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

Should you buy a home with friends?

On the positive side, sharing the burden of a home loan can make homeownership accessible to those for whom it might not be possible alone. There’s someone to share the cost of a down payment, monthly mortgage payment, and property taxes.

However, making a big commitment as complex as sharing a primary residence and a mortgage means you have a long-standing financial obligation to each other, so you want to be certain that you are fully prepared before entering a joint mortgage.

We connected with Mike Venable, head of underwriting at TD Bank[1] for his thoughts on home sharing to help you decide if it’s an option worth exploring. Plus, we will outline some best practices when learning how to buy a house with multiple owners.

Why is co-ownership on the rise?

Co-ownership is rising in popularity as budgets are stretched thin across the country. Co-buyers can include siblings, parents with children, unmarried partners, friends, and more. 

Given rising home prices, some would-be home buyers have to get creative to make their homeownership dreams a reality. And co-ownership is becoming a viable option for many. 

According to CoBuy, an estimated 25% of all homes sold in the U.S. in 2021 were co-buyers. The growing trend makes sense for many American housing budgets.

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

How to buy a house with multiple owners

Each co-owner will be on the title when you co-buy a home with someone. Additionally, all of the co-owners will likely have their names on the mortgage. 

Here are two different ways that co-ownership can work.

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

Tenancy in common

Tenancy in common will result in unequal property ownership. Instead of splitting the equity equally, tenancy in common allocates homeownership percentages based on how much each individual invests in the property. 

Each individual has an equal right to use the property. But all parties must agree to sell the home. If sold, the proceeds will be divided based on the percentages. 

Importantly, a co-owner must get permission from the other owners to sell their share of the property. If one of the co-owners passes away, their share of the property can be left to any beneficiary they choose.

Joint tenancy

Joint tenancy divides the ownership shares equally. The amount that a co-owner invests will not have an impact on their designated shares. 

A key detail is that you cannot choose a beneficiary for your share of the property. Instead, the surviving co-owners will divide your share equally among themselves. 

But if you want to sell your share, you won’t have to ask for permission to do so.

Pros of co-owning a home

Venable’s quick take is that more borrowers make loan qualification easier.

“With more challenging lender standards when it comes to credit score and debt-to-income ratio, it’s easier to qualify if you bring in more income to offset the debt,” he explains.

There’s also the perk of getting to claim mortgage interest on your taxes, but keep in mind, that you’ll have to split the total amount with your co-buyers.

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

Cons of co-owning a home

While joint ownership of a home is a great idea in theory, it only works if all parties are on board and willing to keep up with the financial commitments. If not, it will cause headaches and disagreements down the road, which may need to be remedied with attorneys or through the courts.

“It’s much more difficult to walk away from a mortgage when you have more than one borrower,” says Venable. One person can try buying the other out and then try to refinance though refinancing could be difficult if one individual cannot cannot qualify alone.

The big issue is if one of the homeowners suddenly can’t or won’t pay his or her share of the mortgage payment. That will ultimately affect all parties and could result in damage to your credit score or even foreclosure.

“You may be responsible for only part of the mortgage, but if your partner doesn’t pay, there is potential credit damage for you. Ultimately, any delinquencies would be hitting both of you, not just one,” says Venable.

In short, pursuing a joint mortgage to buy a house with your parents, friends, or other family members can be a great idea if all parties involved are equally responsible and financially prepared. Be sure the people you buy with are people you trust.

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

How to take title

Also, consider what happens in the unlikely event that one owner passes away. That can wrap the surviving owner in legal spiderwebs.

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

As Realtor.com explains, when each co-owner has an equal share of the home, the official status is known as “joint tenants with right of survivorship” (JTWROS). That’s another way of saying that title is held between all co-owners. If a co-owner dies, their share goes to the other owners.

In a “tenants in common” (TIC) agreement, each co-owner can pass along their ownership through a will, meaning the remaining tenants might end up sharing the home with someone they never intended to. This is an area for which you should consider getting legal advice from a real estate attorney.

Joint ownership examples

There are no lending rules against purchasing a home with someone who is not your spouse or family. Some common relationships that co-own a house together are as follows:

Verify your eligibility for a joint home purchase. Start here (Sep 16th, 2024)

• An adult child buying with his or her father, mother, or step-parent
• Co-ownership with a fiancé, fiancée, boyfriend, girlfriend, or partner
• Two individuals owning an investment property together
• Two married couples buying a rental property
• Two or more families buying a large home to live in together

These are just a few of the possible scenarios. All of these and more are permitted with current lending rules.

Qualifying for a shared mortgage loan

The process of qualifying for a home loan with another person is much the same as it would be otherwise, says Venable. “We look at every application the same way based on our product guidelines, and we look at the big picture. We factor in credit score; we look at a two-year history of income for both wage and self-employed borrowers, and we look at the debt-to-income ratio,” he explains.

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

Just keep in mind that lenders will look at both parties’ financial strengths and weaknesses. If one person is qualified but the other is struggling with their finances, it could hurt the first borrower’s chance at qualifying. 

For instance, if one co-borrower has a great credit score and the other one has a poor credit score, lenders are going to factor that poor credit score into the equation. They won’t focus solely on the borrower with good credit. 

Similarly, if one person has lots of existing debt, that will count against both borrowers’ combined debt-to-income ratio. In that case, it could be harder to qualify. 

So while co-borrowing often makes it easier to qualify for a mortgage, it can also have drawbacks. It’s important to consider both borrowers’ full financial picture before applying. 

