Not everyone will qualify for both loans, but eligible buyers may be able to purchase a new home with as little as 3.5% down — or even no down payment at all.

Below, we explore the requirements for each loan type.

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

Is a USDA or FHA loan better?

Neither home loan option is inherently better than the other. The best loan option for you will depend on the specifics of your eligibility, home buying goals, and personal financial situation.

Generally speaking, FHA loans are a more flexible lending solution for buyers with lower credit scores or less cash available for a down payment. USDA loans have income limits and location restrictions to consider before applying and are designed to help rural or suburban borrowers become homeowners.

USDA vs FHA loans for first-time home buyers

As a first-time homebuyer, the right choice between the USDA and FHA loan will vary based on your situation.

For many first-time home buyers, especially low-income families, saving up for the down payment is the biggest hurdle. After all, it can be a challenge to put aside a substantial amount of cash without life getting in the way.

If you qualify for a USDA loan, you won’t have to put any money down at all. The USDA loan is a zero-down loan. This can be a great opportunity but you’ll need to meet specific income and location standards to take advantage of it. Buyers must be in a USDA-designated “rural area” to be eligible for this program. You can check a property’s eligibility using this tool.

Since not everyone can qualify for the USDA loan and its zero down payment opportunity, the good news is that the FHA loan offers a low down payment option. It’s possible to put down as little as 3.5% with this home loan.

In either case, you’ll find a relatively affordable pathway to homeownership.

USDA vs FHA eligibility

FHA loan requirements

The FHA loan program is backed by the U.S. Department of Housing and Urban Development (HUD) through the Federal Housing Administration (FHA). This mortgage program is intended to help people with fair credit and modest savings become homeowners more easily.

In order to qualify for an FHA loan for your home purchase, you’ll need to meet the following requirements:

• Down payment: You’ll need to put down at least 3.5% if you have a credit score of at least 580. But the minimum down payment requirement increases to 10% if you have a credit score between 500 and 579.
• Sufficient income: The FHA requires you to prove sufficient income to support your monthly payments.
• Low debt-to-income ratio (DTI): Lenders look at your DTI to determine how much of your income is already dedicated to debt payments. FHA lenders often require a DTI of 45% or lower but may go as high as 50% in certain cases
• Loan limits: As of 2024, most areas have a maximum loan amount of $498,257. But some high-cost areas have higher loan limits for FHA borrowers. Remember, this is the loan limit, not the purchase price limit.
• Property types: You can purchase a property with up to four units as a primary residence with an FHA loan.

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

USDA loan requirements

The USDA loan is backed by the U.S. Department of Agriculture with the goal of helping rural families obtain affordable homeownership.

Households that meet the following requirements could qualify for a USDA loan:

• Location restrictions: Not all properties qualify for USDA loans. Instead, only rural areas qualify. Here’s where you can find out if a property you have in mind qualifies for USDA loans. Additionally, the property must be a single-family home.
• Income limits: Your household’s income cannot exceed 115% of the area’s median income. Use this tool to find out the income limits for your county. And of course, you’ll need enough income to cover your monthly mortgage payment.
• Low debt-to-income ratio (DTI): Most USDA lenders require a DTI of 41% or lower.
• Credit score: Although the USDA doesn’t set a specific credit score limit, most mortgage lenders require a 640 credit score. Additionally, you won’t want an adverse credit history that includes foreclosures or late credit card payments on your application for this homeownership program.
• Primary residency: USDA loans are a great mortgage option for those looking for a primary residence. If you are looking for a second home, you won’t qualify for a USDA mortgage. Additionally, only single-family homes are allowed.

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

USDA vs FHA vs conventional

Both USDA and FHA loans are government-backed options. That government backing provides extra assurance to private lenders, which in turn means it’s easier for borrowers to qualify who might not be eligible for a conventional loan. That includes buyers with lower incomes or less established credit histories.

With both the USDA and FHA programs, you’ll find low-down payment options and relatively flexible credit score requirements. However, both low-income mortgage loan types will require upfront and monthly mortgage insurance payments regardless of your down payment amount.

However, there are conventional loan programs that will also allow you to make a low down payment, sometimes as little as 3%. The credit requirements will be stricter but with the added benefit that mortgage insurance can be canceled when you accrue 20% equity.

Other homeownership programs with low down payment requirements to consider include:

• VA loans, backed by the U.S. Department of Veterans Affairs for veterans and active-duty service members
• HomeReady by Fannie Mae, which require a down payment of as little as 3%
• HomePossible by Freddie Mac, which also requires a down payment of just 3%

Additionally, many states and nonprofits offer housing programs and down payment assistance programs to help you achieve your real estate ownership goals.

FHA pros and cons

Every mortgage product has advantages and disadvantages. Here’s what to know about FHA loans.

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

USDA pros and cons

Of course, the USDA loan also has some benefits and flaws to consider. Here’s what to know about USDA loans.

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

USDA vs FHA FAQ

Is it easier to get an FHA or USDA loan?

Both mortgage programs can offer a more accessible homebuying process than conventional loans. In general, the FHA loan is considered a more flexible loan opportunity thanks to its lenient credit score requirements. However, if you live in the right location and don’t have a down payment, a USDA loan can put homeownership within reach.

Is a USDA loan cheaper than an FHA loan?

The lack of a down payment requirement makes a USDA loan a more affordable option upfront. Additionally, because they carry lower mortgage insurance rates, USDA loans are often an overall more affordable option than FHA loans for buyers who qualify.

What is the downside to a USDA loan?

The biggest downside to USDA loans is the location restrictions. If you aren’t planning to live in a rural location, then a USDA loan is off the table for your homeownership needs. Additionally, the program is specifically designed for low-income home loans. To qualify, your household income must not exceed limits for your geographical area. You can check limits for your county here.

Why would a seller not want a USDA loan?

A seller might not want a USDA loan because the property must meet certain livability thresholds. The property must have adequate utilities and provide a safe environment for its occupants. Additionally, the property must connect to a public road.

What credit score do you need for a USDA loan?

The USDA doesn’t set specific credit score requirements for USDA loans. However, most lenders require a credit score of at least 640 to issue a USDA loan to future homeowners.

Do USDA loans require home buyer education courses?

Yes, the USDA requires that first-time home buyers complete a home buyer education course.

Bottom line: USDA vs FHA loans

USDA loans and FHA loans are both designed to help those with lower income pursue their homeownership goals. If you qualify for one or the other, homeownership might be within reach.

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

The post USDA vs FHA: Which low down payment loan is best for first-time home buyers? first appeared on My Mortgage Insider.

The proposed $25,000 First-Time Buyer Home Act would help prospective home buyers purchase a home by helping them to fund a down payment.

The Act was originally introduced in 2021. It is still in the current administration’s budget proposal, however, it has not been enacted yet. That means it might undergo changes before becoming law, or it might not ever become law.

Still, here’s what we know about the $25,000 Downpayment Toward Equity Act as it stands right now.

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

What is the Downpayment Toward Equity Act?

The Downpayment Toward Equity Act of 2023 is designed to help “close the U.S. racial wealth and homeownership gaps by providing $100 billion in direct assistance to help first-time, first-generation homebuyers purchase their first home.”

If the program became law, financial assistance for qualifying prospective homeowners could include “assistance for down payments, closing costs, and to help buy down mortgage interest rates.” The assistance could total up to $25,000 per prospective home buyer.

The available information on the proposed act indicates the home buyer would receive the grant upfront, instead of as a tax credit. Since the grant proceeds would be awarded on closing, a mortgage lender may use this information as a part of their decision-making process for the mortgage loan.

Did the $25,000 first-time home buyer grant get passed?

As of January 2024, the Down Payment Toward Equity Act has not been passed. The bill was initially introduced in 2021 in the Senate. It is currently being considered by Congress, with no clear indication of how long it might take to become law.

However, in March 2023, the White House included this grant in its proposed budget for the fiscal year 2024. The budget allocated $10 billion for grants to benefit qualified first-time home buyers.

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

Who qualifies for the Down Payment Toward Equity program?

The Down Payment Toward Equity program is designed to help first-time, first-generation buyers purchase their first home. Given that, not everyone qualifies for this proposed grant.

