How to Get Around Private Mortgage Insurance (PMI)?

If you make less than a 20% down payment on a home loan, you may have to take out Private Mortgage Insurance before being approved for the loan. Private Mortgage Insurance (PMI) is conditional protection that benefits lending institutions from the risk of defaulting on the loan or foreclosure of a house. It adds an extra expense to your monthly bills and can be very inconvenient if your financial situation improves.

However, not all hope is lost. Under the Homeowners Protection Act (1998), there is a laid-out process of canceling PMI as long as certain requirements are met, making it easier for borrowers (NCUA). But there are other ways to get around PMI.

This article helps you understand what PMI is and the types, along with how PMI is calculated. We will also discuss the variety of ways you can avoid paying PMI, or if that isn’t quite possible yet, ways to reduce the payment.

Understanding Private Mortgage Insurance

Private Mortgage Insurance (PMI) is a type of coverage that protects lenders if you are at-risk to default on your mortgage loan or liable for foreclosure. PMI is generally only required if the down payment is less than 20% of the loan value. How much you end up paying depends on your credit score and how much you put down. However, it’s not applicable to government-backed FHA and VA loans with low to zero down payments.

There are two types of PMI: borrower-paid and lender-paid. Opting for a borrower-paid approach means that you as the borrower will pay the PMI. If you want, you can go the lender-paid way--the lending institution will pay the PMI, but will roll over the cost of doing so into the interest rate for the life of the loan, which means you might end up paying more over time.

How is PMI calculated?

PMI is calculated based on how much of a down payment you made and your credit score. Your payment will be calculated on those factors initially. Every year, the PMI is recalculated based on how much remains on the loan. Which is a silver lining of sorts, knowing that the amount you pay will decrease over time.

Can you reduce or stop paying PMI?

Another way to reduce or stop PMI is when the loan-to-value (LTV) ratio is 80% or lower and the loan started on or after July 29, 1999 (when the Homeowners Protection Act began). However, the market value of your home may have fluctuated, so the lender may require a brokerage price opinion, which may disqualify you if your LTV is not 80% (source).

Once you, as the borrower, have enough equity built up, the PMI can be removed. If you want to refinance your loan, it can decrease or entirely eliminate the PMI coverage. This refinancing usually requires an appraisal, which determines the value of your home. Then you take that new market value and essentially create a new loan under those conditions. However, your credit score may still be a limitation on your ability to eliminate PMI.

Ways to avoid paying PMI

There are various ways you can get around having to pay for PMI. Some are easier to do than others. However, the important thing to remember is that some options may take time. You can expect to pay PMI for a good chunk of time before you can get out of it.

1. Make a 20% down payment.

For starters, the fastest and easiest way to avoid paying for PMI is to not have any, to begin with. If you put up 20% of the down payment, then there is no need to worry about paying for PMI. If you can’t make that percentage point, you can look into down payments assistance programs to see if you qualify, especially if you are a first-time homeowner.

2. Get a VA or FHA loan.

Making a down payment of 20% may not always be feasible, no matter how responsible you are fiscally. However, there are some down payment assistance programs through VA or FHA. These government agencies can help cover the costs of down payments, and some may not even be required to pay back. It is a good idea to speak to your lender to determine if you qualify for these monies.

3. Piggyback loans

Piggyback loans, or second mortgages, help decrease the LTV ratio. The second mortgage would cover the remainder of the loan above 80%. For example, you could do your first mortgage at 80%, the second mortgage to cover 10% and make a 10% down payment. A piggyback loan may seem counterproductive, but a second mortgage can be easier to pay off and eliminate than PMI.

4. Pay down current mortgage.

If there is no penalty for doing so, making higher payments or prepayments on your mortgage can be a quick way to get out of PMI. In terms of LTV ratio, this method decreases the loan compared to the value, making it easier to reach that 80% benchmark. The faster you can get your loan paid off, the faster you can get out of the PMI.

How not to pay PMI

Private Mortgage Insurance (PMI) serves no benefit to the buyer and can be a pain. Thankfully, the Homeowners Protection Act has made the process a little easier in terms of getting out of paying PMI for the entire duration of the loan. But there are some ways you can get out of paying for PMI in the first place -- or at least reduce your payments. The magic numbers in most cases are 80% LTV and 20% down payment. If you can get one of these objectives, then your chances of paying for PMI coverage indefinitely will decrease.

If you’re ready to take the next step on your home buying journey and still have questions, reach out to the home buying specialists at Hero Home Programs. They work with local vendors to save you thousands of dollars on your home purchase and can even help you find lenders, insurance, inspectors, and more.

The blog post How to Get Around Private Mortgage Insurance (PMI)? is courtesy of https://herohomeprograms.com

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How to Buy House From A Family Member?

People buy and sell homes on a daily basis — and sometimes to and from their own family members. There are a variety of reasons and different ways that family members can ‘gift’ or sell a house. Whether it be a gift of equity, covering the down payment, or a discounted price, there are many ways to sell or buy a home within a family. 

You may be wondering the steps it takes to sell or buy a house from a relative. Whether it is you doing the buying or selling, or if you’re doing research for someone else’s, this article talks about just that. We will discuss the different types of transactions, the steps, and then weigh the pros and cons for you.

Arm’s Length Transaction vs. Non-Arm’s Length Transaction

When it comes to real estate, there are two categories of transactions — arm’s length transactions and non-arm’s length transactions. And it all comes down to the relationship between the buyer and the seller.

An arm’s length transaction is your typical real estate transaction. There is no professional or personal relationship between the two parties and each side acts with their own best interest in mind. Person A has a house to sell and Person B has a house to buy. Deal closed.

A non-arm’s length transaction is when the buyer and the seller have a personal relationship. This could mean friends, family, business partners, etc. Personal and self-interest are not always the goal in these transactions. However, it almost seems too good to be true, right?

While a non-arm’s length transaction is legal, there is a lot both parties have to do in order to get to the final goal of buying and selling. This is because there is a lot of fraud concerning these transactions, which could mean tanking the local housing market, inflating the price to cheat the seller out of money, orother sortst of misrepresentation. Lenders have to abide by the government regulations and guidelines to protect themselves and the parties involved. Some lending institutions may have their own rules regarding non-arm’s length transactions, so be sure to check with your institution before continuing through the process.

Steps on buying a house from family members

There are many steps to buying a house in general. And while you may not have to go house hunting, there are still some steps that you need to do before the sale is all said and done. Here are the steps to buying a house from a family member:

1. Get pre-approved.

There are some conditions to keep in mind when it comes to the mortgage aspect of it all. For sellers, you want to make sure that the buyer is approved for the mortgage. For buyers, it is good to know if the seller is current on their mortgage payments. If they are not, it might delay the approval for yours.

2. Decide the purchase price.

When it comes time to crunch the numbers, there aremanyf ways that the price can change. The firstt is to determine the fair market value, usually done by an appraiser hired by the seller. Next is to look at options for lowering the price. This is where a gift of equity, cash gift, or covering a down payment or closing costs come into play. Be sure to check with a tax expert first. All of the mentioned gift options have implications on the tax returns of the buyer and seller.