Ownership agreement for co-owners

Although Venable is not in the business of giving legal advice, he’s seen those who go into home-sharing situations have agreements drawn up by a lawyer so it’s specifically laid out as to who is responsible for what. 

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

For example, there could be different percentages of ownership, and therefore, that might affect how the loan is paid back. In the case of an unmarried couple that breaks up, how will that work? In other words, it’s a good idea to really have a plan in place that’s outlined in writing before you move forward with such a transaction.

Consider hiring the services of an attorney to help you lay the framework for the rules surrounding your joint mortgage.

Co-ownership mortgage loan programs

In home-sharing situations, Venable says most borrowers seek fixed-rate conforming loans. “Most people like the longer-term stability over time, especially now because rates are so low,” he says. In some situations in which the parties know they don’t plan to stay in the home for a long time, they might choose an adjustable-rate mortgage for five, seven, or 10 years.

Specialty loans like the VA loan program wouldn’t work since those are geared toward active military and/or veterans and their spouses. And FHA is mostly used by married couples as opposed to non-married borrowers, says Venable.

All in all, home-sharing offers an opportunity for many folks to stop paying rent and become a part-owners of a home.

“Just make sure there’s a trust factor and an understanding of expectations,” says Venable. As long as you’re comfortable with your co-owners, buying a house jointly with parents, friends, or your spouse could very well get you into your dream home a lot sooner than if you were on your own.

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

What type of loan is best for co-ownership?

Not all loan types are equally suited for co-ownership. In most cases, a conventional loan will be the most convenient option. 

However, the Fannie Mae Desktop Underwriter, an automated underwriting system, only allows up to four borrowers for conventional. With that, you might have to limit the number of borrowers or seek out a lender willing to work with you. 

Take some time to weigh the options with your fellow co-owners and consider what makes most sense for your personal finances.

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

Tips for buying a home with multiple owners

Here are some tips on how to buy a house with multiple owners.

Talk to a real estate attorney

Before jumping into co-ownership, talking to a real estate attorney is a smart move. You and your co-borrowers can work out potential legal issues ahead of time to avoid a messy situation later on. 

Specifically, you should discuss title options, division of shares, and the process to pursue if an owner wants to leave the arrangement. Additionally, you may want to discuss what would happen if someone could not keep up their end of the bargain.

Sort out ongoing financial responsibilities before closing

Discuss with your co-borrowers the management of ongoing financial responsibilities. Consider what bills need to be split and what to do if someone has a cash flow issue. 

Working through these details ahead of time can save you time and stress later.

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

Buy a house with multiple owners FAQ

Can I get a joint mortgage with my parents?

Yes. In fact, individuals buying a house jointly with their parents is one of the most common co-owned mortgage pairings out there. Keep in mind that doing so may require adjustments in communication regarding financial obligations, and even lifestyle if you choose to co-inhabit the house.

Can my mom and I buy a house together?

Absolutely. You can co-finance a house through a mortgage lender with one or both parents. Under current lending regulations, you can even jointly buy a house with the support of someone who is neither a family member nor a spouse.

How do you buy a house with two owners?

The process of purchasing a house with two owners begins with qualifying for a joint home loan. The process is similar to applying for an individual loan. One fundamental difference is that, in a joint mortgage application, both applicants’ incomes and assets are considered in combination with one another. This can be beneficial if neither income alone meets pre-qualifications for the mortgage you are pursuing. However, if your partner has a bad credit history or lots of debt, this can negatively affect your personal standings.

Can two families buy a house together?

Yes. Many lenders allow two families to combine their respective incomes in order to jointly purchase a house. Both households will need to meet the minimum qualifying loan requirements, which may vary from lender to lender. Lenders may also require both families to hold equal ownership rights of the house. Matters such as property use, expenses, and title are best negotiated in advance through the mediation of attorneys.

Can I borrow money from my parents to buy a house?

Many first-time home buyers borrow funds from their parents. It is what is commonly known as a private home loan, a private mortgage, or an intra-family mortgage. Choosing to borrow from your parents can confer certain advantages, such as zero prequalifications, low-interest rates, the flexibility of payment, and even tax deductions. Nonetheless, before asking for a loan, it is wise to come prepared, at the very least, with exact amounts, tentative payment schedules, and the specifics of your chosen property.

Can you buy a house with multiple owners?

Yes, many lenders will allow multiple owners to buy a home together. However, the combination of borrowers must be able to meet the financial requirements of the lender.

Can you have 3 owners of a house?

Yes, many lenders are willing to let three owners buy a house together. But the borrowers will need to meet the financial requirements of the lender.

How do you split ownership of a house?

In most cases, you’ll choose to split ownership through a tenancy in common agreement or a joint tenancy agreement.

With a tenancy in common arrangement, the shares owned by each owner will vary based on their initial investment. With a joint tenancy agreement, each owner will have an equal share, regardless of their initial investment.

How many co-owners can there be for a house?

Technically, there is no limit to the number of co-owners for a house. But many lenders will cap the number of borrowers at two families or four individuals.

If you want to pursue co-ownership with more individuals, consider talking to lenders to find a good fit.

Can a property be registered in 3 names?

A house can be registered in more than one name. Although some lenders will impose a limit on the number of names, many will allow three borrowers to co-borrow. And with that, the property deed will have three names on it.

Can 3 friends buy a house together?

Yes, three friends can buy a house together. The friends can pool their resources to meet the lender’s requirements. Depending on your situation, co-buying with friends could be a smart way to access more affordable housing and access a larger loan amount.

