putting any money down but the reality is that it’s complicated.

Government-backed zero-down loan programs are intended to help buyers purchase primary residences, which means they can’t be used to buy investment properties or vacation homes. That said, you already own a home and are looking to purchase a second home to move into as your new primary residence, you may be able to qualify for a zero down payment loan, such as a USDA loan (backed by the United States Department of Agriculture) loans or a VA loan (backed by the Department of Veterans Affairs). You’ll likely have to prove that you’re moving for a good reason, such as a job change or a military re-assignment.

Qualifying for a second home mortgage

If you intend to apply for a second home mortgage, you’ll need to meet certain eligibility requirements. These borrower requirements can vary depending on what type of loan you’re applying for. Typically, though, you’ll need at least 10% down and a FICO score of 680 or higher.

In addition, the property that you plan to purchase as a second home has to meet certain requirements. Typically, the new home must be at least 50 miles from your primary residence to be considered a second home. And, from a tax perspective, the IRS defines a second home as a property you live in for more than 14 days per year or 10% of the total days that the property is rented to others.

If you plan to rent out your new property full-time, it’s considered an “investment property” rather than a “second home.” Investment property loans are subject to higher interest rates and stricter requirements than second home loans (for example, you’ll likely need a bigger down payment — likely 20-25%).

Check your eligibility to buy a second home. Start here (Sep 16th, 2024)

Down payment for a second home FAQ

Do you need a down payment for a second home?

Typically yes. In almost all cases, to purchase a second home, you will need to make a down payment and it will be larger than the down payment needed to purchase a primary residence. Under rare circumstances, VA, USDA, and physician loans that don’t require a down payment can be used to purchase a second home. Assumable mortgages can also allow a borrower to purchase a home without a down payment.

How much down payment is needed for a second home?

Typically, you need to make at least a 10% down payment to qualify for a second home mortgage. However, there are certain types of second mortgage loans that allow for a lower down payment.

Can you put 5% down on a second home?

Yes, you can put as little as 5% down on a second home if you obtain a VA, USDA, FHA, or physician’s loan, though these loan programs are generally intended to help borrowers purchase a first home and can only be used for a second home under specific circumstances, such as a new job or military re-assignment.

Do I have to put down 20% on a second home?

No. Most lenders allow borrowers to put as little as 10% down on a second home with a conventional loan.

Can you use a HELOC for a down payment on a vacation home?

Yes, a HELOC is one of the most common ways that homeowners fund a down payment for a second home purchase. To use a HELOC for a second home down payment, you’ll need to have sufficient home equity in a property you already own.

How much equity should you have before buying a second home?

It depends on how you plan to finance your second home. Typically, you can borrow up to 80% of your home’s value with a cash-out refinance; 80% to 85% of your home’s appraised value, minus what you owe, with a home equity loan; or 80% to 90% of your primary residence’s appraised value with a HELOC.

Can I use my home equity to buy a second house?

Yes, tapping your home equity is a popular way to fund the purchase of a second home, but you must have a certain amount of equity to do so.

How can I use equity to buy a second home?

Using equity to purchase a second home allows you to pull out cash from your current home, either in the form of a cash-out refinance, a home equity loan, or a HELOC. Each option lets you borrow a certain amount of equity against your home.

Can I take out a HELOC on a second home?

It is possible to get a HELOC for the purchase of a second home, but, in most cases, you must have a debt-to-income ratio of 43% or below, a credit score of at least 700, and at least 20% equity in your primary home.

What are the risks of using a home equity loan to buy another house?

If you use a home equity loan to buy another house, you’ll be putting both your primary home and the second home at risk of foreclosure if you default on either loan, since you’re putting your primary home up as collateral. Also, because home values can rise and fall, you could become upside-down (or underwater) on your mortgage if your home’s value plummets and you owe more than what it’s worth.

The bottom line: Making a down payment on a second home

There are many financing options and down payment options for purchasing a second home. Whether you’re looking to purchase a rental property to generate rental income or seeking to buy a vacation home for your family, you can find the best loan option for you.

Check your eligibility to buy a second home. Start here (Sep 16th, 2024)

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You can purchase a home with virtually anyone, including a friend — or several friends. But blending friendship and homeownership has benefits and drawbacks, and it entails taking a unique set of steps to qualify for a mortgage.

Check your eligibility to buy a home with a friend. Start here (Sep 16th, 2024)

Pros & cons of buying a house with friends

According to a recent Realtor.com survey of more than 1,000 U.S. adults, nearly one in three American homeowners have bought a primary home with someone other than their spouse. But purchasing property with a friend has its share of pros and cons.