3. Title history and legal representation

As a buyer, you may want to hire a title company. This is not to insulate that your relative is untrustworthy, but it is a good idea to look into the title. That way, you can find out if there are any liens on the house or anyone else claiming to the title.
Hiring an attorney is also not a bad idea. They can help both parties avoid mistakes, write and notarize contracts, along with making sure there is no fraud being committed on either side.

4. Complete purchase agreement

A purchase agreement is a written and legally binding agreement to buy the home for the price that has been agreed on. It can also detail the terms of the sale, gifts, or covered costs made by the seller to the buyer.

5. Underwriting and closing

After all of that is done, then the loan gets processed by the lending agency. This is a good idea to avoid large purchases and activities that will poke holes in the credit score. This helps to get a better interest rate. Upon approval, the closing is done and the house now belongs to the buyer!

Pros and cons of buying a house from a family member

There are a few things to consider before pursuing this type of transaction. A non-arm’s length transaction does have its benefits, but it also has its downfalls. Here are the pros and cons.

Advantages

It boils down to this — time and convenience. When buying a home from a family member (or selling, in some cases), there is a lot of energy saved in the process because a lot of the stress is non-existent.

• Cheaper closing costs or down payment: There is no real estate agent involved, which can save the seller commission fees. For the buyer, gifts of equity or cash gifts can be put towards a down payment. Everyone wins!
• No hunting: The buyer does not have to find a house, which can be one of the most stressful steps in home buying. And it helps the seller too! Because the seller doesn't have to hunt for a buyer and can go into a new place with no contingency.
• Stays in the family: For some people, the land and the home are treasured heirlooms. Or, if the house is in a historical section of town, you can be assured that it will be taken care of. Sometimes it is nice to know that the place you call home is going to be loved as you loved it.
• Flexibility: There is some flexibility with moving, which can be nice. It allows both parties to pack and gives the seller time to find a new place. Not to mention, it is way less of a hassle to try to meet during a certain time frame on a weekday.

Disadvantages

There are some disadvantages as well, which is the case with every type of agreement. When it comes to family, there can be a lot of personal life drama that can ruin a deal. Knowing the pitfalls of a non-arm’s length transaction is important, and perhaps you can avoid them.

• More hoops and restrictions: There are more hoops to jump through and more restrictions, and these can vary by lending institution and situation. But there is often a bit more legwork done by the buyer and seller than is usually done by the real estate agent.
• Tax implications: Gifts of equity or other large monetary gifts have to be claimed on tax returns. And sometimes, even the buyer has to claim it as well. Be sure to talk to a tax expert to be sure all things are accounted for.
• Strife: Large and stressful processes like moving can make or break a family. Not to mention, some other family members may feel strongly about the transaction and will put in their two cents. It is good to set boundaries beforehand. And if you think this process might further damage an already fragile relationship, then it may be wise not to go through with it.
• Not a done deal: Sometimes, the buyer may have to back out of the deal, or the seller has to increase the price. These things are very real in the traditional real estate process, and non-arm’s length transactions are not immune.

Moving in?

Now you know all that goes into buying a house from a family member. If it sounds like the process is a good fit for your situation, then all the better! But if there are some hesitations yet, be sure to communicate that with your relatives. The process can be very smooth compared to normal transactions, but this can also be a more emotional process. In the end, it is best to be patient with everyone and work together to achieve the desired result.

Are you ready to start the home buying journey? Reach out to the home buying specialists at Hero Home Programs. They have been helping homebuyers save thousands on their home purchase and look forward to serving you too.

The blog post How to Buy House From A Family Member? was first published on https://www.herohomeprograms.com

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How Does Gift of Equity Work?

Sometimes, it’s nice to know your loved ones have your back. And when it comes to one of the largest expenses of your life—buying a house—it can be doubly sweet. When a family member or close associate sells you their home at a discounted rate, that is called a gift of equity. A gift of equity is the difference between the home’s market value and the price offered to you by your family member or loved one.

There are a lot of reasons that family members do this. It is common for parents to ‘gift’ a house to their children—whether it be so they can upgrade themselves or keep it in the family. This gift of equity acts as a down payment, making it easier for you to get a home mortgage. It is different than, say, if a family member paid your down payment for you because there already exists some equity in the house.

This article discusses what a gift of equity is, how it works, and the requirements for getting one. We will also cover some frequently asked questions and the pros and cons of a gift of equity. If this is something that may be an option for you or if you are interested in selling your home to a relative, scroll on!

What is the gift of equity?

A gift of equity is selling a house below its market value, usually to a relative or close associate. Most lenders count a gift of equity as a down payment on a home for the buyer. No physical money changes hand. A gift of equity helps buyers by reducing (or entirely eliminating) the down payment required making it easier to get a mortgage to purchase a home.

Most of the time, it is made by parents or relatives, but not required. A friend or close associate can also give gifts of equity.

How does a gift of equity work?

So, if no money is exchanged, how does it work? Why is it called a gift? In a gift of equity, the sale price of a home is much lower than the market price. Say you wanted to sell your home to a family member and cover a 20% down payment. Instead of just cutting a check for that amount of 20%, you would just reduce the house’s sale price by that amount.

According to the Federal Housing Administration (FHA), the gift of equity must cover a minimum of 3.5% of the down payment, as long as the home is the primary residence of the buyer.

What are the requirements for a gift of equity?

There are few basic requirements for a gift of equity. One is a gift of equity letter, a letter signed by both parties and details the facts and components of the sale. In addition, there are some other requirements as well:

• There will need to be a sales contract completed and signed.
• An official paid appraisal must be completed on the home, usually arranged by the seller.
• The appraising officers have to note the appraised value of the house and the gift of equity price.
• All the paperwork has to include the appraised value and the gift of equity value.
• Another letter noting the gift of equity will be needed at closing.

Some lending institutions may require a certain minimum credit score. Hence, it is a good idea to call and ask, along with finding out any specifics the institution may require from you or the seller.

What are its benefits?

There are a lot of benefits to a gift of equity for both parties. There is an ease about the process that is not available in traditional home buying and selling procedures.

First, you don’t have to really market your home or even list it. You already know who the buyer is. So once you get the lending institution on board, you’re free to move to your next adventure. You also don’t have a contingency when you find a new place.

Secondly, neither party needs a real estate agent. This can save a lot of money in terms of commissions and the stress of going through the home buying and selling process. It really takes out the middle-man.

For the buyer, a huge benefit is that there is a lower or no down payment required. Especially for a first-time home buyer, it can really make a difference. And the seller gets to do a nice favor for a family member or friend.

Are there any disadvantages?

Unfortunately, there are some downsides to gifts of equity. These disadvantages are things to consider before going into the process. However, they are not, by any means, invalidating the process.

First, there are some fees to consider. Gifts of equity aren’t immune to closing costs or title transfer expenses. And the contract mentioned earlier? There is going to be a legal fee for a representative to draw up the contract.

Secondly, gifts of equity will increase the capital gains of the house for the recipient when they sell it down the road. It may also influence the local real estate market, as it is being sold under market value.

Thirdly, it might result in a gift tax trigger. A gift tax is a federal tax on any valuables given from one person to another. It primarily affects the seller, as they are the ones to claim it on their tax return as a gift.