How do you buy a house with multiple family members?

Multiple family members can buy a house together as co-borrowers.

With that, each family member will be listed on the mortgage application. You can choose to apply for a co-ownership mortgage with your siblings, adult children, or parents. As housing becomes more expensive, more families choose to pursue a co-ownership arrangement with each other.

Even though you are family, it is still a good idea to work out the financial responsibilities ahead of time. You don’t want to allow the financial strain of co-ownership to affect your family ties.

Can you have 3 people on a mortgage?

Yes, you can have 3 people on one mortgage.

The co-borrowers can pool their resources to meet the lender’s requirements. With that, it may be easier to qualify for the loan.

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

The post How to Buy a House with Multiple Owners first appeared on My Mortgage Insider.

Here are some basic questions you should answer before determining if a cash-out refinance is the right move for you.

Check your eligibility for a cash-out refinance loan today (Sep 16th, 2024)

1. How long do you plan on staying in the home?

As with all refinances, it only pays to move forward if you have ample time to recoup the closing costs and fees that you’ll incur. This can take a few years. For example, if your monthly savings from refinancing is $100 per month and your closing costs are $4,000, then it’ll take a little over three years for those savings to pay off the costs. If you’re planning on selling your home before those three years, then you’re actually losing money.

Also worth noting is that you’ll have less equity in the home, since you’re taking out cash against the home’s value. This can make it harder to sell in the short term. But, if you plan to stay in your residence for the long term, then you’ll regain more equity over time.

2. What do you plan to do with the funds from the cash-out refinance?

It may seem like free money to take your dream vacation or splurge on your wedding. But there is no such thing as free when it comes to money that you’re borrowing against your home. In other words, that amount is rolled into your new mortgage principal. You’ll be paying interest on it for the next 30 years — or, however long your new loan term is. Is that new sports car worth it?

It’s a better idea to use the money toward something meaningful like paying for needed health care costs for a family member, or a sound investment like a major home improvement that will add value to your home. Some even use it to consolidate high-interest debt like credit cards.

If you need cash, but don’t want to touch the earned equity in your home, then a personal loan may be a better choice. Typically, personal loans have lower interest rates than credit cards and are quick and inexpensive to process — usually much quicker and less expensive than a cash-out refinance, which requires an appraisal and documentation similar to a home purchase loan.

There are no restrictions on how you can use the money both with a cash-out refinance or a personal loan — just make sure that it helps you reach your financial goals in some way.

3. How will your monthly payments be affected?

In general, it’s a good idea to refinance if it can save you money — either on your monthly mortgage payments or in interest payments over the life of the loan. But, unlike a streamline refinance, which requires a lower payment, with a cash-out refinance you may end up with payments that aren’t all that different. This is due to factors like your loan-to-value ratio, the interest rate you can qualify for, and how much cash you’re taking out. And, if you’ve refinanced in recent years, the drop in interest rate may not be dramatic enough to make much of a difference.

Get advice from a mortgage professional and see if a reduction in your monthly payment is possible — it could be the deciding factor for you.

4. Are you ready for a cash-out refinance now?

While you shouldn’t rush a major financial decision like a mortgage refinance, you should keep in mind that interest rates are at current all-time lows. According to Ellie Mae’s March 2021 Origination Report, the average 30-year loan interest rate was 3.02% in March. Currently, rates are hovering at some of the lowest levels in years.

Even if you purchased your home in the last couple of years, you could still benefit from a refinance — there are 8.2 million homeowners who could benefit from a refinance in the market. No one knows when interest rates will head back up, so the longer you wait, the less beneficial a cash-out refinance may be for you.

5. Is a home equity loan a better idea?

If your goal is to get access to cash especially for home improvements, you may be better off getting a home equity loan or home equity line of credit. These are independent, second loans on top of your current mortgage, but with much lower closing costs than a refinance.

To decide, you should consider how many years you have left on your current mortgage. If you’re more than halfway through paying it off, it’s probably not a good idea to start over again, since most of your monthly payment is being applied toward the principal balance — a reduction in interest rate wouldn’t help you much. A home equity loan in this case may be a better option.

Apply for a cash-out refinance while rates are low

Cash-out refinance mortgages can be a great opportunity to lower your monthly payments, gain access to cash, and positively impact your overall financial well-being for homeowners in the right situation. If you want to know how a cash-out refinance could benefit you, then reach out and speak to a mortgage professional.

Check your eligibility for a cash-out refinance loan today (Sep 16th, 2024)

The post 5 Things to Consider Before Your Cash-out Refinance Application first appeared on My Mortgage Insider.

The map changes were to happen (the first time) on 10/1/13. Then they were pushed back to October 1,2014, and now have been moved again to 10/1/15. If you are looking to buy a home in one of the affected areas, you still have a chance to qualify for a zero-down loan.

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

Why delayed map changes are a big deal

The USDA Rural Development loan is designed to encourage people to buy homes in rural areas. As such, the terms are quite favorable, including a zero down payment, low interest, and cheaper mortgage insurance fees.

The catch is that these benefits only apply to loans on properties located in USDA-eligible areas. These areas, believe it or not, are still based on populations that the 2000 census determined.

Suburban areas and smaller towns alike have grown since then. Areas have changed so much in fact that “rural” towns back then could very well be vibrant, up-and-coming suburban communities now.

Hence, the new maps will reflect such changes, and reclassify eligibility areas. Lucky for some homebuyers, there is another year to take advantage of the USDA loan option before the new maps go into effect.