If the Act passed in its current state, prospective homeowners would need to meet the following criteria to receive a grant:

• First-time buyers: To be considered a first-time home buyer, a borrower must not have owned a home for the last three years. This means prospective homeowners who sold their last place over three years ago without purchasing another property could qualify for this grant.
• First-generation homebuyers: The grant funds are specifically designed for home buyers whose parents’ never owned a home in the United States. If the home buyer lived in foster care, this requirement is waived. Also, this requirement is waived if the borrower’s parents default on a home loan and experience foreclosure.
• Income requirements: The program is intended for low-income and moderate-income borrowers. Prospective homebuyers must typically have a household income of less than 120% of the area’s median income. In high-cost-of-living areas, the income limits are higher and the borrower can earn up to 180% of the area’s median income and still qualify.
• Residency requirements: Borrowers who plan to use the grant funds to purchase a home must live in the home for at least five years. If the homeowner sells the home before the five-year mark, they will need to repay the grant funds.
• Property requirements: This down payment grant program is only available for real estate properties of one to four units. To purchase a multi-unit property, the homeowner must utilize at least one of the units as a primary residence.
• Housing counseling: A prospective borrower must take a homeownership education course that is approved by the Department of Housing and Urban Development (HUD) before receiving any funds.

Additional funds could be available for some borrowers

Eligible home buyers could receive up to $20,000 in grant funds for their new home purchase. Some specific borrowers may even qualify for extra money, up to $25,000 in grant funding.

To qualify, borrowers must make less than 120% of the area’s median income, or belong to a group that has been subject to racial or ethnic discrimination within the U.S.

Other down payment assistance programs for first-time homebuyers

The Down Payment Toward Equity Act hasn’t been passed yet. If the bill becomes law, it could provide a pathway to homeownership for many aspiring homeowners.

But if this bill doesn’t become law or you just don’t want to wait, there are other down payment assistance (DPA) program opportunities that could make homeownership possible.

Here are a few other first-time homebuyer programs available to first-time home buyers:

• Localized grants from government agencies: Some cities and states offer down payment assistance grant money for first-time home buyers.
• Forgivable loans: Some down payment assistance programs are available as forgivable loans, which means you’ll find a 0% interest rate, the balance is forgiven after a set period of time and no repayment is required.
• Government programs: The FHA loan program and USDA loan programs can offer flexible credit score requirements and low down payment options.

Take some time to explore all of your down payment assistance options as you begin your homeownership journey. If you meet the eligibility requirements, you could move forward with the home-buying process soon.

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

$25,000 first-time home buyer grant FAQ

What is Biden’s $25,000 Down Payment Toward Equity Act?

Biden’s Down Payment Toward Equity Act is a down payment grant that offers a pathway to homeownership for first-generation home buyers. If the bill becomes law, qualified home buyers could receive up to $25,000 in grant funding for their home purchase.

Is Biden giving $25,000 to first-time home buyers?

The Biden administration included grants to first-generation, first-time home buyers in its proposed budget for the fiscal year 2024. It’s possible this cash grant program was included to make good on a campaign promise in a tight housing market with high rates. But the bill hasn’t become law yet, which means President Biden isn’t giving $25,000 to first-time home buyers as of writing.

Who qualifies as a first-time home buyer?

For the purposes of this program, a first-time home buyer is someone who hasn’t owned a home in the last three years.

When will the Downpayment Toward Equity Act pass?

Right now, there is no definitive indication about when — or if — the Downpayment Toward Equity Act will pass.

The bottom line

The Down Payment Toward Equity Act could offer a path to homeownership for many Americans. However, this bill isn’t the law yet. With that, prospective beneficiaries of the program will have to wait and see if the proposal becomes law.

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

The post $25,000 Downpayment Toward Equity Act | What To Know first appeared on My Mortgage Insider.

Of course, everyone wants a clear answer. But the reality is that it’s not so cut and dry.

Some believe that the high interest rates are a good enough reason to put off a home purchase for now. But others think that the ease of buyer competition could make it the perfect time to find the home of your dreams.

Housing market: A current look

At the macroeconomic level, most prospective home buyers are aware that mortgage rates have increased dramatically in recent years.

Although average mortgage rates have started to dip after hitting a recent high of 7.79% for a 30-year fixed-rate mortgage in late October 2023, rates are still significantly higher than they were in 2021. As of writing in December 2023, the average interest rate on a 30-year fixed-rate loan is 6.61%, which is higher than buyers are used to seeing for the last twenty years.

Higher interest rates can take a bite out of anyone’s home purchase budget. The possibility of lower rates is tangible, with the Fed indicating it might not raise interest rates again. But even if the Fed stops its string of rate increases, some experts predict mortgage rates will remain above 6% for the foreseeable future.

In addition to high interest rates, buyers are facing high home prices. A recent report from the National Association of Realtors found that the median price for existing home sales was $387,600 in November 2023, which is up 4% from the same time last year. Of course, that’s just the median. Buyers in some areas are facing significantly higher prices based on a relatively low supply for a higher demand.

2024 housing market predictions

As we move into the New Year, prospective buyers who want to make a home purchase this year cannot help but consider the question of is it a good time to buy a house?

In terms of mortgage rates, many expect these to fall a bit in 2024. However, the expected drop is relatively slight and buyers should expect to see elevated rates throughout 2024. Since a higher interest rate eats into your home purchase budget, it could force buyers to consider more affordable options. For example, buyers might need to consider smaller homes or less desirable locations to find a property that suits their budget.

How to know if it’s a good time for you to buy a house

When it comes to buying a house, the macroeconomic factors might not be as relevant as you think. Of course, interest rates and housing supply play into your ability to afford the home you desire. But the reality is that the decision to purchase a home requires as much introspection as it does monitoring interest rate trends.

Below are some things to consider before moving forward with a house search.

Personal financial situation

First and foremost, prospective buyers should consider their personal financial situation. Before you purchase a home, it’s important that your finances are in a stable position to accommodate the costs of homeownership.

Take a look at your income, savings, and current debts. Buying a house often involves taking on a relatively large loan, in the form of a mortgage. It’s best to avoid taking on this debt if you already have a lot of high-interest debt acting like a drain on your budget.

For prospective buyers with lots of debt, like credit card debt, consider paying off this debt before pursuing a home purchase. Not only will this improvement to your balance sheet come in handy on your mortgage application, but it can also free up necessary cash flow to support your homeownership endeavors.

It’s important to note that homeownership comes with lots of hidden costs. While you’ll definitely need to keep up with your mortgage payment each month, other expenses can sneak into your budget. For example, you might need to pay for lawn care and other maintenance. Additionally, repair bills can add up. It’s a good idea to expect extra costs beyond your mortgage payment. If you don’t have any extra wiggle room in your budget, your finances might not be ready for the responsibility of homeownership.

In addition to room to support ongoing homeownership costs, consider the fact that you’ll likely need to make a significant down payment. While you may not need to make the traditional 20% down payment, you should expect to make a down payment of at least 3% to 10%. If you don’t have a down payment available, start saving now to set the stage for homeownership.

Homeownership goals

Homeownership is a long-term financial commitment that can have a significant impact on your lifestyle. Before diving into a home shopping journey, consider what your goals are.

One top consideration is determining how long you plan to live in a space. For example, someone who wants to live in the same location for at least five to seven years might find a lot of value in homeownership. But someone who is planning to leave the area in one or two years might be better off renting.

Additionally, consider your family size and expectations. If you are planning to grow your family, finding a place with the space you need can pay off in the long run. Since homeownership is usually a long-term commitment, it’s a good idea to consider your lifestyle goals before moving forward.

If you think you’ll live in a place long-term, homeownership might be the right move for you.

Credit score

The right credit score can make all the difference to your home buying experience. A higher credit score not only offers you higher approval chances, it also unlocks the potential for a lower interest rate.

Take a minute to check your credit score. If you have a great score, you can move forward confidently. If you have a poor credit score, it’s worth taking the time to improve it. You can prioritize improving your credit score by committing to on-time payments, paying off credit card balances, and checking your credit report for any errors.

Understanding of the current market

The real estate market is constantly changing. A combination of high interest rates and relatively high prices has made this a difficult time for home buyers. But if your finances are ready for the commitment of homeownership, then it can still be a good time to buy.

Consider talking your options over with a local real estate agent to understand the current market conditions in your area. With more information about your location, you can start the home shopping process with your eyes wide open.

FAQ

Should I buy a house now or wait for a recession?

While it’s tempting to wait for home prices to drop dramatically before buying a house, there is no guarantee that will happen in the near future. If you are ready to buy a house based on your lifestyle goals and financial situation, it makes sense to move forward with your home purchase.

Will 2024 be a good time to buy a house?

Mortgage rates are expected to stay relatively high in 2024, which means it might not be the best time to make a home purchase. However, by purchasing a home, you’ll have the potential for home appreciation in the future.

Is the housing market going to crash in 2024?

Based on the current forecasts, it seems unlikely that housing prices will crash in 2024. In contrast, home prices are expected to remain stable or increase slightly.