Frequently Asked Questions

When it comes to gifts of equity, there are a lot of questions you probably have. We’ll try to answer them all here, but be sure to reach out to a trusted professional to answer any specific questions. But here are some basic questions:

Do you pay taxes on a gift of equity?
As the recipient/buyer? No. As the giver/seller? Yes-ish. When you give a gift of equity, you have to claim it on your next tax return. But just because you claim it doesn’t mean you will have to pay taxes. It depends on the amount of the gift and the other factors of your taxes.

Can a gift of equity be used to pay off debt?
A personal debt? Sure—if you owe one to someone and use a gift of equity to clear the slate. When it comes to financial loans (actual debt or other loans), no. Gifts of equity are put towards the down payment and other house buying-related costs. It can’t be used on other loans.

Can you use a gift of equity on a second home?
It depends. Some lending institutions may allow second-home gifts of equity, others may not. And those that do allow it may have more requirements of who can be the recipient and that the house has to be the primary residence. On second-home gifts of equity, a common requirement is that the recipient is related by blood or marriage in some capacity.

Does a gift of equity have to be paid back?
Nope! It’s a gift. There is a mutual understanding that the difference between the market price and the price is gifted and will not need to be paid back. Nor is it expected. A gift of equity is not a loan, so the recipient doesn’t go into debt for being given one. The mortgage loan taken out on the home from the lending institution has to be paid back, remember. But the gift itself does not.

Wrapping it up with a bow

Whether or not you put a bow on the house is your call. A gift of equity can be very helpful and beneficial for both parties in a variety of ways. When it comes to the cons of the situation, be sure to factor in those costs before proceeding.

Of course, if you have any specific questions regarding buying a home, be sure to reach out to the experts at Hero Home Programs. They help home buyers save thousands of dollars on the home buying journey and can answer any home buying questions that you might have.

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Does a Bigger House Make You Happier?

Sometimes, if you had just a bit more space, everything would be so much easier. When you need an upgrade, there are times where a major overhaul of space can be necessary. And what qualifies as a ‘big’ house is rather relative, depending on your current space and what you consider to be spacious.

So can a larger house really make you happier? We look at the benefits of a bigger house versus the benefits of a smaller house. It is important to look at everything from your personal situation before choosing the size in terms of needs and financial capability. Ultimately, whether a bigger house will make you happier depends on - well, you.

Benefits of a bigger house

There can be a lot of upsides to a bigger home, and it depends on what you intend to use the space for and who you want to share the space with. It is important to keep in mind that larger homes usually have bigger price tags, and larger monthly mortgage payments can actually cancel out the ease of more space if you are struggling to make ends meet.

1. More space

The obvious benefit of a bigger house is space! And that can be helpful in simply how you live and move in this world. When you have space to exist and fit into space, things can seem to just flow better. Not to mention, bigger spaces come with other amenities and appliances, such as a dishwasher or laundry, making two chores significantly easier to accomplish.

2. Life transitions and milestones

Sometimes, it is just time to get a bigger space. Wherever you are in life, getting a bigger house can align better with your goals and where you are headed in the future. For example, you might be getting married or making arrangements for kids. When more people start entering the equation, more space is a better option so that everyone can experience comfort.

Other times, you may just want to get out of a shared living space. Maybe that is with your parents, a roommate or five, or another living situation. A bigger house can give you a sense of personal space that is not afforded in a place shared with other people.

3. Home office/gym/studio

Having more space can make life a lot easier when it comes to work and leisure. If you work from home or are looking to start one, having a home office can make a difference. Having a separate room from work that exists separately from the rest of the house can help clear physical boundaries for work.

Other amenities like having a home gym or studio for art, yoga, gaming, or whatever your needs are can be realities with a bigger home. If you are someone who wants to work out before starting the day and having a home gym would make that a lot easier for you, a bigger home can provide that for you. Or, if you want to have a space to meditate or craft or stream or just simply pursue your hobbies and interests, a bigger house can be beneficial.

4. Yard space

Having your own yard can benefit and give your family an experience of the outdoors and green space. Or, if you are a fan of summer barbecues and larger outdoor gatherings, a yard can allow for you and your guests to be comfortable and spread out.

Benefits of a smaller house

There are some upsides to having a smaller house. If you are just looking for a starter home, then smaller houses may be better for your situation. Again, depending on your finances, life goals, and current living situation, a smaller house may be better. You might be surprised at how much more space you have in just simply moving from a 500 square foot apartment to an 850 square foot house. There are a lot of benefits to a smaller house.

1. Lower costs

Smaller houses cost less because there is simply less space to pay for so, it may be better for your budget or current financial situation. The lower sales price can save your savings for an upgrade later in the future, especially if you are just looking for a starting home or looking to get away from renting. There are also lower escrow costs and property taxes to keep some of your money in your bank account versus pouring it all into one property.

Smaller houses are also cheaper to furnish. In terms of utilities, these cost less. Repairs and maintenance are also cheaper because it’s easier to take care of less space -- at least initially. Renovation costs are also cheaper, so you can personalize the space to better suit you.

2. Lower mortgage

A lower mortgage payment every month leads to a better income-to-debt ratio at the end of the month. So, you can save for other things like a newer car or start saving for a bigger house down the line.

3. Cheaper insurance

A smaller house does not have as much to insure in terms of the property itself, leading to lower insurance costs. Lower insurance costs are just other ways to save money for other things. It also helps to get your feet wet in homeownership because insurance might be a new thing to have in terms of bills.

Is having a bigger house worth it?

The ideal house size all depends on you. The amount of space you need for you, your life, and your family is something to consider when looking at bigger houses. Another aspect is your financial capability to afford the costs, expenses, and other things that come with having more space. If the numbers are not in your favor, then there is nothing wrong with starting small.

Are you ready to make the change? Whether you’re upgrading 200 square feet or 2000 square feet, Hero Home Programs wants to help make the transition as easy on you—and your bank account—as possible.

Does a Bigger House Make You Happier? was first published on www.herohomeprograms.com

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Am I Eligible for FHA Loan?

Buying a home is stressful, especially when you’re trying to buy a home when money is tight. When life hands you lemons, it can be hard to secure conventional home loans from banks, credit unions, or other lending institutions due to one factor or another. Thankfully, there is another option.

The Federal Housing Administration (FHA) offers loans for those with lower credit scores, first-time homebuyers, low- to moderate-income buyers, and many other situations that may apply to you.

An FHA loan is a mortgage loan backed and insured by the FHA and issued by an FHA- approved lender. These loans often require less of a down payment as well.

We discuss how FHA loans work, along with how they differ from conventional loans. There are also various types of FHA loans that we describe as well, along with general eligibility requirements. If you are interested in learning more or think that an FHA loan is right for you, be sure to contact an FHA-approved lender.

How does an FHA loan work?

An FHA loan works similarly to a conventional loan -- you borrow money to pay for a house with the agreement to pay it back with interest. However, there is one catch: borrowers have to purchase FHA mortgage insurance. This protects the lenders if you default on the loan and cannot pay it back.

And who pays for the mortgage insurance? You do. But it is not as daunting as it seems. Under all FHA loans, you are required to pay two different premiums: an upfront mortgage premium and an annual mortgage premium. 