Which home buyers will benefit?

Naturally, if you’re looking to buy a home in the center of a big city like New York or San Francisco, this news won’t affect you. However, it’s worth looking at the old and new eligibility maps to see if the neighborhoods in which you are looking are affected. Even areas that seem too over-developed to be classified as “rural” might not have been as such in the year 2000.

For instance, if you’re looking around Dallas, Texas, Seattle, WA, or even Raleigh, NC, there’s a good shot that you could qualify for a USDA loan, but only if you act before October of 2015.

The USDA website also lists some counties in Delaware and Maryland that are currently eligible, but will likely be affected; the same goes for Van Buren, Alaska, and some Oregon cities that have outgrown the rural label. In fact, approximately 90 percent of the affected areas are currently located in or around Metropolitan areas, according to RuralHome.org.

In all, it’s estimated that 500 USDA eligible areas are up for reclassification next year because of population growth alone. There are other factors that can change eligibility as well, although there isn’t one official national definition of what it means to be rural or “rural in character.” For the purposes of home loans, here is how the Department of Agriculture defines a “rural” area:

• It has a population of less than 2,500.
• It has a population of between 2,500 and 10,000 but is “rural in character”.
• It has a population of between 10,000 and 20,000 but is outside a metro area or has limited availability of mortgage credit.

In other words, the classification is somewhat open to interpretation beyond just population figures, which is why it pays to research the old and future maps, and then work with a mortgage provider who is knowledgeable about USDA eligibility.

When all is said and done, the new rural zones will result in the removal of about 10,000 square miles from the eligibility map, which will potentially affect about 8 percent of (or 9 million) eligible home buyers. If you think you may be one of them, take advantage of the extra time you’ve been granted, and start doing your USDA home loan research.

What to consider when getting a USDA loan

If you are considering a property in a designated rural area, keep in mind that you still have to meet other qualifications in order to be a USDA loan candidate. For starters, your household income cannot exceed 115 percent of the median household income in the property’s area (that is, if you want to qualify for the USDA Guaranteed loan program). Your credit score should also be fair (around 640 or higher), and you can’t have too many assets in your name.

If you think you fit the bill, contact a USDA-approved lender to help you get started before the year is out.

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

The post Buyers Needing USDA Home Loans Get a Do-Over first appeared on My Mortgage Insider.

Saving up this much money isn’t always possible, however. That is why over a quarter of first time buyers rely on gift funds from a relative to use toward their down payment, according to research by the National Association of Realtors (NAR).

If you’re fortunate enough to have generous parents or a rich uncle who is willing to help you out, just know that it’s not as simple as them handing you a check.

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

4 Tips for Down Payment Gift Money

1. Gather the required paperwork in advance

Banks and mortgage companies will question the fact that thousands of dollars suddenly appeared in your savings account.

They need to make sure that the funds were obtained legally, and that they are in fact a gift, and not a loan. A loan comes with payments that jeopardize your ability to pay back the mortgage.

To confirm a no-strings-attached gift, you and your benefactor need to create and sign a gift letter. You can download a gift letter template here.

There may also be another step in which your donor has to prove that they have the means to offer the gift. Usually, that just involves them having to supply a current bank statement.

Naturally, the more money involved, the more questions your lender could have. Once you’re ready to accept the gift, be sure that you create a gift paper trail by keeping the deposit slip that shows the transaction, and make a copy of the check before you deposit it.

2. Familiarize your with IRS rules about down payment gifts

Before your parents or close relatives try to help you out, do them a favor and make sure they are aware of the IRS annual gift tax exclusion rules. It basically states that one person can give up to $14,000 (during the 2014 and 2015 tax years) to another individual without having to pay a gift tax.

However, if both your parents are contributing, each person could give a gift, bringing the total to $28,000. And, if they each want to give to you and your partner/spouse if you’re buying the home together, those separate gifts can take the amount up to $56,000. As with all tax-related advice, speak to a tax professional to help guide you.

3. Determine whether you’ll need additional funds besides the gift

Depending on the loan program you’re aiming for, how much money you put down from your own funds versus your gift donor’s money could be a factor. In other words, just because your relative is giving you a large sum of money, if you have nothing to contribute of your own, you might not qualify for certain loan programs.

For example, with a conventional loan on a duplex, triplex, or four-plex, you have to have at least 5% of your own funds. The same is true if the loan amount is over $417,000.

Other conventional loans, and FHA and VA loans allow the entire down payment to come from a gift source.

But remember, mortgages require closing costs. For instance, if your loan requires a $20,000 down payment for which you receive a gift, you still have to have enough to cover closing costs. These fees, like mortgage broker charges, title, escrow, and appraisal fees typically range from $3,000 to $5,000.

The good news is that most loan programs allow you to receive gift funds to cover closing costs as well.

4. Make sure the donor’s relationship to you qualifies

If the person giving you money is not an immediate relative like a parent, sibling, grandparent, aunt or uncle, you may have to verify your relationship to the person.

According to the HUD Handbook (which sets rules for FHA loans) the giftor  may be a(n)

• Relative
• Employer
• Charitable organization
• Government or public agency
• Close friend with a documented long-term relationship

On the flip side, a donor may not be

• A seller
• A real estate agent or mortgage lender
• A builder
• Any entity with a benefit in the purchase or sale of the home.

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

Have a down payment gift? Get started on the home buying process

Having a cash down payment gift is a wonderful thing, and is often what allows first-time buyers to become homeowners. By accepting your gift by the book will ensure a smooth application process.