The bottom line: Is now a good time to buy a house?

It’s impossible to predict the future of the housing market. However, you can evaluate your own financial situation to determine if you are ready for homeownership.

If you decide you are ready for homeownership, explore your mortgage options today.

The post Is it a good idea to buy a house in 2024? first appeared on My Mortgage Insider.

If you are a borrower considering an FHA loan, this increased loan limit opens up new possibilities when home shopping. 

Let’s take a closer look at the FHA loan limits for 2024.

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

What are FHA loan limits?

FHA loan limits represent the maximum loan amount that the FHA will insure. Although these limits vary by county and home type, the new baseline limit for single-family home purchases is $498,257 for 2024. 

What’s the most you can borrow with an FHA loan?

We’ve established that the baseline limit for a single-family home purchase with an FHA loan is $498,257. However, the limit varies based on your county and the property type. 

For those living in high-cost areas, you can borrow more with an FHA loan. In some counties, you can borrow up to $1,149,825 for a single-family home. Some high-cost areas include San Francisco, Los Angeles, El Dorado County, Napa County, Alameda, San Mateo, Santa Clara and Santa Cruz. But, not all of the higher limits are tied to California counties. Other hot spots with higher limits include Denver and Salt Lake City. 

For residents of Alaska, Hawaii, Guam or the U.S. Virgin Islands, FHA loan limits can be pushed even higher to $1,724,725 for one-unit properties. 

If you are a homebuyer seeking a multi-family property, the loan limits increase again. Here are the limits you’ll face:

• 2-unit properties. In a low-cost-of-living area, the maximum you can borrow is $637,950. But in a high-cost-of-living area, that limit increases to $1,472,250. 

• 3-unit properties. In a low-cost-of-living area, the maximum you can borrow is $771,125. But in a high-cost-of-living area, that limit increases to $1,779,525.

• 4-unit properties. In a low-cost-of-living area, the maximum you can borrow is $958,350. But in a high-cost-of-living area, that limit increases to $2,211,600.  

A very limited number of counties qualify for the maximum loan limit. If you aren’t sure how your county stacks up, check out this map with all of the loan limits.

FHA loan limits for 2024

Understanding FHA loan limits can help you keep your home search within the appropriate price range. Here’s a breakdown of the loan limits to keep in mind. 

FHA loan limits 2024

Remember that your county might have a loan limit that falls somewhere in between the lowest and highest limit.

FHA loan requirements 2024

If you are considering an FHA loan, here are the requirements you must meet: 

• Credit score. Borrowers with a minimum credit score of 500 can apply with a 10% down payment. Borrowers with a credit score of at least 580 may qualify for a down payment of just 3.5%. 

• Living situation. You must intend to live in the property as a primary residence, which means moving in within 60 days of closing and living in the home full-time. 

• Minimum property standards. The property must meet the FHA’s minimum standards which include livable conditions without any safety hazards present. 

• Debt-to-income ratio. You cannot have a DTI over 43% in most cases (though there may be exceptions). And your mortgage payment cannot account for more than 31% of your monthly income. 

Many first-time homebuyers pursue FHA loans. But you don’t have to be a first-time buyer to obtain an FHA loan.

FHA loan benefits

An FHA home loan comes with plenty of advantages. A few of the biggest benefits include:

• Low credit score. The credit score requirements are lower for FHA loans than for other loan types. 

• Low down payment. You may only have to put 3.5% down on your home purchase. 

• Closing costs options. In some cases, you can roll closing costs into your loan. 

If you’ve struggled to qualify for another loan type, have a low credit score or can’t save up a big down payment, then an FHA loan could be a great option.

Considering an FHA loan? Start here (Sep 16th, 2024)  

FHA vs conforming loan limits

Conforming loan limits are set by the Federal Housing Finance Agency (FHFA). Non-conforming loans not backed by the government are relatively rare because Fannie Mae and Freddie Mac won’t guarantee higher loan amounts. As of 2024, the Federal Housing Finance Agency set the national conforming loan limit at $766,550. 

However, FHA loans backed by the Federal Housing Administration have different loan limits. The national baseline loan limit is 65% of the national conforming loan limit. With that, FHA loans have a limit of $498,258 in 2024. 

This baseline amount only applies in counties where 115% of the median home price is less than $420,680. In counties with higher costs, the FHA sets the limit at 150% of the conforming loan limit, which is $1,149,825 for 2024. 

FHA loan limit FAQ

What is the maximum FHA loan limit?

In 2024, the maximum FHA loan limit for most counties is $498,257. But in high-cost-of-living areas, the limit can increase to $1,149,825. For those living in Alaska, Hawaii, Guam or the U.S. Virgin Islands, you’ll find an even higher loan limit of $1,724,725. 

What are the FHA loan limits for 2024?

The baseline FHA loan limit for 2024 is $498,257. But in some counties, that limit can be increased up to $1,149,825 to account for higher housing costs. 

Will FHA loan limits increase in 2024?

FHA mortgage limits increased in 2024 to a new baseline of $498,257. The FHA may increase the loan limits again next year if median housing prices continue to rise.

What is the maximum amount you can borrow for an FHA loan?

The maximum amount you can borrow for an FHA loan depends on your location and the property type. 

The maximum amount you can borrow in Alaska, Hawaii, Guam or the U.S. Virgin Islands toward a single-family home is $1,724,725. If buying a four-unit property in one of these locations, you can borrow up to $3,317,400. However, most counties have a maximum loan limit of $498,257 for single-family homes and $958,350 for a 4-unit property. 

What will disqualify you from an FHA loan?

Even with relatively flexible credit requirements, you can still be disqualified from an FHA loan. Your application may be denied if your credit score is below 500, you have a debt-to-income ratio over 45% or you don’t have the savings to cover the down payment. 

But mortgage lenders can choose to deny your application for an FHA mortgage for any number of reasons. If your application is turned down, consider reaching out to ask why. 

Do FHA limits increase every year?

The FHA limits often increase annually. But the decision to increase the loan limits is based on the current housing market. 

FHA loan limits are tied to the limits set by the Federal Housing Finance Agency for conforming loans. The U.S. Department of Housing and Development (HUD) requires that the limits be reviewed on an annual basis. But there is no rule that says the limits must increase each year. With that, there may be some years in which the FHA loan limits do not increase. 

Do FHA loans require mortgage insurance?

Yes, FHA loans require paying mortgage insurance. The cost is a two-part deal. First, you’ll make an upfront mortgage insurance premium. After that, you’ll make monthly mortgage insurance premium payments while paying off your FHA loan. 

Which types of properties are eligible for the FHA program?

You can purchase properties with one to four units through an FHA loan. But you’ll need to live in the property as a primary residence. Investment properties are not eligible for FHA loans. 

What’s the actual cost of owning a home with an FHA loan?

When you own a home with an FHA loan, you’ll be stuck paying mortgage insurance premiums each month. Make sure to factor this additional cost into your budget as a homeowner. 

What if I don’t have enough for a 3.5% down payment?

If you don’t have enough saved for a 3.5% down payment, then an FHA loan is not a good fit for you. Instead, consider pursuing a conventional loan that requires 3% down. Or check to see if you qualify for a no money down loan, such as a VA loan or USDA loan.

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

The post FHA Loan Limits | Increased limits in 2024 first appeared on My Mortgage Insider.

But it’s important to understand exactly how a home equity loan can impact your finances. We’ll take a closer look at how a home equity loan works and help you understand what’s required to get one.

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

What is a home equity loan?

A home equity loan, otherwise known as a second mortgage, allows you to access the equity you’ve built in your home by using your home as collateral. When you take out a home equity loan, you’re agreeing to an additional loan payment on top of your existing mortgage loan for the life of the loan.

Home equity loan rates

Home equity loan rates vary based on the lender, loan amount, loan term, and your specific financial circumstances. A borrower with a good credit score can lock in a better rate than a fair credit borrower.

In 2022, home equity loan rates for a 15-year fixed term have ranged from 2% to 12%. Home equity loan rates are typically higher than currently available mortgage rates, as they are considered second mortgages and pose more risk for lenders.

Check today’s mortgage rates (Sep 16th, 2024)

Home equity loan requirements

The exact requirements for a home equity loan vary based on the lender. But in general, you’ll need to check the following boxes:

• Existing home equity: You’ll need to have a substantial amount of equity in your home. Most lenders prefer to lend no more than 80% of the equity in your home, meaning you’ll need more than 20% equity available to borrow against. To calculate the equity you’ve built in a home, subtract your existing mortgage balance from the market value of your home.
• Good credit score: Lenders often expect a good credit history from home equity loan borrowers. It’s possible for borrowers with a score in the mid-600s to get approval, but most lenders prefer a credit score above 700.
• Low debt-to-income ratio: A low DTI assures lenders that you can afford to make the payments based on your income. Typically, a DTI lower than 43% is acceptable but a lower DTI increases the strength of your application.