An Upfront Mortgage Insurance Premium is around 1.75% of the amount for the loan, which you pay when you receive the loan. Often, this premium gets included in the financed loan amount, so you do not have to worry about having that money saved already.

The Annual Mortgage Insurance Premium varies in percentage of the loan amount, depending on the term, amount, and the loan-to-value (LTV) ratio of the loan you are looking to get. It is paid monthly.

These FHA mortgage insurance premiums may be canceled after 11 years if you finance around 90 percent or less of the property value and are current with all your payments. If your loan has a high loan-to-value (LTV) ratio, as in more than 90 percent, you will have to carry the insurance until the loan is fully paid off.

FHA Loans vs. Conventional Loans

Conventional loans require more from you as the buyer in terms of a down payment and line of credit. You may even have already experienced a denial for a conventional loan based on these factors. And if you are just getting started but are not sure if your credit score is good enough, here is a breakdown of the differences between FHA mortgage loans and conventional loans.

Requirements	FHA Loans	Conventional Loans
Credit Score (minimum)	500	620
Down Payment	If your credit score is between 500 to 579: 10% If your credit score is 580 or higher: as low as 3.5%	Between 3% and 20% to qualify
Down Payment Assistance Available	Yes	No

As illustrated in the table, there is often less required for you to put up front in terms of an FHA loan versus what you have to pay for a conventional loan. There are more requirements that go into an FHA loan to qualify than just credit score and down payment, and we will discuss them below.

Different types of FHA Loans

There are a variety of FHA loans that are available to you if you qualify. Each has unique pros and cons that are involved, and some have more requirements than others. There are two types of interest rates available for you to choose from: fixed or adjustable.

The fixed-rate mortgage means that the interest rate is a flat rate throughout the duration of the loan. It never changes.

There is also an adjustable-rate mortgage (ARM) that changes periodically over time, potentially even giving you a lower interest rate at times. Often, the FHA has a hybrid version between the two where a set time at the beginning of the loan is fixed-rate, with the remainder being adjustable.

There are several types of FHA loans you can explore. If you have any questions about the different types, be sure to talk to an FHA-approved lender to find what options are the best for you.

Home Equity Conversion Mortgage (HECM)

A Home Equity Conversion Mortgage (HECM) is one of the most popular types of a reverse mortgage. This type of FHA loan is applicable only to seniors age 62 and up. It works by allowing you to convert your home’s equity into cash while keeping the title to your home. You can get these funds either through a fixed monthly stipend or as a line of credit. You can also do a combination of both the fixed monthly payments and lines of credit.

Section 245(a) Loan

The Section 245(a) Loan is a type of FHA loan designed for borrowers who expect their income to increase. If you are this type of borrower, this program is a graduated type of payment as your income increases. The Graduated Payment Mortgage starts lower with monthly payments, and it gradually increases over time. The Growing Equity Mortgage has scheduled increases in payments that reduce the term of the loan.

FHA 203(k) Improvement Loan

This type of FHA loan factors in both the cost of the home and the renovations and repairs needed. The FHA 203(k) Improvement Loan rolls both the price of the home and the cost of improvement into one loan. This can help you if you do not have a lot of spare cash to help fix the house after the down payment.

FHA Energy Efficient Mortgage

The idea behind an FHA Energy-Efficient Mortgage loan is that it upgrades to increase your home’s energy efficiency to lower utility bills--which means you have more money at the end of the month to pay for mortgage payments. This loan is similar to the FHA 203(k) Improvement Loan, but instead for maintenance and repairs, it is to renovate your home to be more energy-efficient. This includes adding solar panels, wind energy, or even new insulation

Am I eligible for an FHA loan?

Contrary to popular belief, FHA loans are not restricted to first-time buyers or low-income households. You can be a repeat home buyer if you meet other requirements, in addition to the general guidelines. Moderate-income households can also qualify for FHA loans. However, there are some general requirements. It should be noted that if you are delinquent on your federal student loans or federal income taxes, you will not qualify, even if you meet all other requirements.

1. Verifiable income

To be considered for an FHA loan, you have to have a verifiable employment history for the previous two years and a verifiable income. It can be done through pay stubs, tax returns, and bank statements.

2. Payment of existing debt

Another requirement is that your income-to-debt ratios allow you to pay the monthly payments and keep consistent on all your other debts. Your “front-end debt ratio” is the monthly mortgage payment for the loan and cannot exceed 31% of your gross monthly income. Your “back-end debt ratio” is the mortgage and all other debt payments (car loans, student loans, etc.) and cannot exceed 43 percent of your gross monthly income.

3. Appraisal

The property also needs an appraisal conducted by an FHA-approved appraiser. This is to ensure the cost of the house, along with the property, meets certain minimum requirements.

4. Good credit history

Just because you may not have good credit now does not mean that you always had or will have bad credit. This is especially true for first-time homebuyers who may not have much credit to begin with but are good to make their payments. Essentially, you need to be able to demonstrate a history of being able to pay things back. This can be from rent payments to utility bills, or other loans. You also have to demonstrate that you are working towards establishing good credit.

5. Down payment

To qualify, you have to have money ready for a down payment. The amount you need depends on your credit score, and you can reference the table earlier for the down payment percentage for your credit range.

6. FICO score of at least 500

Your FICO credit score must be at least 500. But the higher your credit score, the lower percentage of a loan you need to be saved up for a down payment.

7. Primary residence and FHA Loan limits

The house must be your primary residence and cannot exceed more than the FHA loan limit for that particular unit type. These limits are determined by the region in which you live, with a special exception to the areas of Alaska, Hawaii, Guam, and the U.S. Virgin Islands.

8. Bankruptcy and mortgage foreclosures

At least two years must have passed if you experienced a bankruptcy event. Some special considerations can be made if you can demonstrate the bankruptcy was due to an uncontrollable circumstance. You must also be three years removed (at least) from mortgage foreclosures.

Final thoughts

When it comes to finding the right home, it can also mean finding the right loan. And when getting a conventional loan from a bank or another lending institution is not an option, it can be difficult. FHA loans are designed to help those who do not qualify or cannot get a conventional loan if they meet certain basic requirements. There are five types of FHA loans, and if you are interested in seeing if you are the right fit, reach out to an FHA-approved lender to get started.

Not sure where to start? Make Hero Home Programs™ your first call. Our specialists will help you along the home buying journey. We have helped thousands of people and look forward to serving you.

Am I Eligible for FHA Loan? was originally seen on https://herohomeprograms.com

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How to Choose a Loan Officer?

Buying a home is a huge accomplishment—and a huge amount of stress. But it does not have to be if you have the right loan officer that will work with you and your financial needs to get you set up with a home loan.

A loan officer is a representative from a financial institution or mortgage company that meets with you, your real estate agent, and the other banking professionals to turn your home-buying dream into a reality.

And finding the right one can be a hassle. Thankfully, there are some ways to narrow down your search. Here we discuss what a loan officer is, how they work during your home-buying process, and why you should consider a dedicated loan officer when purchasing a home. We will also discuss the differences between a mortgage broker and a loan officer and how to look for the right one for you.

What is a loan officer?