Pros of buying a house with friends

• It can be easier to qualify for a mortgage loan. If both of you are applying for the mortgage, lenders will consider your combined assets, credit scores, and incomes when determining your eligibility for a home loan. And two incomes are always better than one in terms of how much home you can afford.
• It can help with a down payment. Splitting a down payment can help you save a lot of money upfront. And, with the median down payment on a home clocking in at about 13%, a typical down payment on a $300,000 house would cost $39,000. That’s no small amount, especially when you consider that wages haven’t been keeping up with home price growth.
• It can make ongoing monthly expenses more manageable. In addition to sharing responsibility for the monthly mortgage payment, you and a friend can split other homeownership costs, such as utilities, maintenance, repairs, and any mortgage insurance. This will help to make homeownership more affordable for both parties.

Cons of buying a house with friends

• It can potentially hurt your mortgage rate. If your friend has a lower credit score than you do, their lackluster credit could impact the interest rate you qualify for when applying for a mortgage. Mortgage lenders will consider both borrowers when reviewing your application. Generally, borrowers with credit scores of 740 or higher qualify for the best mortgage interest rates.
• It prevents you from having sole control of the home. When you co-own a home with a friend, your friend has a say over what happens to the property. This can create tension if only one of you decides you want to sell the home in the future.
• It can strain your friendship. Co-owning a home with a friend can be a recipe for tension if you don’t see eye to eye. It can also hurt your friendship if you live in the home together and don’t gel as roommates because of lifestyle differences.

How to buy a house with a friend: Step-by-step guide

Now that you know the pros and cons of purchasing property with a friend, you can make an informed decision about whether to buy a home with a friend.

If you decide you want to move forward, the following steps can streamline the buying process.

1. Create an ironclad contract.

Things can get messy without a written contract that spells out the terms of your agreement as co-owners. Your ownership agreement should specify terms such as who’s responsible for what expenses (including utilities, repairs, and home improvements), how home appreciation will be shared, how tax breaks will be divided, what happens if either person wants to sell, and how capital gains will be split when the property is sold. Pro tip: Although you can find generic co-ownership agreements online, it’s wise to have a real estate attorney draw up your contract, or at least review your contract before you sign it so that the terms are fair to both parties.

2. Determine your homeownership structure.

When co-buyers aren’t married, they typically share title (ownership) of the property as either tenants in common (TIC) or as joint tenants. TIC is a more flexible type of ownership since it allows for owners to have an unequal share of the property, which can be a good option if one person funds a larger portion of the down payment. Joint tenants, meanwhile, own a 50-50 share of the home.

3. Create a budget.

Discuss what price range you feel comfortable with so that you’re on the same page when you go to tour homes. Determine the maximum amount that you agree to spend on a home.

4. Discuss your exit strategy.

Establish clear provisions for how the home will be handled if one of you dies, wishes to sell your stake in the property, or experiences financial hardship and can’t pay their share of the mortgage. These conditions will provide protection for both parties.

5. Create a joint bank account.

Opening a joint checking account for homeownership expenses — including the monthly mortgage payment, utilities, property maintenance, homeowner’s association dues, and other ongoing costs — can help ensure that all bills get paid on time.

When is buying a house with a friend a good idea?

There are a number of scenarios where it may make sense to purchase a house with a friend:

• You need help qualifying for a mortgage. If you have a subpar credit score (think below 620) or insufficient income to qualify for a home loan, buying a house with a friend who has strong credit and a good income can strengthen your loan application. It can also be a great opportunity for first-time home buyers who may have a harder time coming up with down payment funds.
• You can’t afford homeownership expenses on your own. If you don’t feel comfortable taking on the responsibility of a mortgage, property taxes, insurance, and other recurring expenses, buying a property with a friend can help you manage the costs.
• You want the same things in a house. Whether you’re buying a primary home, where you’ll live together as roommates, or an investment property, make sure you’re aligned in terms of the type of house you want to purchase. Drill down to square footage, number of bedrooms and bathrooms, style, and, of course, location.
• You feel comfortable disclosing your financial situation. Considering that you’re making such a large investment together, there should be no secrets when it comes to sharing your personal finances, including income, savings, debts, credit scores, and spending habits.
• Your friendship is rock solid. Disagreements can arise when you own a home with a friend, from mundane squabbles — such as different temperature preferences — to significant feuds, like clashing design tastes. Is your friendship strong enough to withstand the inevitable quarrels that come with co-owning a home?

Check your eligibility to buy a home with a friend. Start here (Sep 16th, 2024)

Buying a house with a friend FAQ

Is it a good idea to buy a house with friends?