If you are considering a home equity loan, the eligibility requirements are similar to a traditional mortgage. Ultimately, lenders want to make sure you can afford the payments — in addition to your current mortgage — for the duration of the loan term.

What can a home equity loan be used for?

Home equity loans offer an opportunity to fund a wide range of needs. As a borrower, there are usually no constraints on how you can use the funds. But typically, homeowners take advantage of home equity loans to fund a major expense.

A few popular uses include:

• Home improvements
• Medical bills
• A new business
• High-interest debt

A common use for home equity loans is debt consolidation. Home equity loans tend to offer low rates compared to high-interest credit card debt. As a result, some homeowners use this loan option to pay off credit card debt and “consolidate” down to one lower-interest loan.

Check today’s mortgage rates (Sep 16th, 2024)

How does a home equity loan work?

A home equity loan is often referred to as a second mortgage. So, it’s not surprising that the process of taking out a home equity loan may feel similar to taking out a regular mortgage.

Lenders will use your existing home’s equity as collateral to protect against the possibility of you defaulting on the loan. With that, most lenders won’t let you borrow more than 80% to 90% of the home’s appraised value. But your unique situation will have an impact on how much you can borrow.

After receiving a lump sum, you’ll be responsible for making principal and interest payments for the loan term. Home equity loans typically have fixed interest rates and stable payments over the loan term, unlike home equity lines of credit (HELOCs), which often have variable rates. Home equity loans are also “fully amortized,” meaning your loan will be zeroed out at the end of the fixed payment period.

If the borrower defaults on the loan, the lender can seize the home to cover the remaining debt.

Other ways to access home equity

Home equity loan vs HELOC

A HELOC, or home equity line of credit, is a revolving line of credit. Instead of receiving an upfront lump sum, you’ll have access to a credit line to spend as needed. You can draw down funds when you need to up to the credit limit. Typically, a HELOC involves a draw period followed by a repayment period and a variable interest rate.

In contrast, a home equity loan involves a lump sum upfront and fixed monthly payments. You won’t have the option to easily pull out more funds as needed. But the fixed interest rate and set repayment installment schedule mean you know exactly how much interest you’ll be paying and when the loan will be paid off.

Home equity loan vs cash-out refinance

A home equity loan involves taking out a second loan, while a cash-out refinance replaces your existing mortgage with a new mortgage. With a cash-out refinance, the outstanding balance of your new mortgage is paid off and you agree to a new term and interest rate. At the end of the day, cash-out refinancing means you’ll just have one payment after accessing a lump sum from your home equity.

Some homeowners prefer cash-out refinances as they can offer lower interest rates than a second mortgage. However, if current mortgage rates are above your existing mortgage rate, replacing your home loan with a cash-out refinance may not be ideal.

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

Home equity loan FAQ

What is a home equity loan?

A home equity loan, or second mortgage, allows you to borrow against the equity you own in your home. You can use the funds from a home equity loan for anything from home renovations to education costs.

Where can I get a home equity loan?

Homeowners can access home equity loans through banks, credit unions and online lenders.

How do I apply for a home equity loan?

Before you start the application process, shop around for a home equity loan lender that offers the best terms and rates. Once you find the right lender, you’ll submit an application that includes information about your home, employment and credit history.

Is a home equity loan a mortgage?

A home equity loan is a type of mortgage loan that allows you to access cash, using your home as collateral. If you default on a home equity loan, the lender may seize your home to recoup its costs.

Are home equity loan rates higher than mortgage rates?

Typically, home equity loan rates are higher than regular mortgage rates. That’s because a home equity loan is considered a second mortgage.

This is because, in the case of default, the primary lender claims the first lien, which means the risk assumed by the second lender is greater than it would be for a first mortgage.

What is the interest rate on a home equity loan?

Home equity loan interest rates vary widely based on your unique situation and the market conditions. A borrower with a good credit score can lock in a better rate than a fair credit borrower.

What is the monthly payment on a $100,000 home equity loan?

The monthly payment on a $100,000 home equity loan varies based on the interest rate and loan term. But let’s say that you take out a 10-year home equity loan with a 5% fixed rate. With that, you’d make monthly payments of $1,061.

Do home equity loans hurt your credit?

Like all loans, home equity loans can help or hurt your credit score. If you make on-time payments, a home equity loan could improve your credit. But if you regularly miss payments, your credit score will suffer.

Is it good to borrow from home equity?

Whether or not it is good to borrow from home equity depends on your unique financial situation. For some borrowers, it may be more practical to take a personal loan or dip into a savings account, rather than tap home equity.

Typically, home equity loan rates are lower than high-interest credit card debt. With that, you could save by using a home equity loan when you might otherwise use a credit card. But a home equity loan uses your home as collateral, which means your home is at risk if you default.

How much money can you borrow on a home equity loan?

The maximum loan amount you can borrow varies based on the amount of equity you own in the home. In general, lenders won’t allow more than an 80% to 90% loan-to-value ratio (LTV). Keep in mind that LTV includes the balance on your existing mortgage. So your primary mortgage and second mortgage (home equity loan) cannot total more than 80-90% of your home’s value when combined.

How long do you have to pay back a home equity loan?

You can find home equity loan terms in the range of five to 30 years. As a borrower, you’ll have to decide what period of time works best for you.

Can you get a home equity loan with bad credit?

It’s more challenging to get a home equity loan with bad credit, but it may be possible. Since you are using your home as collateral, lenders may be more willing to work with bad credit borrowers. Keep in mind that lower credit scores lead to higher interest rates on home equity loans.

Can I use a home equity loan to buy another house?

Depending on the amount of home equity you have, it’s possible to use a home equity loan to access cash to buy another home.

Are there closing costs on a home equity loan?

Yes, you should expect to pay between 2% to 5% of the loan balance in closing costs for a home equity loan. The closing costs may include origination fees, application fees, and more.

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

The post Home Equity Loan Rates & Requirements 2024 first appeared on My Mortgage Insider.

The proposed tax credit offers some financial relief to households looking to buy in this challenging housing market. While this proposed tax credit could help you become a homeowner, it’s not the only way to make this dream a reality.

Let’s explore what the Biden First-Time Home Buyer Act is and your other options.

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

What is the Biden First-Time Home Buyer Act?

The Biden First-Time Home Buyer Act, also known as the First-Time Home Buyer Tax Credit, was originally proposed by the Biden administration in 2021. If the idea became a reality, it would allow first-time home buyers to enjoy a tax credit of up to 10% of their home’s purchase price, with a maximum amount of $15,000.

Importantly, the financial assistance would come in the form of a refundable tax credit. Tax credits are applied to your tax return, which means you won’t see the funds until you get your tax refund.

Did the Biden First-Time Home Buyer Act pass?

As of January 2024, the Biden First-Time Home Buyer Act has not passed. It’s possible that the act will be passed in the future. But it’s also possible the act will be defeated.

How to qualify for the Biden First-Time Home Buyer Credit

Since the Act hasn’t become law yet, the eligibility requirements included in it could change. But as of writing, home buyers must meet the following requirements to obtain the tax credit:

• You must be at least 18 years old.
• You must be purchasing the property to use as a primary residence.
• The house purchase price must be less than 110% of the area’s median home purchase price.
• Your household income must be less than 160% of the area’s median income.

Again, the eligibility details could change if the bill becomes law in the future.

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

What is the Down Payment Toward Equity Act?

The Down Payment Toward Equity Act is another piece of proposed legislation that could help prospective home buyers achieve the goal of homeownership. As the name of the Act suggests, some first-time home buyers would qualify for a $25,000 cash grant to assist with their home purchase.

The grant wouldn’t be available to everyone. Specifically, the proposed bill includes income limits and home price limits. But as of January 2024, the Down Payment Toward Equity Act hasn’t passed yet. With that, only time will tell if this grant will become law.

Existing help for first-time home-buyers

As of this writing, neither the First-Time Home Buyer Tax Credit nor the Down Payment Toward Equity Act have become law. But that doesn’t mean that prospective homeowners can’t find financial help on their journey to homeownership.

Below is a closer look at some of the available first-time home buyer programs and home buyer assistance.