A loan officer reviews, authorizes, and recommends your home loan for approval. They determine your creditworthiness and your ability to pay back a loan. Loan officers work with you throughout the home-buying process. They also work with your real estate agent, loan processor, and loan underwriter at the financial institution.

Your loan officer will discuss mortgage options with you and will keep you in the loop about your loan throughout the approval process. They play a large part in the home-buying process, so it is important to find the right one for you and your financial needs.

How does a loan officer work?

A loan officer is the face of your home buying loan. They meet with you (via phone, in-person, or sometimes online) and determine the right mortgage option for you and your ability to pay the loan back, along with seeing if you have a good line of credit. Once all of that is figured out, they recommend your loan for approval and send it to the loan underwriter.

Think of them as your inside agent to the lending institution. They are your intermediary between you, the underwriter, and the loan processor. The loan officer is the one that gives you the green light for your home shopping budget and is there when you are ready to make a purchase.

Why do you need a loan officer?

Loan officers are important people you want to have on your side as you journey through the home buying process. To use another analogy, they are the head coach to your home-buying baseball team. The lending institution is the owner, you are the general manager, and your realtor is your third-base line coach. Hence, you should (and need) to choose a loan officer before finding a real estate agent. Loan officers possess a lot of knowledge in the home-buying arena and have a lot of power to recommend your loan to be approved. It is vital to start working with a loan officer as soon as you start looking to buy a house.

Here are some key reasons why you need a loan officer:

• Guide you on your budget and mortgage options before starting to look for a home.
• Connect you to real estate agents in the area.
• You can get unbiased information about the differences between various parts of the area.
• Goldmines of information on home buying, the process, and the market
• Highly accessible and available
• Can grant you a preapproval to make you a more competitive buyer

Loan officer vs. mortgage broker: what’s the difference?

A loan officer, as discussed previously, is an employee of a lending institution. They are the head coach of the whole operation. That means mortgage brokers are the scouts. They bring together the lenders and the borrowers.

Mortgage brokers and loan officers are good to have from the get-go of buying a home. But you may not always need a mortgage broker—however, there are some situations they are handy to have on your side. They can connect you to lenders and banks and can make a deal from almost anything.

When is it handy to have a mortgage broker?

• Bad or problematic credit
• Unique personal or commercial properties
• Finding a loan officer in a different part of the country
• If an online bank doesn’t have an in-person office in your area

Mortgage brokers can help you find the right loan officer and lending institution for your needs, but they are not always required. If you bank at a local institution, you may not need the middleman to connect you with a loan officer. Keep in mind as well that mortgage brokers do take a percentage in their own fees.

Whether you choose a mortgage broker to help you find a loan officer or not, it is important to start finding those people as soon as the idea to buy a home enters your head. You may not need a mortgage broker, but you will need a loan officer, and it is important to start looking for the right one for you.

How to choose a loan officer

Choosing the right loan officer for you is important. There are a lot of factors that play into what loan officer is right for you. You should pay attention to those more genuine and ethical officers versus those that push you to make a decision quickly.

Fees

Loan officers sometimes receive a commission from the loans they help get approved, so it is important to consider their fees. And it is also vital to ask about the types of fees the lending institution itself has regarding your loan (late penalties, appraisal costs, etc.)

Familiarity with different types of loans

Taking into consideration the types of loans your loan officer is familiar with is a crucial factor. For example, a car loan officer knows many car dealerships and may not be as helpful as a loan officer with expertise in the housing industry.

Number of lenders dealt with

Some loan officers work with different lending companies. You want a loan officer that works with a variety of lenders so you can spread a wide net to find the right home mortgage loan for you.

How long in the mortgage business

Finding out how long your loan officer has been in the business is helpful information. You can ask for their license number and look it up on the national registry to see if they have any complaints filed against them. Also, looking up the company itself is useful, and you can see if there have been any reports to the Better Business Bureau.

Does the company hold or flip loans?

A lending company may hold the loan and collect the payments from you and answer any questions. Sometimes a lending company will flip a loan to a third party after it has originated. If that is the case, you must understand and be comfortable with payments and contacts to an unidentified third party.

Closing time

Asking how long the loan’s processing time is crucial. You want to know when everything will be finalized and approved, and the house is done and bought. Your loan officer can answer these questions and keep you in the loop as the process moves along.

The most important question, however, is one you have to ask yourself. Determining your comfort level with the loan officer is, and should be, the final deciding factor. If your gut is telling you that it is not a right fit, trust it and keep looking for the loan officer that makes you feel comfortable.

Start your home buying journey off on the right foot

There are a lot of factors that go into choosing the right loan officer for you and your needs. From finding the right officer to asking the right questions, you can be sure that the loan officer you choose to work with on your home loan is the right one for you. And once you find that perfect fit, you are one step closer to finding your perfect home. If you are ready to start the home buying journey, reach out to the home specialists at Hero Home Programs™. They offer reduced lending fees, access to grants and tax rebates, discounted vendors, and more.

The following post How to Choose a Loan Officer? is republished from https://www.herohomeprograms.com/

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Is Down Payment Assistance a Loan?

Home buying is stressful, but to add falling short of down payment can be something akin to a disaster. When you don’t have enough money to cover a down payment, that throws a wrench into the whole home buying operation. Thankfully, there is help in the form of down payment assistance (DPA).

What is Down Payment Assistance?

Down payment assistance are programs designed to help reduce the amount of money potential homeowners need to save for a down payment. This assistance often comes in the form of grants or low-income loans.

How much funding can you get from down payment assistance?

The amount of money awarded from a DPA is influenced by several factors, including the program and the state you’re from. However, a RealtyTrac study found that, on average, people saved over $17,000 throughout the life of their loan by using down payment assistance.

Types of Down Payment Assistance available

There are various programs available for down payment assistance. However, the type and amount of these programs vary by state, so it is a good idea to look into the programs specific to your area.

Grants

Grants are the best option. They never have to be repaid! Think of it as a giant gift of money. The amount and type of grant vary by state and some grants may have extra guidelines for eligibility.

Forgivable loans at zero percent interest

Another option for down payment assistance is a forgivable loan. These loans are second mortgages at zero percent interest that are forgiven after you live in a house for a set number of years. The forgiveness period varies and is determined by the lending institution. If you move before the forgiveness period occurs, you will have to pay back a portion or all of the loan.

Low-interest loans

Down payment assistance can come in the form of a second mortgage granted simultaneously with the first one. The key is to have a low interest rate (some lending institutions even offer zero percent!) as you will be paying this loan back. Essentially, you have two monthly mortgage payments, but the help from the second mortgage can cover the costs of a down payment.

Deferred payment loans at zero percent interest

Combining the forgivable loan along with the low-interest loan and you have what is called a deferred payment loan. These 0% interest loans don’t have to be paid as long as you live in your house. However, they are not entirely forgivable. You will have to pay back this type of down payment assistance when you move or sell your house or refinance your first mortgage.

Matched savings program

Another type of assistance is the matched savings program, also known as the individual development accounts. With this, homebuyers deposit an amount into a financial institution, and the institution matches the amount. You then can take that whole amount and apply it to a down payment.

Types of loans where you can use DPA

There are a variety of loans that you can have in conjunction with down payment assistance. These loans often come from government agencies, but some also are private.