Whether it’s a wise idea for you to purchase a home with a friend depends on several factors, most notably the shape of your finances, your goals for purchasing the home, and your compatibility as roommates if you’re both going to live in the home as a primary residence. Depending on the housing market where you live, it can help bring a home purchase within reach. So, sit down with your friend and have an honest conversation about your motivations for buying a home together before you decide to move forward.

Can friends buy a house together?

Yes, there’s nothing stopping you, legally, from co-buying a home with a friend. Joint home ownership isn’t limited to family members or married couples (or unmarried couples!). But it’s important to create a written contract that specifies the terms of your responsibilities and rights as co-owners.

How long should you be with someone before buying a house together?

There’s no hard-and-fast rule in terms of how long you should live with a friend before buying a house together, but it’s generally a good idea to cohabitate for at least a year before going in on a home together. That way, you’ll have a strong sense of how compatible you are as roommates before you commit to a long-term relationship.

The bottom line: Buying a house with a friend

Buying a house with a friend can bring home ownership into reach for some home buyers. For buyers who are thoughtful about the implications of sharing a mortgage, it can provide a great opportunity to begin building home equity.

Check your eligibility to buy a home with a friend. Start here (Sep 16th, 2024)

The post Buying a House with a Friend: The Complete Guide first appeared on My Mortgage Insider.

A 30-year fixed-rate mortgage is the most popular home loan. But because the typical homeowner moves every eight years, a 5-year adjustable-rate mortgage may be a good option for some first-time home buyers. If you choose a 5/1 ARM but move within five years, you could benefit from a lower rate without ever having to worry about your loan adjusting.

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

What is a 5-year adjustable-rate mortgage?

An adjustable-rate mortgage (ARM) is a home loan that offers a low interest rate for an introductory period, typically anywhere from three to 10 years. When that introductory period ends the rate can fluctuate, depending on market conditions — though in most cases, “fluctuate” means the rate goes up.

A 5/1 ARM, the most popular type, has a 30-year loan term in total. Your low intro rate is fixed for the first 5 years and can adjust once per year after that for the rest of the loan term. Similarly, a 7/1 ARM has a fixed rate for the first seven years and a 10/1 ARM for ten years.

Most ARMs have a cap on how high the rate can go.

ARMs are attractive to many buyers because initially, they offer lower mortgage rates than a fixed-rate loan. Depending on the introductory rate, the savings can be significant.

Let’s say you get a 30-year, fixed-rate mortgage of $300,000; your monthly payment would be about $1,610. In contrast, a 5-year ARM of $300,000 with an introductory rate of 4% would have a monthly mortgage payment of approximately $1,432. Over the course of the first five years, you’d save a total of around $10,680.

Pros & cons of a 5-year adjustable-rate mortgage

Pros of a 5-year ARM

A 5-year ARM offers these benefits:

• It has a lower initial interest rate and, therefore, a lower monthly mortgage payment in the early term than a fixed-rate mortgage.
• It allows you to save money that can be invested or put it towards financial goals like saving for retirement or paying off credit card debt.
• Because the initial rate is lower, you may be able to qualify for a more expensive home.

Click here to check 5-year ARM rates (Sep 16th, 2024)

Cons of a 5-year ARM

The primary drawbacks of a 5-year ARM include:

• The mortgage rate could increase substantially when the introductory period ends, raising your monthly mortgage payment.
• Your monthly payment may change frequently after the first five years, making it more difficult for you to manage your household budget.
• ARMs are more complex loan products with respect to fees, caps, and structures than fixed-rate mortgages.

When a 5-year ARM might be best

First-time home buyers are often good candidates for a 5-year ARM, since many entry-level buyers are looking for a starter home that they’ll live in for a few years before they upsize. That means their time horizon for how long they plan to own the home can align nicely with a 5-year ARM — and the monthly savings that comes with it.

ARMs are particularly attractive in today’s high-interest lending market, where the average 30-year fixed-rate mortgage clocked in at a 5.22% rate the week of August 11, according to Freddie Mac’s weekly Primary Mortgage Survey.

The average 5-year ARM, meanwhile, has a lower introductory rate of 4.43%. And some economists predict mortgage rates will rise even higher as the year goes on because of inflation and growing fears of a recession.

It’s no surprise, then, that demand for ARMs is up. According to the Mortgage Bankers Associations, ARM applications represented 7.4% of all purchase applications the week ending August 5, up from 3.1% at the beginning of the year.

A 5-year ARM can also be a wise option for a home buyer who is planning to sell their new home or pay off their mortgage in full within the first five years, before their loan’s low introductory interest rate expires.

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

5-year ARM FAQs

Is a 5-year ARM a good idea?