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

The post 4 Things To Know When Getting Gift Money for a Down Payment first appeared on My Mortgage Insider.

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

What is a jumbo loan?

Let’s start with what makes a jumbo loan jumbo. In order to fall into that category, a home loan must exceed the Fannie Mae and Freddie Mac conforming loan limits, which generally max out at $766,550. In some other higher-priced real estate areas, that maximum can climb to $1,149,825.

The government typically backs loans below the conforming loan limits through agencies like Fannie Mae, Freddie Mac, FHA, and the Veterans Administration. Jumbo loans are not guaranteed or backed in any way, since they go beyond conforming dollar limits. Rather, private banks create, examine, and approve jumbo loans.

Private lenders determine jumbo mortgage guidelines

Lender terms will vary widely since they are the ones who are most on the hook for the borrowed amount. In other words, banks are picky when it comes to the kind of borrowers who will qualify, and those qualifications become stricter as the amount of the loan increases.

That being said, if you have an excellent credit score and a steady, high income with not much debt, some lenders may offer you favorable interest rates that are comparable to conventional loans.

“Jumbos don’t have a loan limit but at a certain point do require additional approval beyond standard guidelines,” says Michael Kinane, who leads Mortgage and Consumer Lending Products at TD Bank. Over the last 12 months ending July 2014, the TD average jumbo origination loan amount was about $700,000, he says.

Of course, banks and lenders do lend out more as long as certain stipulations are met. “As loan amounts increase, higher FICOs and lower LTVs [loan-to-value ratio] are required,” says Kinane. Interest rates will also creep up slightly depending on the amount of down payment and the borrower’s credit score.

What is the jumbo loan limit?

Some quick research reveals that bank-imposed jumbo loan limits are typically in the $2-3 million range. Some examples include EverBank and HSBC. However, unlike loans sold to GSEs (government-sponsored enterprises – Fannie Mae and Freddie Mac), there is no true jumbo loan limit, says Kinane.

That’s why it’s important to do your research on jumbo loan lenders nowadays. “The maximum financing allowed will be up to each lender to decide in accordance with their own risk tolerances,” says Kinane. “Most lenders will internally set a limit by which loan approval would require either executive and/or committee approval, in addition to standard underwriting procedures.”

Jumbo mortgage credit score & down payment requirements

As Kinane points out, with most jumbo lenders, as the loan amount requested increases, the guidelines will get more and more restrictive in terms of requiring higher FICOs and higher down payments.  So for lower jumbo loan amounts, the requirements could appear similar to loans sold to GSEs, but as you get higher – say, $1 million — you could see minimum down payment requirements rise from 10 – 20 percent up to 30 percent, and minimum FICOs go from 660-680 to 700-720.

“It would not be unheard of for multimillion dollar loans to have a minimum LTV of 50 percent and a minimum FICO of 740,” says Kinane.

Apply for a jumbo loan

If you have stellar credit and a good chunk of change to use as a down payment on your dream home, there is a jumbo mortgage programs out there for you. By comparing lenders’ programs, you can find the ones that offer the best rates for the amount of funding you need.

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

The post Jumbo Loan Limit : How High Can You Go? first appeared on My Mortgage Insider.

Before you click away because you’re not planning on buying farmland, hang on for just a second. What most people don’t realize is that many homes in suburban areas could very well be eligible for the USDA program, and therefore, you could be missing out on potential perks.

Take a look at some of the key aspects of the USDA Rural Development Loan, and find out if you (and the property you’re interested in) qualify.

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

What is a USDA home loan program?

The USDA Rural Development loan was established in 1949, and designed to help people become homeowners in rural areas. The key selling point is that the loans allow for a zero down payment. In addition, monthly mortgage insurance fees are lower than other programs including FHA, so that could mean a lower payment. Finally, with less stringent credit requirements, it’s not necessary to have high credit scores in order to qualify. In short, it’s a great deal.

The reason you might not have heard of it is that it only applies to properties that are located in USDA-eligible areas of the country. So not only does the home buyer have to qualify for the loan, but so does the property. That being said, because the eligibility maps are still based on population stats from the 2000 census, “rural” could include an area that’s now a thriving suburban community. Note, however, that mapping will change after October 31, 2014, since that’s when the 2010 census figures will be applied. To see if a property/area you’re interested in pursuing qualifies, check the USDA website’s map.

How to qualify for a USDA loan

The USDA loan only has a 30-year fixed option, and interest rates are on par with what you’ll find via other programs including FHA and VA. (USDA home loan interest rates are actually lower than conventional loan rates.) Once you check to see if a potential property qualifies, next you have to see if you’ll be eligible as a borrower. Because it is backed by the USDA, there are some income limits involved. Essentially, for the Guaranteed loan program – the option offered by banks and mortgage companies across the country – your household income can be no greater than 115 percent of the median household income for the area in which the property is located. You also cannot have too many assets (enough to make a substantial down payment that’s required for a conventional loan).

If you meet the income and asset requirements, you’ll have to work with a USDA-approved lender to begin the application process. Most lenders today are approved to take USDA loan applications. Credit-wise, lenders need a 620 credit score, but there could be some flexibility depending on other circumstances and each lender’s specific criteria.

For those with a low household income, there is the option to apply for a Direct USDA loan, which is available from USDA itself rather than through private lenders. To qualify, you must earn 80 percent or less than the area’s median income.