The most popular are:

• HUD loan: The U.S. Department of Housing and Urban Development (HUD) makes it easier for those with shaky credit or with low- or moderate-income to own a house through their various programs.
• FHA loan: The Federal Housing Administration (FHA), a division of HUD, are also loan options. These loans are backed and insured by the FHA and help first-time homebuyers with buying a house.
• VA loan: The Veteran’s Administration (VA) offers loans to current members of the Armed Forces, veterans, and in some cases, spouses of deceased service members. You must meet service requirements to qualify.
• USDA loan: If you are looking to buy a home in a rural or suburban area, you may want to look into a loan from the U.S. Department of Agriculture (USDA). These loans have specific income and property requirements, so be sure to know if you qualify.

Eligibility

The exact eligibility requirements for down payment assistance vary by program and state and whether you live in a “target area.” However, there are some general guidelines:

• You must be a first-time homebuyer*
• Income level is low or moderate
• The home is your primary residence
• The home is in a “target area” determined by the census
• The down payment assistance is used with an approved mortgage loan
• You work with an approved mortgage lender for the program

*You can be a repeat home buyer if you haven’t bought a property for, at least, the past three years.

How to apply for down payment assistance?

To apply for DPA, you first start by researching what programs are available in your state, county, and city. HUD has a list of programs by state. Reach out to those programs if you have any questions that aren’t covered in your search. And then, find a mortgage lender that works with that program.

Is down payment assistance a good idea?

If you are a first-time homebuyer with a low- or moderate-income level and shaky credit, you may want to seriously consider your options using a down payment assistance program. It is important to be vigilant and conduct thorough research on each program to find the right one for you. Your mortgage lender can also be a great source of information on certain programs. All in all, if you meet the general requirements for DPA, then you should be looking into what your options are and get one financial step closer to owning a home.

You can also reach out to Hero Home Programs™ for more information about these programs.

The following blog post Is Down Payment Assistance a Loan? was originally published to https://herohomeprograms.com

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Can You Buy a House With Bitcoin?

The housing and financial industries are an ever-changing world and the rise in cryptocurrency has started a purchasing trend like no other. Professional athletes, like NFL tight end Sean Culkin, have converted entire salaries into bitcoin. This demonstrates the growing popularity of cryptocurrency and the new money trend of the 21st century.

With the rise of cryptocurrency, many are wondering what they can spend their crypto-cash on. From everyday small purchases to large investments, there is a lot you can do with cryptocurrency. But can you buy a house with Bitcoin?

What is Bitcoin?

Bitcoin (BTC) is a digital currency that has no centralized authority and is not backed by any bank or government. There is no thing as a physical ‘Bitcoin’, as it is more just a ledger of transactions that anyone can see, known as a blockchain. Bitcoin is one of the most popular cryptocurrencies there is. If you are interested, you can learn more about Bitcoin here.

There are other cryptocurrencies, with perhaps Ethereum (ETH) being the most popular alternative to Bitcoin. Another well-known cryptocurrency is Litecoin (LTC), which is seen as a later version of Bitcoin.

Can Bitcoin be taxed?

Bitcoin can be taxed, depending on the country. For example, in the United States, cryptocurrency is considered property and is subject to capital gains tax in the eyes of the Internal Revenue Service (IRS). This means that if you are a U.S. taxpayer, you have to report bitcoin and other cryptocurrency transactions on your tax return. Given that cryptocurrency is considered a form of property and not as money, it is taxed similarly to stocks.

How do you purchase a home with Bitcoin?

The first home ever purchased entirely with cryptocurrency was in 2017 in Texas. In a matter of minutes, the closing was done, and the transaction was completed with Bitcoin.

When purchasing a home using Bitcoin, the two parties must agree on the transaction, and both buyer and seller must have Bitcoin accounts. The transaction, once completed, is irreversible and cannot be undone. Some considerations are needed when looking to buy a house using cryptocurrency:

• The seller and their representatives need to understand the options and methods of cryptocurrency.
• The price is highly volatile, given that cryptocurrency is not backed by any tangible product.
• There can be a lot of risks involved for the seller, especially in a 1031 exchange.

Benefits of using cryptocurrencies for home buying:

Buying a home is a huge investment and not one to be taken lightly. There are a lot of benefits to using Bitcoin and other cryptocurrencies when purchasing a home. For one, it can be like a cakewalk moving through the process, along with saving you a lot of stress. Some benefits include:

• Less paperwork, which helps the environment
• Minimal settlement time
• Secure and proof of ownership
• Minimal transaction fee
• Some sellers are interested in investing in cryptocurrency and may offer a discount
• Fewer fees due to the absence of intermediaries

Challenges of using cryptocurrencies for home buying:

Just as there are benefits, there are also challenges that can come with buying a home using cryptocurrencies like Bitcoin. Despite having existed since 2009, there is still hesitancy amongst the general public to jump into the world of Bitcoin. Some challenges of using Bitcoin to pay mortgages include:

• The volatility of the price is extremely high
• Contract default risk is high due to cryptocurrency price volatility
• Some sellers may not accept cryptocurrency for the purchase of their home
• U.S. income tax liability to convert cryptocurrency to USD

There is a helpful table that compares Bitcoin transactions to standard USD transactions for purchasing a home here. The table also compares the different ways you can buy a home using Bitcoin and the pros and cons of each method.

Where can I buy a house with Bitcoin?

It can be difficult to find a place that lists what houses accept Bitcoin like a traditional real estate website. This can complicate a rather seamless process. Add on the stress of moving and packing, it can be a lot to try and find the right home.

Here are some websites to get you started on your search:

• Propy
• CryptoRoof
• BitHome
• Bitcoin Real Estate
• Realtor--Bitcoin

If you are just starting your home-buying journey, it is important to remember that things can change on a dime. The right home for you will pop up eventually, so it is important to stay optimistic and have hope.

Turn your Bitcoin into a tangible investment.

When it comes time to buying a home, you can consider cryptocurrency as a payment option. It is a great way to implement the money you earn through Bitcoin and other cryptocurrency services into larger life ambitions, goals, and dreams. The changing world of cryptocurrency has already gained a steady trend in availability and interest. And with services like Bitcoin, you can achieve things that were perhaps not possible with traditional money spending power.

If you are ready to start your home buying journey, reach out to specialists at Hero Home Programs. They work hard to save you thousands of dollars on the home buying process. From discounted vendors to local grants, they can help you attain your homeownership goal.

Original post here: Can You Buy a House With Bitcoin?

What Is a HARP Loan?

Do you owe more to your house than it’s worth? Having negative equity in your home can be disheartening. After all, you have worked so hard to have a place of your own, and then you feel like your payments aren’t even going anywhere.

Oftentimes, people end up in these situations due to high interest rates on their home loans.

Previously, the solution that many Americans took advantage of to get out from under their high interest rate was applying for a HARP loan. The HARP loan, or home affordable refinance program loan, began in 2009 after home values decreased during the 2008 recession.

The HARP loan allowed homeowners to refinance their homes at lower interest rates, making their mortgage payments more affordable and getting them out underwater. Though the program ended in 2018, more than 3.4 million Americans took advantage of the HARP loan while it was in existence. You can learn more about the history of the HARP loan here.