First-time home buyer programs

Prospective home buyers may find the help they are looking for through government-backed home loans. A few of the different mortgage loan types to consider include:

• FHA loans: FHA loans are backed by the Federal Housing Administration. With a minimum credit score of 580, you can make a low down payment of just 3.5 percent of the loan amount. The catch is that you’ll be required to pay mortgage insurance.
• VA loans: The Department of Veterans Affairs backs VA loans, which are available to active-duty military members, veterans, and select National Guard and Reserves members. This loan has flexible eligibility requirements, competitive mortgage rates, no private mortgage insurance, and no minimum down payment.
• USDA loans: USDA loans are backed by the U.S. Department of Agriculture. If you live in a qualifying rural area, you may not have to put anything down with this mortgage program.

But government-backed loans aren’t the only type of mortgage available to first-time buyers. Many first-time home buyers can make homeownership happen with one of the following loans:

• Conventional loans: With a credit score of at least 620, you might be able to make a down payment as small as 3%.
• Home Possible loans: Home Possible loans are available through Freddie Mac. The loan program offers a down payment requirement of 3%. It’s designed for low-income and moderate-income borrowers.
• HomeReady loans: Fannie Mae offers HomeReady loans, which are also designed for borrowers with low to moderate incomes.

Down payment assistance programs

The right loan can make a big difference to your homeownership prospects. But coming up with the funds for a down payment is still an obstacle for many would-be buyers.

The good news is that many local governments and nonprofits offer down payment assistance programs or closing cost assistance that are available to help you get into a home.

A few types of down payment assistance programs include:

• Grants: Many states offer first-time home buyer grant programs to help qualified buyers cover the down payment.
• Forgivable loans: Some states offer forgivable down payment loans, which involve forgiving your down payment loan after you live in the home for a predetermined period of time.

As you explore your options, a local housing agency or lender might be able to help you uncover all of the financial assistance possibilities.

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

How to move forward with homeownership

Homeownership is a major financial commitment. As you gear up for this significant change, it’s important to lay the groundwork for financial stability after closing.

Below are some ways to prepare your finances for homeownership:

• Assess your existing debts: Mortgage lenders look at your debt-to-income ratio. In general, lenders prefer to work with borrowers who have a lower debt-to-income ratio. Take stock of your debts. If your have significant debts, then consider paying off some of it before applying for a mortgage.
• Look at your credit score: Evaluate your credit score to determine where you stand. While credit score requirements vary based on your loan type, a better credit score generally translates into a lower interest rate.
• Decide what you can afford: Look at your financial situation to determine how much you can comfortably afford to spend on a monthly mortgage payment. It’s important to be realistic about what you can afford before you start shopping for a home.
• Weigh your loan options: You have many different loan options to choose from. Do some research to determine which is the right fit for your situation.

When you are ready to move forward, it’s time to submit your application. And, of course, find a home that suits your needs.

First-Time Home Buyer Act FAQ

What is Biden’s $15,000 First-Time Home Buyer Act?

The Biden First-Time Home Buyer Act is a piece of proposed legislation designed to help prospective homeowners achieve homeownership. The financial assistance would come in the form of a refundable tax credit, for up to $15,000.

What is the new Biden mortgage law?

The Biden administration has proposed two different pieces of legislation related to providing financial assistance to first-time home buyers. But neither of these proposed acts have become law, as of January 2024.

Who qualifies as a first-time home buyer?

In general, an individual is considered a first-time home buyer if they haven’t owned a home in the last three years.

The bottom line: Assistance is available for first-time home-buyers

The proposals put forward by the Biden administration are aimed at helping first-time buyers achieve homeownership. But as of writing, neither of these bills has been passed. While these bills might pass in the future, it’s possible to move forward with your dream of homeownership without waiting for this proposed financial assistance.

If you are a first-time home buyer, it’s worthwhile to explore other options. For example, government-backed home loans and state-level grants could help you achieve your goal of owning a home. If you are ready to get started, get pre-approved today.

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

The post Biden First-Time Homebuyer Act | Benefits & Requirements 2024 first appeared on My Mortgage Insider.

Borrowers hoping to get a mortgage with a non-traditional source of income have options. While “true” no income verification mortgages no longer exist, lenders can qualify you based on almost any kind of cash flow. So you don’t need a traditional income to qualify. Below, we’ll take a closer look at this option.

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

What is a no-income verification mortgage?

A no-income mortgage, sometimes referred to as a no-doc mortgage, is an option for borrowers with a non-traditional income stream or another source of assets. This type of loan doesn’t require standard income documents to finalize your loan. However, you do need to prove that you have enough cash flow, savings, or other assets to make consistent mortgage payments over the life of the loan.

How does a no-income mortgage work?

Of course, the lender still needs to know that you can afford the loan. But instead of looking at your W-2s, pay stubs, or tax returns, the lender lets you provide proof of your financial stability in other ways.

For example, you might show bank statements or investment account balances to prove to the lender that you can afford the mortgage payments. In some cases, you can even use the projected rental income of a property to qualify for the mortgage.

Types of no-doc mortgages

No documentation loans come with a few different variations.

While common before the 2008 financial crisis, no-income verification loans — also sometimes called non-QM loans — are no longer widely available to homebuyers. These loans are risky for lenders, so they require higher mortgage rates for borrowers.

Here’s a closer look at what each:

• Stated Income, Verified Assets (SIVA): For this loan type, the lender often requires self-employed borrowers to show proof of a consistent income through bank statements. Typically, self-employed individuals and high-net-worth individuals are prime candidates for this type of loan.
• No Income, Verified Assets (NIVA): With NIVA loans, lenders look at the borrower’s assets. The goal is to have enough other assets that the lender could seize as collateral if the loan goes south. A typical NIVA loan candidate is a retiree with cash reserves and limited income.
• Stated Income, Stated Assets (SISA): SISA loans are mortgages that truly require no documentation at all. Instead, the lender simply takes your word for how much income and assets you have. This type of loan is not available for owner-occupied properties. But it’s still possible for real estate investors to pursue this loan type.
• No Income, No Assets (NINA): NINA loans are geared towards mortgages for investment properties. In this case, the lender looks at the rental income potential of the property. If the rental property’s potential cash flow can cover the monthly payment, a NINA loan is a potential option.
• No Income, No Job, No Assets (NINJA): In this case, the mortgage lender relies entirely on the applicant’s reported income, job, and assets.

Pros & cons of a no-doc mortgage

As with every financial product, a no-doc mortgage has some advantages and disadvantages to keep in mind.

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

When should you get a no-income verification mortgage?

If it’s a challenge to verify your income, then a no-income verification mortgage is an option worth pursuing.

Here are a few scenarios when this type of mortgage makes sense:

• Your tax situation is complicated: If you have income streams spread out across multiple tax returns, verifying all of this information can be a challenge.
• Your income is irregular: Those with a fluctuating income might find this mortgage type more accessible.
• You have a high net worth without a regular income: If you have sufficient assets, you could leverage that financial stability into a mortgage without proving a regular income stream.

Step-by-step guide to getting a no-income verification mortgage

If you want to pursue a no-income verification mortgage, here are the steps you’ll need to take:

• Build your credit score: Most lenders require an excellent credit score for no-income verification loans.
• Save up a significant down payment: You’ll likely need a large down payment for this type of loan. Be prepared to make a down payment of at least 20%, and probably closer to 30%.
• Gather the necessary documents: Although you won’t need to provide a pay stub, lenders will likely expect other types of documentation. For example, you might need to provide bank statements or investment account statements to prove you can afford to repay the loan.
• Submit your application: After you have the documents in hand, you can apply for a no-income verification mortgage. As a borrower, you should be prepared to answer any extra questions the mortgage lender has about your financial situation.

Qualifying for a no-income verification mortgage

In general, it’s relatively challenging to qualify for a no-income verification mortgage. As a homebuyer, it’s often easier to work through the mortgage process if you have a steady W-2 income for your household.

It’s not impossible to qualify for a no-income verification mortgage. But be prepared to provide extensive documentation about your financial situation.

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

Are no-income verification loans safe?

If you have the necessary funds to repay the mortgage, then there is nothing inherently unsafe about a no-income verification mortgage. However, these are non-qualified mortgage (non-QM) programs, meaning they are controlled by individual lenders and not regulated by any government agency. As such, they might lack important borrower protections that come with standard mortgage loans.

Before signing up for a no-income verification mortgage, be sure to carefully read and understand your loan terms. Look out for any risky clauses like prepayment penalties or balloon payments that would not be included on a standard mortgage loan.

As with all mortgage types, including conventional loans and government-backed loan programs, there is a risk that the lender will repossess your home if you don’t make your payments on time.

Does a no-income verification mortgage enable you to buy a home with no income?