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

Why a USDA loan is a great deal

It’s mentioned above, but it bears repeating: USDA loans require no money down. That is practically unheard of in today’s home-buying market (other than VA loans, which are reserved for military-affiliated buyers). Not having to save up for a large down payment removes one of the biggest obstacles to becoming a homeowner. If nothing else, that benefit can help fast-track your route to home ownership.

As for fees, you will be responsible for a mortgage insurance premium, as well as an annual fee. The insurance premium is 2 percent of the total loan, which you can pay upfront, have the seller pay if that’s part of your agreement, or roll into your monthly payments. The annual fee is .50 percent (increased from .40% as of October 1, 2014) of the loan amount, and can be added to your monthly costs as well. These fees are lower than the typical private mortgage insurance payments that borrowers have to tack onto any loans that are taken with less than 20 percent down.

Overall, USDA Loans are a terrific option for buyers who happen to be looking in or around approved property areas. If you think that you might meet income and other qualifications, it pays to do some research and find a USDA-approved lender who can answer your questions and get you started on the application.

Apply for a USDA home loan

The application process for a USDA loan is just like that of other loan types. Many home buyers can receive a pre-qualification in just minutes. Check today’s USDA rates here and get started on your home buying process.

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

The post Advantages of the USDA Home Loan Program first appeared on My Mortgage Insider.

VA home loans are similar to any traditional mortgage in that they are provided by banks and lending institutions. However, the difference is the loans are federally-backed, allowing for borrowers to enjoy more lenient qualifications, better rates, and best of all – less jumping through hoops.

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

Advantages of a VA loan

If you’re in the market to buy you’re first home and have a military affiliation, take a look at some of the advantages of a VA home loan:

Overcoming the down payment roadblock. For most people, coming up with an initial down payment is the most challenging part of the home buying process, since the target amount could be in the tens of thousands. For instance, at least 3.5 percent down is required for an FHA loan, while 5 percent is needed for a conventional loan. Crunching those numbers can be disheartening, and it could take years to save up. VA loans allow buyers to purchase their homes with no money down at all, while still being able to qualify for favorable interest rates.

A less stressful approval process. Especially since the housing market crash, lenders have been a lot more selective when approving loans to new home buyers, particularly if their credit histories are less than stellar. VA loans offer more leeway to buyers who don’t have the strongest credit standing, even at competitive interest rates. Since VA loans are government-backed, lenders often use their discretion to offer a loan to a military member. Still, a veteran has to have sufficient income and credit to qualify, so it is still key to have your finances in order.

Savings on closing costs. Closing costs can add thousands of dollars onto your out-of-pocket expenses when buying a home. VA Loan recipients get spared some of that expense since the VA puts a limit on lenders’ closing costs. VA home buyers don’t pay an escrow fee – a savings of $500 or more – and the lender can’t charge an origination fee that is more than 1% of the loan amount. Savings add up quickly for the veteran home buyer.

Bye, bye to PMI. Home buyers without a 20 percent down payment (and that’s most people these days) must pay private mortgage insurance, a fee upwards of $200 to $300 or more per month. But VA loan borrowers don’t pay PMI. This means VA home buyers can afford a bigger home for the same money as non-veteran buyers.

Help is available down the line, too. Should you want to refinance for a lower rate sometime in the future, being in the VA program means you can re-qualify through the VA streamline refinance loan. This loan doesn’t require W2s, tax returns, bank statements, or even an appraisal. That can save you some of the frustration and back-and-forth paperwork that goes on with a traditional refinance application.

You can even pass it on. If the day comes when you decide to sell your home, if a potential buyer is VA-eligible, you may be able to simply have them assume your loan. This can be a great selling point for you if you have a good interest rate, and help simplify the entire sale.

Now that you have a sense of the benefits of VA Loans, here’s what you need to know about getting started.

• First, do some research to find a military-friendly real estate agent who is familiar with VA loans. Since the process and the rules are a bit different than that of a traditional loan, you’ll want to work with someone who knows the ins and outs.

• Next, you’ll have to find out which lenders offer VA loans and do some interest rate comparison shopping. Once you have a couple of options, you can get in touch to get pre-qualified, which is a general sense of how much you’ll be able to borrow. Get a free rate quote here.

• At that point, you’ll want to obtain a Certificate of Eligibility (COE). The VA lender requests it for you, and often receives it within minutes. The lender will verify your eligibility, and from there, the VA loan is much like any other home purchase loan.

If you have a military background, looking into the VA Loan program is definitely in your best interest. Beyond all of the benefits listed above, it will help you to start your new life in your new home more quickly.

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

The post VA Home Loans: Fewer Roadblocks for First-time Home Buyers first appeared on My Mortgage Insider.

No matter which situation you’re in, however, now is a great time to consider your FHA mortgage insurance cancellation options. Here’s what you need to know about how to cancel PMI (private mortgage insurance), and take some of your hard-earned money back.

Check today's rates here and apply for a conventional refinance (Sep 16th, 2024)

What exactly does FHA mortgage insurance cancellation entail?

First off, you should know what FHA mortgage insurance, or FHA MIP, is all about. The idea is that paying this monthly fee helps reduce risk for lenders who provide mortgages to home buyers who make a low down payment of 3.5% – the minimum for FHA loans.

Before June 3, 2013, borrowers could cancel FHA MIP once the loan reached 78 percent of the original value of the house, or after five years. For those borrowers, there is a light at the end of the proverbial tunnel.