Eligibility for a HARP loan

The HARP loan was targeted at homeowners that had a loan-to-value ratio of at least 80%. These homeowners had a hard time finding traditional refinancing because of the lack of equity in their home. Traditional refinancing options have various requirements, but most of them require you to have at least some kind of equity. HARP allowed homeowners to circumvent this requirement.

Though homeowners didn’t have to have equity in their home, there were some other requirements to qualify, including:

• Having a Freddie Mac or Fannie Mae mortgage that closed on or before May 31, 2009
• The original loan must have had a loan-to-value (LTV) ratio of at least 80%
• The borrower could not be delinquent on their mortgage payments with limits to one late payment in the previous 12 months, and none in the past six months

Surprisingly, there was no minimum credit score required. These requirements made it easy for this loan to help millions of Americans and were a lifesaver for many until its ending.

Why and how did the HARP program end?

The HARP program was supposed to end in 2016 but was extended through 2018, where it expired on December 31st. The main reason for it to come to an end was that fewer and fewer people nationwide qualified for the program.

During 2018, before the HARP program expired, it was estimated that fewer than 38,000 homeowners qualified. Those homeowners only resided in 10 states. With not enough people who needed assistance, there was no longer a need for the HARP program.

Of course, things have changed since 2018, and with those changes, new programs have replaced HARP.

Programs that replaced the HARP loan

1. Fannie Mae High LTV Refinance Option (HIRO)

The Fannie Mae High LTV Refinance Option, or HIRO, provides refinancing to existing Fannie Mae mortgagers who are paying on time but have a high loan to value ratio that doesn’t qualify for traditional refinancing options. Fannie Mae requires that the borrowers must benefit from the refinancing by either:

• Reduced principle and interest payments
• Shorter amortization term
• Lower interest rate
• A more stable loan such as moving from adjustable to fixed-rate interest rates

Features of this program include:

• Transferable mortgage insurance
• Simplified documentation requirements for easier application
• Various underwriter options

How to qualify for HIRO

In addition to being in a high LTV situation, there are a few other requirements for the HIRO loan, including:

• Having an existing Fannie Mae mortgage closed on or after October 1st, 2017.
• The loan must be 15 months old.
• Current with their payments with no 30-day late payments in the most recent six months, and no more than one 30-day late payment in the past 12 months. Any history of payments more than 30 days late will disqualify you.
• The mortgage must not have been previously delivered as a DU Refi Plus™ or Refi Plus™ mortgage.

Interestingly, the mortgage may be refinanced more than once under this program as long as all the requirements are still met.

Freddie Mac Enhanced Relief Refinance Mortgage (FMERR)

Like the HIRO loan, the Freddie Mac Enhanced Relief Refinance Mortgage, or FMERR, offers a refinancing option for existing Freddie Mac mortgagers who are on time with their payments but have a high LTV ratio that doesn’t qualify for traditional refinancing options.

Features of this program include:

• Conventional 15-, 20-, or 30-year fixed-rate mortgage are eligible
• No program expiration date
• All occupancy types are eligible
• Lenders do not have to comply with standard waiting periods after derogatory events.

How to qualify for FMERR?

In addition to the loan being a pre-existing Freddie Mac mortgage, you must have these qualifications:

• It must be seasoned for at least 15 months.
• For adjustable-rate mortgages, the maximum loan to value ratio is 105%
• You must have applied for your mortgage after November 1, 2018

HARP vs. the alternatives

Though it seems that these alternatives have similar requirements as the HARP loan, there are actually a few differences. For one, HARP was only able to be used once. These programs can be used for an unlimited amount of time. However, keep in mind that you will not be eligible for either of these programs if you have used HARP.

In addition, the loan age requirement didn’t exist with the HARP loan. With HIRO and FMERR, the loan must be at least 15 months old. The age requirement is actually a good thing because it prevents loan churning. Loan churning is when a lender encourages multiple refinances to make more money, which isn’t always in the borrower’s best interest.

Similar to HARP, there are no LTV maximums for HIRO or FMERR. Though these alternatives are more based on the LTV ratio and have different minimums.

How to apply for HIRO or FMERR?

There is a relatively easy process to apply to HIRO and FMERR. However, you’ll want to make sure you prepare and do your research. Here are our recommended steps to applying:

1. First, contact the home-buying and refinancing specialists at Hero Home Program. They will be able to either
   • Assist you directly or
   • Refer you to a vendor who offers discounted rates for the following steps.
2. Determine if your loan is Fannie Mae or Freddie Mac. You can do this by looking at your loan paperwork or by using the loan lookup tool on each of their websites.
3. Get an appraisal of how much your home is worth.
4. Determine how much you owe on the house through your lender
5. Calculate your LTV.
6. Use the HIRO and FMERR eligibility guides to determine if you qualify based on your LTV.

HIRO and FMERR are great alternatives to HARP

Overall, HIRO and FMERR are great alternatives to HARP. They provide an opportunity for those who normally wouldn’t qualify for refinancing a way out from negative equity. If these programs sound like something you would like to learn more about, reach out today.

Original post here: What Is a HARP Loan?

How to Make an Offer on a House

Making your first offer on the house can be intimidating and even a little bit scary. The process doesn’t have to be either of those things, though. Making an offer on a house can be boiled down to a few easy steps. Let’s examine them.

The process of making an offer

Before ever making an offer, you should have already taken a few steps. The first step is getting a pre-approval to know how much house you can afford and make the offer process go smoother. After your pre-approval, you should find the right house in your pre-approval budget. Additionally, you should have a real estate agent to help you through this process.

Once you are ready, you will take the following steps:

1. Determine what you are willing to offer for the house.
2. Set contingencies.
3. Decide how much earnest money to offer.
4. Write and send an offer letter.

What is the house worth to you?

The first step is determining how much you are willing to offer. How much is the house worth to you? You might have a price point in mind, but be careful not to choose a random number.

There are several factors that go into choosing the price. Some of those factors are:

• Home considerations - Does the house need renovations or repairs? What is the price of similar homes in the area? Is there any competition for this particular home?
• Budget considerations - Consider how much you can comfortably afford. Don’t use the amount that’s listed on your mortgage pre-approval for this amount. Consider the monthly payment that you’d like to pay.
• Market considerations - Your real estate agent should be able to provide you with a comparative market analysis that will tell you whether or not the current market is a buyer’s or seller’s market. Which type of market is currently dominating will determine how much you offer.

When will you walk away?

The next step in making an offer is setting contingencies. Contingencies are reasons you can walk away with your earnest money (money similar to a deposit). These contingencies can often include reasons such as financing and appraisal.

It’s important when making an offer on a home not to put too many contingencies into the offer. If you do put too many contingencies in the offer, it could cost you the house due to the number of obstacles.

Additionally, make sure that you always set a contingency on a home inspection. If a major defect in the house shows up during inspection, your earnest money will be safe.

What is earnest money and how can it help your offer?

If you read our blog “What Is A Good Faith Deposit,” earnest money is similar to a deposit put in escrow to show good faith that the buyer wants to buy the home.