Yes, a no-income verification mortgage enables you to buy a home without a regular job, or steady source of income. However, you’ll need to have sufficient existing assets to repay the loan. The lender will confirm that you can make the loan payments in one way or another.

No-income verification loan rates

No-income verification loan rates vary based on the lender, loan amount, loan term, and your specific financial circumstances. A borrower with a good credit score can lock in a better rate than a fair credit borrower.

No-income verification loan rates are substantially higher than currently available mortgage rates, as they pose more risk for lenders.

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

No-income verification mortgage FAQ

Can I buy a home with no income?

If you want to purchase a home with no income, you’ll need a substantial net worth with enough assets to support repaying the loan. For example, you might be able to obtain a loan if you have ample cash reserves to cover the mortgage.

Can you get a mortgage without a verifiable income?

Yes, it’s possible to get a mortgage without a verifiable income. But it’s more challenging than obtaining a mortgage with a regular income stream. If you don’t have a verifiable income stream, then you’ll need enough assets to support the mortgage payments.

What loan does not require proof of income?

No-income verification mortgages don’t require proof of income. But these types of loans require proof of other assets. You always need to prove to a lender that you can afford to repay the loan.

What is a no-income verification mortgage?

No-income verification mortgages, or no doc loans, don’t require you to provide proof of a traditional income stream through W-2s or tax returns. Instead, you can qualify for the loan based on your assets. Sometimes lenders call these bank statement loans or stated income loans.

Can I get a mortgage if I get paid in cash?

If you get paid in cash, it might be possible to get a mortgage. For example, if you are reporting this cash income on your tax returns, that might be enough evidence for the lender. But potential homeowners pursuing this option will likely need a higher credit score and encounter higher mortgage rates.

Can you get a mortgage without a job?

You may be able to get a mortgage without a job. If you want to purchase a home without a job, you’ll likely need sufficient assets or another source of income to support the loan amount.

What should be your minimum income to buy a house?

There is no minimum income required to buy a house. Instead, you’ll need to prove to the lender that you can cover the mortgage payments. In some cases, cash reserves or other assets are enough proof for the lender.

What credit score is needed for a no-income verification mortgage?

Each lender sets its own specific credit score requirements for no-income verification home loans. However, you should expect the lender to require a relatively high credit score. If possible, aim to get your credit score above the 700 mark.

How can I get approved for a mortgage without proof of income?

Although you can’t get approved for a traditional mortgage without proof of income, there are other loan options when trying to obtain a primary residence. You can get approved for a mortgage loan without proof of income by providing proof of assets. If you have enough assets, the lender might be willing to move forward regardless of income.

How can I buy a house without 2 years of income?

If you want to buy a home without a two-year income history, then you’ll likely need a great credit score and a large down payment. Additionally, you’ll likely need significant cash savings, assets, and a low debt-to-income ratio.

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

The post No Income Verification Mortgage | Guidelines for 2024 first appeared on My Mortgage Insider.

There are lots of assistance programs to help home buyers purchase homes, and grants — which you don’t have to repay — are often the most attractive.

Let’s explore your homeownership grant options as a first-time buyer.

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

What is a first-time home buyer grant?

First-time home buyer grants offer financial assistance to put homeownership within reach for buyers. As an eligible home buyer, you can use the funds to help cover your down payment and closing costs.

The best part about first-time home buyer grants is that you never have to pay the money back.

You can find first-time home buyer grant options available through the federal government. But many state and local governments also offer home buyer grants.

9 types of first-time home buyer grants

A first-time home buyer grant might be just what you need to close on a home purchase. Here’s a closer look at the first-time home buyer grant programs you might qualify for.

1. State first-time home buyer grants

Most states offer a down payment assistance program to qualifying residents. Since this is on a state level, the rules for first-time home buyer grants will vary based on where you live.

Some states and local governments offer outright grants, which you don’t have to pay back. Typically, these range from a few thousand dollars to 5% of your home’s purchase price.

Other states offer forgivable loans, also known as silent mortgages, which are similar to grants. These second mortgages don’t come with a monthly payment and are forgiven after a set period of time. Generally, this type of forgivable loan comes with requirements you’ll have to meet to qualify for full forgiveness. For example, you might have to live in the home for a set number of years before the loan is forgiven.

Even if your state doesn’t offer grants, it may offer a repayable down payment loan. When you take out a first-time home buyer down payment loan, it will come with a monthly payment. The good news is that the interest rates on these down-payment loans are usually relatively low.

2. National Homebuyers Fund

The National Homebuyers Fund offers both grants and three-year forgivable loans to qualifying buyers. The fund is designed to support low-income and moderate-income home buyers in the home-buying process.
Although the exact amount varies based on your situation, you can receive up to 5% of your loan amount. To move forward, you’ll need to work with a mortgage lender that participates in the NHF program.

3. Chenoa Fund

The Chenoa Fund offers down payment assistance to first-time buyers, with a focus on borrowers with strong credit and low to moderate income.

Instead of an outright grant, the Chenoa Fund provides three-year, forgivable loans. It also offers down payment loans that must be repaid. Your financial situation will determine which opportunity you qualify for.

You can receive a forgivable loan of up to 3.5% of the purchase price. But you’ll need a minimum credit score of at least 600 to apply. Of course, the forgivable loan is preferable. However, borrowers that don’t qualify might find a solution in the Chenoa Fund’s repayable loan.

4. Community Seconds

Community Seconds is a program available through Fannie Mae. Although this program doesn’t offer grants outright, it allows you to finance up to 105% of the home’s sale price so that you don’t have to make a down payment upfront.

The Community Seconds program doesn’t have income requirements though it is intended for low- to moderate-income borrowers, and to qualify, borrowers must earn less than 120% of the median income for their area.

5. Affordable Seconds

Freddie Mac offers Affordable Seconds, which is very similar to Fannie Mae’s Community Seconds program. You can finance up to 105% of the purchase price of the home, which gives you the funds you need to cover the down payment and closing costs.

You’ll need to have a credit score of at least 660 to work with this loan type. This program has income requirements similar to the Community Seconds program.

6. Good Neighbor Next Door

The Good Neighbor Next Door program is offered through the U.S. Department of Housing and Urban Development (HUD). It helps workers in certain professional fields move forward with a home purchase.

Through the program, those in select professions can qualify for funding of up to 50% of the home’s list price. To qualify, borrowers are required to live in the home for at least 36 months. Plus, eligible properties are in revitalization areas, which often correlate with less-than-ideal neighborhoods.

Some of the professions that qualify for this program include law enforcement officers, teachers (pre-K through 12th grade), firefighters, and emergency medical technicians (EMTs).

7. Disabled buyer grants

If you have a disability, you may qualify for special home buyer programs. Some programs that offer assistance for disabled home buyers include VA loans, HUD Housing Choice Vouchers, and nonprofit home buyer assistance grants.

In addition to these programs, disability income can help you to qualify for a mortgage, so be sure to include it on your application.

8. Private lender grants

A handful of private mortgage lenders offer incentives to first-time home buyers. Typically, these programs are designed to help borrowers who might otherwise face additional hurdles to home ownership, such as lower incomes or limited savings for a down payment.

Some of the available grants from private lenders include Chase Bank DreaMaker grants of $5,550 and the Bank of America Community Affordable Loan Solution with no down payment requirement.

Keep in mind that these mortgage programs each have their own eligibility requirements. And typically, these loans are only available for buyers purchasing a single-family home.

9. Downpayment Toward Equity Act

There has been some recent buzz around a government grant program that would offer $25,000 in grant money to aspiring home buyers. A proposed congressional bill — the Downpayment Toward Equity Act of 2021 — would enable qualifying first-generation first-time home buyers to access a grant of $25,000.

The bill has not yet passed in Congress. However, if it passes, this sizable grant could be a huge boon for first-time home buyers.

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

Who qualifies for first-time home buyer grants?

The requirements for first-time home buyer grants vary based on the specific grant program. That said, you’ll typically need to have a credit score of at least 620, a debt-to-income ratio below 43%, a reliable income, and two years of stable employment.

In addition to these requirements, many grant programs also have income limits. For example, several of the programs above require that your household income be less than 120% of the area’s median income.

In some cases, first-time home buyer grants require a minimum contribution from the borrower. For example, you might be required to contribute a percentage of the home purchase price or a few thousand dollars out of your own bank account. Plus, if you get a down payment grant, you’ll still likely need to pay for closing costs separately.

Finally, you’ll likely need to commit to a first-time home buyer education course. Although these are sometimes free, you might have to pay for a specific class before applying for your mortgage loan grant.

Other first-time home buyer programs

A first-time home buyer grant isn’t the right fit for every buyer. Here’s a look at some of the other assistance programs that could help you to purchase a new home.