A 5-year ARM may be a great option if you know that you’re going to sell your home, pay off the mortgage, or refinance within five years. Because the introductory rate is usually significantly lower than 30-year fixed mortgage rates, an ARM can save you a lot of money in interest over the first five years.

What is a 5-year ARM FHA loan?

FHA-backed mortgages are home loans secured by the Federal Housing Administration. They’re geared toward consumers with poor credit or little savings for a down payment; they only require a minimum 580 credit score and down payments can be as low as 3.5%.

The FHA offers what it calls “hybrid ARMs” — adjustable loans with a low initial interest rate for the first 3 , 5, 7, or 10 years. After the initial period, the interest rate adjusts. On a 5-year FHA adjustable-rate loan, the interest rate will increase one percentage point annually after the first five years, but the mortgage rate hikes are capped at five percentage points over the life of the loan.

Is an adjustable-rate mortgage recommended for first-time home buyers?

First-time buyers are often well suited for ARMs, mainly because they’re likely to move in a few years to a larger home, meaning they’ll be able to sell their house before their ARM’s interest rate can increase.

Is a 5-year ARM a conventional loan?

Generally, 5-year ARMs are conventional loans, meaning they conform to loan limits set by Fannie Mae and Freddie Mac. (ARMs offered by the FHA or Department of Veterans Affairs are an exception.) In most cities, a conventional/conforming loan is capped at $766,550 for a single-family home, though loan limits may be higher in areas with notably high home prices.

What are 5-year ARM rates?

According to Freddie Mac’s weekly interest rate tracker, the average 5-year ARM is typically 1 to 2 points lower than 30-year fixed rates. Though, of course, your actual rate may vary depending on factors like your credit score, loan amount, and down payment.

Click here to check 5-year ARM rates (Sep 16th, 2024)

The post Why 5-Year ARMs Could Be Perfect for First-Time Home Buyers first appeared on My Mortgage Insider.

There are ways to get a mortgage with student loan debt, even if you’re saddled with a hefty monthly student loan payment.

Here’s how student loan debt can affect your mortgage eligibility and some tips to make the home buying process go as smoothly as possible.

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

How lenders view student loan debt

Bogged down by student loans? You’re far from alone.

One in four Americans with a bachelor’s degree or higher has student debt, the Census Bureau reports. Collectively, borrowers in America owed $1.58 trillion in federal student loans at the end of 2021, according to the New York Federal Reserve.

Student loan debt can affect your ability to qualify for a mortgage loan. Why? Because student debt impacts your debt-to-income ratio, or DTI.

Student loans & your debt-to-income ratio

DTI is your total monthly debt payments — such as student loan payments, car payments, credit card payments, etc. — divided by your gross monthly income. Mortgage lenders consider your DTI ratio when assessing your ability to repay a home loan.

Let’s say you’re earning $5,000 a month and paying $600 toward debts each month. Divide $600 by $5,000 and your DTI ratio is 0.12, or 12%. But, if you add a $1,000 monthly mortgage payment to the mix, your DTI jumps to 32%.

Lenders like to see loan applicants with low DTI ratios, since these borrowers are historically less likely to default on their mortgage payments. Most lenders will only offer loans to borrowers with DTIs of up to 36%.

The bad news: An estimated 16% of undergraduate student loan borrowers will have a DTI of over 20% at graduation just from student loans, a recent LendEDU study found. That may explain why more than one in four student debt holders say their debt has impacted their decision or ability to purchase a home, a 2021 survey by the National Association of Realtors showed.

Fortunately, there are steps you can take to lower your DTI ratio and make homeownership a reality, even with student loan debt.

Step-by-step guide to buying a house with student loans

1. Pay down some debts

Reducing your overall debt load can strengthen your mortgage application. So, if you’re carrying a significant amount of debt on credit cards or an auto loan, paying off a large chunk of it can help lower your DTI ratio and make you a more attractive mortgage borrower.

2. Raise your credit score

Credit score is another component of your financial situation that lenders consider when evaluating loan applications. Therefore, make sure your credit history is in tip-top shape before applying for a mortgage.

This is especially important since a higher credit score typically translates into a lower interest rate, which in turn often means a lower monthly payment on your new home.

In 2020, the average credit score for consumers with a student loan was 689, while the average credit score among all consumers was 710, credit bureau Experian reports.

FICO is the most popular credit scoring model used in the U.S. for lending decisions. Scores range from 300-850. The scoring range denotes ratings: Poor, Fair, Good, Very Good, and Exceptional. Most mortgage lenders look favorably at borrowers with Good, Very Good, or Exceptional credit ratings.