Anyone who borrowed after that date, however, won’t have an end in sight. That’s because FHA MIP is payable for the life of the loan if the down payment was less than 10%. That includes most FHA buyers, who are attracted to the 3.5% minimum down payment.

For the few FHA borrowers whose loans were in the 10 – 20 percent down payment range, the mortgage insurance must remain in effect for 11 years.

So for most cases, borrowers have to proactively cancel FHA mortgage insurance by other means like refinancing into a conventional loan. Here are some reasons why taking either of those routes now can turn out to be a great financial decision for your future.

1. PMI is costing you a fortune and it doesn’t have to.

Paying mortgage insurance premiums is akin to throwing money away. It doesn’t add any value or equity to your home, but you still have to pay it year after year. And we’re not talking the price of a daily cup of coffee either. FHA MIP (mortgage insurance premiums) can add up to a significant expense on top of your already pricey mortgage. The typical monthly FHA MIP cost on a $150,000 loan, for instance, is $167. On a $350,000 loan, it’s $390. That’s real money. That’s a car payment.

The premium does go down with the loan principle (1.35% of the loan principle per year), however, it takes years to pay down the principle enough to really have an effect on the monthly premium.

Someone who buys a 250,000 home this year will still be paying over $200 per month for FHA MIP in 10 years.

2. Equity gains might have made you a good candidate.

Although the housing market took a hit a few years back, home values are once again on the rise. These recent equity gains could mean that you own more equity in your home than you thought, and therefore, you could request PMI cancellation. This option will only apply to those who purchased their homes before June 3, 2013, however. If you think the real estate values in your area have improved enough to put your loan balance close to the 22 percent equity that’s required to cancel PMI, then it’s worth a look.

To request cancellation of your FHA mortgage insurance based on an increase in equity, here’s what is required:

1. Your loan must be in good standing, meaning you pay your bill on time every month.
2. You’ve been paying your loan for at least 5 years.
3. Your loan balance is at or below 78% of the last FHA appraised value (usually the original purchase price).

If you meet these requirements, it’s the law that your lender must cancel your mortgage insurance. If you haven’t reached the 78 percent equity mark but are close, you could opt to make a one-time principal payment to speed up the process.

Going this route allows you to keep your existing FHA loan, but can potentially lower your monthly payment by hundreds of dollars because there will be no more PMI tacked on.

3. Interest rates are low making refinancing a smart move.

For those who purchased homes after 6/3/13, your only option for FHA MIP cancellation is to refinance out of your existing mortgage, since the insurance requirement cannot be removed. The good news is by refinancing into a conventional loan, you could take advantage of the historic low interest rates, and remove PMI for good, assuming you have 20 percent or more equity in your home.

It should be noted that the equity will be based on today’s value (not the original purchase price), so a new lender will require an appraisal to determine the home value. Keep in mind that the value might have changed drastically since you purchased your home. If you’re lucky, it’s gone up either because of the market’s turnaround or because of home improvements you’ve made.

Should you qualify for a refinance into a conventional loan, try not to delay since home loan interest rates are expected to begin rising in 2015.

Remove FHA mortgage insurance soon

If you’re an FHA borrower who is approaching a 20 or more percent equity in your home, consider a solution that allows for FHA mortgage insurance cancellation. Whether it’s by request or via a complete refinance into a conventional loan, if cancelling PMI is a possibility, every month you wait is costing you money.

Check today's rates here and apply for a conventional refinance (Sep 16th, 2024)

The post 3 Reasons It’s a Great Time to Cancel FHA Mortgage Insurance first appeared on My Mortgage Insider.

Mortgage software company Ellie Mae reported in their most recent Origination Insight Report that home loan closings are taking seven days longer than they did last year at this time.

Ellie Mae tracks more than 2 million loan applications per year through its Encompass software, a platform used by thousands of mortgage companies and banks across the U.S.

According to the report, the average mortgage loan in June 2014 would close in 41 days. Today, borrowers can expect to wait 48 days to close.

The numbers look different when looking at purchase and refinance applications separately. The average home buyer can expect to close in just 45 days while a homeowner looking to refinance will need a whopping 52 days to close. A year ago it only took 39 days to refinance.

Extended closing times require longer lock periods and greater expense, but there are things borrowers can do to speed up the process.

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

Avoid a Longer Closing than Necessary

If you’ve ever bought a home or are in the process of doing so, you know that the dragged out process can be frustrating and scary.

By being proactive and staying ahead of the process, you can ensure a smooth approval and home closing. While some elements might be out of your control, there are some things you can do so that you’re not hit with an unexpected delay or worse.

1. Large deposits can set you back

While it’s important to have sufficient funds in your bank account to cover closing costs, the down payment, and still have some savings left over for a rainy day, lenders want to know where those dollars came from.

If you make any bank deposits – sometimes even as small as $100 – in the months leading up to your home loan application, you’ll need to have a valid explanation, and show any necessary documentation to back it up. In other words, money hidden under your mattress, so to speak, isn’t going to fly.

If you received a large tax refund, you’re covered since that will be easily identifiable. But if a relative gives you a gift, you’ll most likely need to get a letter stating that it is indeed a gift, not a loan. If you’ve sold something – say an old car – you’ll have to show proof of the sale.

In short, be ready to hand over a paper trail if any of your savings are called into question.

2. You can’t hide from your past

If something significant has happened to you in the last couple of years – whether it’s a big change in income or a big gap in your employment – you’ll no doubt be asked to explain it. Lenders look for consistency, so those who have longer-term employment with the same company might speed through that portion of the application versus a job hopper or someone who has unsteady self-employment income.