• Down payment assistance programs: Down payment assistance (DPA) programs offer a second mortgage for a smaller amount to cover the down payment and closing costs. Typically, these loans come with lower interest rates.
• Deferred-payment loans: A deferred-payment loan gives you access to the funds you need for the down payment but you won’t have to start repaying the loan immediately. Depending on the loan, you might be able to start repaying it after you pay off the mortgage, refinance your mortgage, or sell your home.
• Forgivable loans: Some forgivable loans are available to cover your down payment costs. However, these often come with strings attached. For example, you might have to commit to living in the home as a primary residence for five years before the loan is forgiven.
• Zero down payment loan programs: Some home loans don’t require a down payment at all. With a zero down payment loan program, you can close on a home without putting down thousands of dollars.

As a home buyer, it’s helpful to compare all of your options. That’s especially true if this is your first mortgage. If you have specific questions, don’t be afraid to work with one of the counseling agencies available to home buyers. When you find the right fit, you’ll be ready to move forward with your home purchase.

First-time home buyer grants FAQ

Who qualifies as a first-time home buyer?

If you haven’t owned a home in the last three years, you qualify as a first-time home buyer for most purposes.

What is an NHA grant?

NHA grants, available through the Navajo Housing Authority, are available to help eligible borrowers become homeowners.

Which loan type is best for first-time home buyers?

The right loan type for first-time buyers depends on the details of their specific situation. For example, many first-time homebuyers will find their best option through the FHA loan program. That said, veterans are likely to find the best deals through the VA loan program (which requires no private mortgage insurance), while rural residents might find better options through the USDA loan program.

What is Biden’s $25,000 Downpayment Toward Equity Act?

The Downpayment Towards Equity Act would provide down payment assistance of up to $25,000 to first-generation first-time home buyers. As of January 2024, this bill has not become law.

Can I buy a house with zero money down?

Yes, some home loan programs allow you to purchase a home with zero money down. You’ll need to meet certain home buyer requirements to qualify but many 100% financing home loan programs offer great deals to buyers who are eligible.

The bottom line: Assistance is available for first-time homebuyers

As a first-time home buyer, you have access to a wide range of assistance options, and there are many ways to get the funds you need to finalize your home purchase.

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

The post First-Time Home Buyer Grants | 2024 first appeared on My Mortgage Insider.

The right loan can make or break your home renovations. Whether you are looking for a specialized home improvement loan for a specific type of renovation or a broad loan that can be used to fund more general home upgrades, you’ll find plenty of options to choose from.

Let’s explore the best loans for home improvement and which ones might suit your specific needs and finances.

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

What is a home improvement loan?

A home improvement loan is any type of loan that offers the funds you need to maintain, repair, or improve your home.

Often, “home improvement loans” are unsecured personal loans that are marketed as being for home improvement. There are also some niche mortgage loan products intended to be used for certain types of home renovations.

Of course, when looking for a way to finance home improvements, you aren’t limited to loans specifically designed for this purpose.

In fact, there are a number of cash-out or home equity loan products to choose from, which allow you to access cash from your home equity for any purpose, including to cover the cost of improvements to your home.

How does a home improvement loan work?

The way your home improvement loan works will depend on what kind of loan you choose.

For homeowners looking to fund home repairs or improvements with a secured loan — either a cash-out refinance or a second mortgage — you’ll need to complete many of the same steps that were required for your original home purchase loan application. Below, we’ll explain the practical differences between a cash-out refinance, a home equity loan, and a home equity line of credit (HELOC).

These types of mortgages require a full mortgage application, a home appraisal, and closing costs or fees. When you close the loan, you’ll receive funds (or in the case of a HELOC, a line of credit ) that you can use for any purpose.

For an unsecured personal loan, you won’t need collateral to finalize the loan. That means there’s no mortgage application or appraisal; you’ll simply qualify based on your credit and can usually receive funds much faster. A regular unsecured home improvement loan will come with installment payments spread out over a loan term. These loans typically have much higher interest rates than mortgages.

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

Home improvement loans vs equity financing: What’s the difference?

The loans often marketed as “home improvement loans” are typically unsecured personal loans, which means they are a way to get cash relatively quickly for renovations without using your home as collateral. Because they’re unsecured, they typically carry higher interest rates and lower maximum loan amounts than secured loan options.

On the other hand, equity financing involves using the equity you’ve built in the home as collateral for the loan. With that, you are putting your home on the line. If you cannot keep up with the loan payments of a secured home improvement loan, you risk losing your home.

Finally, if you choose a mortgage loan to fund your renovations, you’ll need to make sure to factor closing costs into your budget — which typically add anywhere from 2 to 5 percent of the loan amount to the overall cost of the loan (though this can usually be included in the loan amount).

How to finance home improvements

When looking for a way to finance home improvements, you have many options. But you’ll have to decide which loan option is the right fit for your finances.

Here’s a closer look at some of your financing options for a home improvement project.

1. Home equity loan

With a home equity loan, you’ll borrow against the equity you’ve built in your home.

You can determine how much equity you have in a home by subtracting your outstanding mortgage balance from the home’s value. For example, if your home is worth $100,000 and you have a $20,000 mortgage, then you have $80,000 in home equity. Though, keep in mind that most lenders won’t allow you to borrow all of the equity you’ve built in the home.

A home equity loan is a second mortgage. That means you’ll repay it in addition to your existing mortgage, so lenders will want to make sure your financial situation enables you to make both payments.

You’ll receive the loan in a lump sum of cash and pay it back in regular monthly payments over a predetermined number of years.

If you have a substantial amount of home equity and know what the home improvement project will cost, then a home equity loan is a useful option.

2. HELOC

A HELOC, or home equity line of credit, offers another way to borrow from your home’s equity without undergoing a mortgage refinance. It’s also a second mortgage but differs from a home equity loan in that, instead of taking out a lump sum, you’ll have access to a revolving line of credit to tap into when needed.

HELOCs provide a relatively flexible way to get the cash you need for a project. But if you don’t have the exact costs nailed down, you’ll have the freedom to continue borrowing up to the credit limit for a set period of time. It’s a useful way to avoid overborrowing for a major project.

Although the rates tend to be higher than a home equity loan, HELOCs offer the flexibility that some borrowers need.

3. Cash-out refinance

With a cash-out refinance, you’ll take out a new mortgage loan that replaces your existing mortgage. This new mortgage will convert some of your existing equity into cash that you’ll receive at closing, and you’ll be left with a single monthly mortgage payment.

Cash-out refinancing is usually a good option if you can lock in a lower interest rate for your mortgage than you had previously. Otherwise, it is more efficient to hang onto your existing low mortgage rate and use a different loan option to finance the improvements.

Related: 5 Things to Consider Before Your Cash-Out Refinance Application

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

4. FHA 203k rehab loan

Like the cash-out refinance option, the FHA 203k loan is a that combines both the cost of the home purchase and the cost of renovations into a single mortgage. It allows you to borrow against the future value of the home, a value that reflects the planned renovations and repairs.

Typically, this type of loan is best for those buying a fixer-upper. With relatively flexible credit requirements and low down payment options, it’s a useful option for many borrowers — especially first-time home buyers.

5. Personal loan

Some personal loans present themselves specifically as home improvement loans. But even if a personal loan isn’t marketed to cover home improvement costs, it offers an unsecured source of funds that can be used for any purpose.

Since personal loans are unsecured, you won’t have to put up your home as collateral. That means it’s often faster to obtain your funds through a personal loan’s online application. Unfortunately, because they’re unsecured, you’re also likely to end up with higher interest rates and a shorter repayment period, which could strain your budget.

If your credit history isn’t great, you may have a harder time qualifying for this type of loan. Additionally, you should scope out any potential prepayment penalties before moving forward with this loan type.

6. Credit cards

A credit card is an expedient way to cover home improvement costs. All you have to do is pull out your plastic.

Although it’s a quick option upfront, borrowing costs are relatively high with credit cards. Even with excellent credit, you’ll find higher annual percentage rates (APRs) that can add up quickly.

Unlike some of the other options on this list, credit cards come with a variable interest rate instead of fixed interest rates. With that, how much you pay in interest will change over time.

If you are dealing with a home improvement project that has to be completed immediately, a credit card offers a short-term funding solution. But after the fire is out, look for a loan with a lower interest rate to stop credit card debt from spiraling out of control.

7. Home improvement grants

Some home improvement projects are eligible for grants, which can lower your out-of-pocket costs. Since grants don’t have to be paid back, it can be a valuable use of your time to research your options.