Conventional mortgages typically require a minimum credit score of 620. Only borrowers with excellent credit — often mid-700s or higher — can qualify for the best interest rates.

One way to improve your credit score is to get a credit line increase. This will lower your credit utilization ratio, which accounts for 30% of your FICO score.

Also, check your credit reports for errors that may be dragging down your score. You can get your credit reports for free at AnnualCreditReport.com.

3. Look into down payment assistance programs

The bigger your down payment, the less money you have to borrow to purchase a home. And a smaller loan amount equates to a lower monthly payment — which will help if your DTI is already high because of student loan debt.

Most conventional home loans require a down payment of at least 5% of a home’s sales price. But if you’re having trouble putting a down payment together, you may qualify for down payment assistance.

There are more than 2,000 down payment assistance programs that offer qualified home buyers grants, loans and/or tax credits. You can search for programs and view eligibility requirements at Down Payment Resource.

4. Consider finding a co-signer

A co-signer is a person who is legally responsible to cover your mortgage if you fall behind on your loan payments. Enlisting a co-signer, such as a parent, may make you more qualified for a mortgage, since your co-signer’s income, credit score and assets will be taken into account by lenders. Including a co-signers income on your application might mean you can qualify even with a high DTI due to student loan debt.

Best loan types for borrowers with student loan debt

Although conventional loans typically require a minimum down payment of 5%, there are other types of loan programs to consider if you have student loan debt and are struggling to assemble a down payment.

FHA loans

Established during the Great Depression, Federal Housing Administration (FHA) loans enable you to qualify for a mortgage with a down payment as low as 3.5%. You can also get approved with a lower credit score (think low to mid 600s). Finally, FHA loans often allow a higher debt-to-income ratio than conventional mortgages, which can make all the difference to borrowers with student loan debt.

The caveat: FHA borrowers must pay a mortgage insurance premium (MIP) of 1.75% upfront, plus an ongoing monthly fee of 0.85% for a mortgage of 15 years or longer.

USDA loans

U.S. Department of Agriculture and Rural Development (USDA) loans are often offered in areas with populations of 10,000 or fewer residents. (You can see if your town is eligible at USDA.gov.) USDA loans have no official credit score minimum requirement, allow for DTI ratios of up to 41%, and borrowers can put as little as 0% down. There are a couple of drawbacks, though — USDA loans charge an upfront guarantee fee of 1% of the loan amount and an annual fee of 0.35% of the loan amount.

Physician loans

If you’re a recent medical school graduate, a physician loan (or “doctor loan”) may be a good option. Physician loans allow for down payments as low as 0% (though loans above $750,000 require a low down payment). They typically require a credit score of 680 or higher. And they might have special allowances to help borrowers who incurred a large amount of student loan debt in medical school.

Click here to check today’s mortgage rates (Sep 16th, 2024)

Buying a house with student loans FAQ

Will student loans affect buying a house?

Your student loan debt could impact your ability to qualify for a mortgage. If your debt-to-income (DTI) ratio — your total monthly debt payments, such as student loan payments, car loan payments and credit card payments, divided by your gross monthly income — is above 43%, you may have trouble qualifying for a home loan.

Should you pay off student loans before buying a house?

You don’t need to pay off your student loans to qualify for a mortgage. Still, keeping up with your student loan payments is crucial; if you miss a monthly payment, your credit score could take a big hit, which in turn could hurt your eligibility for a home loan.

Do mortgage lenders look at student loans?

Absolutely. Lenders look at a variety of types of debt — such as student loans, auto loans, personal loans, alimony and credit card debt — when reviewing loan applications and sizing up potential borrowers.

Can you get a mortgage if you have student loans in deferment?

Deferment probably won’t negatively affect your ability to get a mortgage but mortgage lenders will still include your loans when determining your debt-to-income ratio. The same is true if your student loans are in forbearance, or if you have an income-based repayment plan.

Can student loans be refinanced into a mortgage?

For borrowers with student loan debt that carries a high-interest rate, it may be possible to refinance that debt into a mortgage using a cash-out refinance. But this will change your loan term and could likely increase the interest you’ll pay in total over the life of the loan.

Can you qualify for a mortgage if you have student loan debt?

Yes, you can still get approved for a home loan even if you have student loan debt. Proof: In 2020 nearly a quarter of all home buyers, and 37% of first-time buyers, had student debt, with a typical outstanding student loan balance of $30,000, a National Association of Realtors survey found.

Whether you qualify for a loan will ultimately depend on your credit score, income, debts and down payment amount. But don’t let student loans alone deter you from starting the home buying process.

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

The post Buying A House with Student Loan Debt: The Complete Guide first appeared on My Mortgage Insider.