Either way, be at the ready to verify anything questionable.

3. Speaking of jobs…try to stick with yours a bit longer

It’s probably not a great idea to make a big career change or start up that entrepreneurial endeavor you’ve always dreamt about right before closing on a home. Your loan approval is based on the information you provide in your initial application, so anything that changes in the interim will surely cause a delay and a whole new round of paperwork.

4. Curb your spending

While you might be tempted to go buy a new patio set or living room furniture for your soon-to-be home, be careful about taking on new debt right before you close. The same goes if you’re due for a new car. Try to hold off on any major spending since mortgage lenders will catch wind of it, and could think twice about lending you money.

Don’t think your lender will find out? Think again. Lenders pull your credit the day of loan funding to check for any new accounts and even recent applications for new credit.

5. Know your credit status

So many people have no clue what their credit score is until they begin applying for home loans. Experts agree that you should know where you stand well in advance of home shopping, that way you have time to try to raise your scores and qualify for more favorable interest rates and loan terms. Ideally, you should get a handle on your credit score at least six months prior to applying for a mortgage so there are no surprises.

6. Be proactive with your paperwork

You can bet on the fact that you’re going to have to turn over pay stubs, tax returns, and bank statements from at least the last couple of months. Put in any necessary requests with your HR department if need be, and print out or request paper copies of statements from your financial institutions.

7. Ask for updates along the way

If you’re working with a knowledgeable mortgage broker and/or a real estate lawyer, he or she should keep in touch to provide the next steps in the process. But if communication is lacking, ask a lot of questions, such as what to expect in terms of loan processing times, and what delays could impact the closing. Then, right before you’re scheduled to complete the transaction, touch base to see if there’s any last-minute paperwork needed from you so you can have it prepared the day of closing.

By doing your part to keep the process moving along and educating yourself, you can at least avoid unnecessary delays from your end. When all is said and done, hopefully your home purchase will go off without a hitch… even if it takes a few extra days to get it done.

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

The post 7 Tips to Speed Up Your Loan Closing first appeared on My Mortgage Insider.

According to property data firm CoreLogic, lenders issued more than 15,000 home loans in the $1 – $10 million range in the top 100 metropolitan areas during the second quarter of 2014 alone. This level marks an all-time high.

With jumbo mortgage rates lower than ever and credit flowing a bit more freely than in years past, high-net-worth home buyers are finding it is a good time to explore jumbo loan options. Here’s an overview of what a jumbo mortgage program is all about.

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

What makes a loan “jumbo”?

The first thing you need to know is what defines a jumbo loan. Essentially, it’s a home loan that exceeds the Fannie Mae and Freddie Mac conforming loan limits. In other words, the government does not back loans that go over the set amount – $417,000 for a single-family home, and up to $625,500 in more pricey areas like San Francisco. So those seeking higher amounts would have to go the jumbo loan route, or use a combination of lending products.

As you can imagine, immediately after the housing market struggles of 2008 and beyond, qualifying for a jumbo loan was difficult to say the least since lenders tightened up their purse strings. As the market levels out, jumbo mortgages are popular once again, since they are more accessible and more affordable than ever before.

Jumbo Mortgage Rates

Jumbo mortgage rates are typically higher than conforming loan rates as they represent a higher borrower risk. Check current mortgage interest rates here.

Usually, a 20 percent or higher down payment is required for a jumbo loan, so another perk is that there is no private mortgage insurance to pay each month. Also, the fees that are tacked onto Fannie- and Freddie-backed mortgage programs, called Loan Level Price Adjustments or LLPAs, don’t exist for jumbo loans. The jumbo mortgage borrower gets a pass on those. Finally, interest on jumbo loans up to $1 million is tax-deductible.

Jumbo loan guidelines vary widely

It’s important to note, however, that each lender has their own requirements and terms, which are constantly changing, so be sure to note such differences when shopping around. Especially in the case of jumbo mortgages in which there is no government or national standard that must be followed, the lender has more flexibility when it comes to deciding who qualifies for their programs.

Choosing to go with a jumbo mortgage could simplify your home purchase as compared to combining a first and second mortgage. The second mortgage interest rate could adjust higher in the future. And you have to deal with two loan applications, two lenders, and two loan document signing sessions.

With jumbo loans, there is only one lender, and you can choose a fixed or adjustable rate, depending on your preference. As for loan limits, again, that depends on the lender. Some banks will go up to $5 million or more, while others will cap their loans at $1 million.

Banks entice wealthy clients with low Jumbo Mortgage Rates

From the lender standpoint, because a large down payment, very strong credit, a high income, and the preference for a strong cash reserves is usually required to qualify for a jumbo loan, they know that these borrowers are typically less risky than the average home buyer. In short, lenders want to entice these wealthy borrowers by offering competitive jumbo loan mortgage rates and terms, and then hopefully introduce them to their other financial products as well. As such, if you’re aiming to qualify for a jumbo mortgage, be prepared to have very strong credentials and undergo a thorough underwriting process.

A Great Time to Apply for a Jumbo Mortgage

As the luxury home market heats up, jumbo mortgages are keeping pace. Purchasing a higher priced home is now just a jumbo loan away for many buyers. And for good reason. Homebuyers who meet the qualification standards get a large loan, low rate, and a lender who really wants their business.

The post Loosening Rules, Low Jumbo Mortgage Rates Fuel Hot Housing Segment first appeared on My Mortgage Insider.