On the federal level, many agencies offer grants for specific home improvements. For example, the Department of Veterans Affairs provides grants to help veterans with service-connected or aging-related disabilities make their homes more functional.

Similarly, check out the U.S. Department of Housing and Urban Development to see if you qualify for grants based on your location, income, and improvement.

Tips for choosing a home improvement loan

Before jumping into a home improvement loan, start by creating a cost estimate. The size of the loan you need will have an impact on your choices.

If you need tens of thousands of dollars, then tapping into your home equity with a secured loan is likely the right move. But if you only need a few thousand dollars, then a personal loan or home improvement grant might be sufficient to cover your costs.

Additionally, the timeframe matters. For those with good credit and a pressing need, you can finalize the loan application for a personal loan quickly. So, if you need the funds in your bank account as soon as possible, the same day or next business day funding offered by the application process of some personal loans is appealing.

Regardless of the loan option you choose, make sure to take a look at all of your loan offers to find the best possible deal for your situation. Also, make sure you’re clear on the repayment terms before you sign, and ask your lender about any late fees or autopay discounts that could impact your total costs.

Home improvement loan rates 2024

The interest rate you pay for a home improvement loan will vary greatly depending on the type of loan you choose and the current rate environment.

Depending on the rate you are able to lock in and your creditworthiness, a secured loan — either a second mortgage or cash-out refinance — is likely to offer lower rates than an unsecured personal loan or a credit card.

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

Loans for home improvement FAQ

Which loan is best for a house that needs improvements?

If a home needs improvements, the right loan option will vary. For example, if you are buying a fixer-upper, then an FHA 203k loan could be the way to go. But if you are a homeowner with significant equity in your home, then a home equity loan or HELOC might be the better option.

What is the best way to get money for home improvements?

Using a home equity loan or HELOC to secure a lower interest rate could lead to thousands in savings. But if you aren’t willing to put your home on the line, then consider a personal loan or credit card instead.

How many years is a home improvement loan?

The home improvement loan you choose will impact the loan term. But in general, you’ll find options that range from two to 30 years.

How do home improvement loans work?

The type of home improvement loan you choose impacts its process.

If you choose a home equity loan or personal loan, you’ll make regular monthly payments in addition to your mortgage. If you choose a cash-out refinance or FHA 203k loan, you’ll only have one monthly payment that rolls your home improvement costs and your mortgage payment into one amortized payment.

What are home improvement loan rates?

Home improvement loan rates vary based on your credit profile and other financial details. Cash-out refinances typically have the lowest rates, while home equity loans and HELOCs are slightly higher. Unsecured borrowing for home improvements, like using personal loans and credit cards, has the highest rates of all. When choosing the right loan, shop around to find the lowest rates for your situation.

How much can you borrow with a home improvement loan?

The amount you can borrow with a home improvement loan varies based on the loan type and your situation. Borrowers with a significant amount of equity can borrow more than those less equity accrued in their homes.

But in general, you should expect to borrow between a minimum loan amount of $1,000 and a maximum loan amount of $50,000 or more.

Can I borrow more on my mortgage for home improvement?

Yes, you can borrow additional funds for home improvement using a cash-out refinance. Essentially, this type of loan replaces your existing mortgage loan with a bigger one.

What credit score do I need to qualify for a home improvement loan?

Creditworthiness requirements vary based on the type of home improvement loan you choose.

For cash-out refinances and FHA 203(k) loans, you’ll likely need a credit score of at least 620. If opting for a HELOC or home equity loan, you’ll likely need a score of at least 660. For credit cards and personal loans, borrowers with credit scores above 700 will find the most affordable rates.

Lenders will also check your credit report. So, if you have a bankruptcy in your past, that could affect your eligibility. Additionally, lenders will calculate your debt-to-income ratio to make sure you can reasonably afford the loan.

The bottom line: Best loans for home improvement

Ultimately, the best home improvement loan for your situation is going to depend on the specifics of your financial situation — and the home renovations you want to make. A mortgage lender can help you determine the best option for you.

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

The post Best Loans for Home Improvement | 2024 first appeared on My Mortgage Insider.

Of course, there are some eligibility requirements. But this rule change presents an opportunity for prospective homebuyers looking to purchase multi-family homes.

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

Fannie Mae’s new down payment requirements for multi-family homes

In the past, Fannie Mae required down payments between 15 to 20 percent for owner-occupied multi-family houses. But starting the weekend after November 18, 2023, prospective buyers will only need to make a down payment of 5 percent for multi-family homes.

The new option is available for owner-occupied duplexes, triplexes, and quadplexes. As of writing, Fannie Mae has a maximum loan amount of $1,396,800 for properties with two to four units.

The new policy applies to HomeStyle Renovation, HomeReady, no cash-out refinances, and standard purchase loans.

Opportunities for prospective home buyers

A reduced down payment requirement could mean more opportunities for home buyers looking to lower their housing costs or build wealth through a property with income-generating potential. Essentially, this rule change makes it easier for savvy home buyers to pursue multi-unit property opportunities.

For example, let’s say you purchase a home with four units. You can live in one of the units and rent out the other three. The income produced by the three rented units could help to offset the cost of your mortgage payment or even completely offset your housing costs. In addition to offsetting your mortgage payment, you’ll have an opportunity to build equity in the property.

The catch is that you must be comfortable becoming a landlord to the other people living in your building. If you want to build a real estate portfolio, buying a multi-family property as an owner-occupant is a great place to start.

Some call this strategy ‘house hacking.’ Regardless of the label, purchasing a property with multiple units and renting out the extra space generates an extra income stream for the homeowner. As an owner and a landlord, you have a real opportunity to build wealth.

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

How to decide if a multi-family property is right for you

The dream of homeownership looks different for everyone. But whether or not you’ve been dreaming of a multi-family property, it’s worth taking a closer look at the numbers to determine if this type of homeownership path is right for you.

Start by considering your financial situation. A single-family home might be calling your name. However, choosing a multi-family property could allow for more flexibility in your budget. Depending on your housing market, and the property you purchase, owning a multi-family property could lower your overall housing costs.

For example, let’s say that rent in your market is $1,750 for a two-bedroom apartment. You decide to purchase a four-plex and secure a monthly mortgage payment of $5,000. If you live in one unit and rent the other three, the income from your tenants would more than offset the cost of your mortgage payment. In fact, your tenants would pay a total of $5,250 ($1,750 x 3 units). Ultimately, this means you could get paid to live in your own home.

Of course, the numbers won’t work out positively in every market. But for many prospective homeowners, it’s worthwhile to explore the possibility of purchasing a multi-family unit in your area. It could mean that fewer housing costs are coming out of your budget, which could help you reach other financial goals more quickly.

Keep in mind that this strategy will necessarily mean becoming a landlord, which will require effort and financial preparedness. You’ll have to decide for yourself whether or not it’s worth it for your situation.

How to prepare for homeownership

Buying a home of any kind is a major financial decision. But buying a multi-unit property comes with even more factors to consider.

Use the following strategies to prepare yourself for homeownership:

• Evaluate your savings situation: Since a multi-unit property is a significant purchase, it’s critical to evaluate what the purchase would mean to your savings. In the best case, making a 5 percent down payment wouldn’t completely wipe out your savings. Instead, it’s best to keep an emergency fund on hand as you navigate the new responsibilities.
• Run the numbers: Every housing market is different. Before purchasing a multi-unit property, make sure that the numbers make sense for your situation. Research average rent prices and vacancy rates to avoid overestimating what the building could generate.
• Explore your loan options: Fannie Mae’s loan isn’t the only option for purchasing a multi-unit property with a minimal down payment. FHA loans also allow owner-occupants to make a down payment as low as 3.5 percent to purchase a multi-unit property.

If you are ready to move forward with homeownership, you’ll submit a loan application that details your financial situation.

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

Fannie Mae 5% Down FAQs

Is 5% down enough for a mortgage?

For a single-family home, 5% is more than enough for a down payment for many home loan options. In the past, a 5% down payment was not enough to purchase a multi-unit property. But Fannie Mae’s recent rule change allows owner-occupants to put down as little as 5% on a property with two to four units.

Does Fannie Mae do multi-family loans?

Yes, Fannie Mae offers multi-family home loans. As of mid-November 2023, owner-occupants can put down as little as 5% on a multi-unit property with two to four units.

The bottom line

The recent change announced by Fannie Mae opens the door for more prospective homeowners to purchase multi-unit properties. A lower down payment could help you secure multi-family property to help you cut your own housing costs and build wealth.

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

The post Just 5% Down for Multi-Family Homes | Fannie Mae Introduces New Rules first appeared on My Mortgage Insider.