Earnest money can help your offer stand out among other offers because it shows that a buyer is willing to invest some of their own money into purchasing the home. The money is similar to a deposit and is kept in escrow. The buyer may keep their deposit if a contingency is met, but otherwise, the money usually goes towards the home’s down payment.

Why is an offer letter important?

An offer letter contains all of the important parts of making an offer. The letter should be drafted by your real estate agent and should contain the following:

• The new home address
• Names of any adults that will be on the title
• Your offer price
• Your contingencies
• Concessions you’re asking for such as closing costs or repairs
• Anything else you want to be included in the sale. These can include lighting fixtures, window treatments, etc.
• Your earnest money deposit
• Your mortgage pre-approval letter
• The date for expected closing
• The date you want to move in
• A deadline for responding to the offer

How to make your offer stand out

No matter the offer, it’s important that it stands apart from the rest, particularly if this home is your dream home. You wouldn’t want to lose out on it because the offer didn’t catch the seller’s eye.

1. Make the highest bid first.
   Make the highest bid before anyone else can beat you there. Be sure not to submit a “lowball” price because that may be flat-out rejected. Your strongest offer should be the first offer you make.
2. Put down as much as you can.
   Show you are serious about buying the home by making a large down-payment. The larger the down-payment on the home and the larger the earnest money deposit, the more serious you look to a seller.
3. Offer to close quickly.
   Most sellers are on a timeline of their own and time can be even more important than money. Offer to close quickly and meet the sellers’ timeline and you will have an offer that will appeal.
4. Don’t take too long for the inspection. Better yet, include an as-is home inspection contingency.
   An as-is home inspection contingency takes the stress off of the seller because it allows them to sell the house without making repairs. The buyer would still have a contingency allowing them to back out of the offer if the home inspection revealed something they couldn’t live with.

Making an offer on the house starts here.

Making an offer on the house can be a simple process, provided you have a few things underway first. Make sure you are preapproved for a loan and hire a real estate agent. Ensure the agent is a buyers’ agent because they will advocate for you and handle the bulk of the offer letter.

You can make an offer stand out by being sure that it is strong followed by earnest money and few contingencies. You can strengthen it even further by working on the sellers’ timeline and making sure inspection doesn’t take too long.

If you are ready to make an offer on a home, reach out to the specialists at Hero Home Programs. They will work hard to find local and federal grants and rebates and can save homebuyers thousands of dollars with their local home buying vendors.

Original post here: How to Make an Offer on a House

Understanding LP and DU Mortgage

Every time a potential home buyer decides they are ready to purchase a new home, they must go through the process of qualifying for a loan. The qualification process can be complex and difficult to understand. To understand these complex terms, let’s discuss what automated approval is and why it’s so important.

The “Automated Approval” process

Automated Approval is the process by which a lender determines that a home buyer is eligible for the home they want to purchase. The automated underwriting system, or AUS, that the lender submits the loan paperwork to uses a specific set of criteria to determine a home buyer’s eligibility.

If the AUS determines a prospective buyer is eligible, they are considered approved, which is the first step in securing a loan. However, if the AUS determines the home buyer is ineligible because they don’t meet the criteria for automated approval, the loan must be manually underwritten.

Manual underwriting is done by an underwriter who carefully looks over all the paperwork and checks to see if the buyer meets the lender’s criteria. The process is arduous and takes time. It’s critical that the information given to the underwriter is complete and accurate.

LP vs. DU mortgage

To support more home buyers’ desire to purchase homes, congress backed two organizations known as Fannie Mae and Freddie Mac. They buy mortgages, combine them, and sell them as mortgage-backed securities. This process frees up the lender’s capital so they can then lend money to more home buyers.

Fannie Mae uses the automated underwriting system called Desktop Underwriter or DU, while Freddie Mac uses the AUS called Loan Prospector or LP. Both of these systems do similar functions. They are the systems that lenders submit a home buyer’s information to for automatic approval.

Applying for LP or DU mortgages

The process for applying for and obtaining an LP or DU mortgage can seem complex and overwhelming, so we’re going to break it down so that it’s easier to understand.

Criteria and Guidelines

All loans underwritten through Fannie Mae and Freddie Mac must follow certain criteria and guidelines.

1. Debt to Income Ratio (DTI) - DTI takes into consideration a buyer’s current debt and gross income. The sum of their debt is divided by their gross income to create a ratio or percentage. Debts figured into this ratio include credit card debt, other loans, mortgages, etc.
2. Required reserves - Loans require a buyer to have a certain amount of money in the bank to cover all of their expenses. This money is referred to as a reserve. The amount required is dependent on the buyer’s credit, DTI and LTV.
3. Loan-to-Value (LTV) - LTV is determined by the house’s appraised value and the loan amount being asked for. If the LTV is higher than 80%, the buyer may have to pay for PMI or private mortgage insurance until the LTV is lower than 80%. LTV can be lowered by paying a higher down payment.
4. Credit score and profile - A credit report will show the bank whether or not a buyer has any delinquencies or outstanding debts. Additionally, it will show a credit score, which shows a lender how risky lending to the buyer will be.
5. Collateral - Collateral is an asset that can be used to secure a loan. In the case of a mortgage, the collateral is usually the house that is being purchased.

Requirements

1. Tax returns - Lenders use tax returns to determine whether your reported income is accurate.
2. Proof of income - Proof of income is usually two years of W-2’s unless the buyer is self-employed or owns a business. Some ways of showing income for a self-employed buyer include profit and loss statements, 1099 documents, and direct deposits.
3. Bank statements - These provide information about how much money buyers have in their reserves and how long they’ve been saving money for a down payment.
4. Credit history - The lender will need to pull the buyers’ credit report to determine whether or not there are any delinquencies and to verify debts.
5. Rental history - At least one year of rental history showing on-time payments.

How does a DU or LP mortgage work?

The first step to obtaining an LP or DU mortgage is to begin the application with a loan officer. The loan officer will collect information from the potential home buyer. From there, the information is put into a loan origination system, which then submits the information to one of the underwriting systems.

The AUS will review all of the documents and determine whether or not they meet the guidelines set forth by Fannie Mae or Freddie Mac. If they do meet the guidelines, the loan will be automatically approved. If automatically approved, the loan officer will submit the loan for underwriting and will submit the buyer’s documentation along with the loan.

The mortgage underwriter will then submit the information to the AUS again. Depending on what the AUS says, the mortgage underwriter will issue conditions. Once the buyer meets the conditions required, the loan can begin to close.

Should I get an LP or a DU mortgage?

Unless a buyer has the money to purchase a home outright, they should generally get an LP or DU mortgage. Remember that if a buyer doesn’t qualify for an LP or DU mortgage, they will have to go through the process of manual underwriting. This process is lengthy and documents are scrutinized more heavily. It’s easier to qualify for a mortgage with LP or DU.

From beginning to end, an LP or DU mortgage is about purchasing a home with a buyer having a low risk of defaulting on their loan. The loan officers and the underwriters use specific criteria set forth to minimize that risk. The home buyer submits their documentation, it’s processed through LP or DU, and then, if automatically approved, the buyer is one step closer to buying their home!

If you are ready to start the process and qualify for a DU or LP mortgage, reach out to the home buying experts at Hero Home Programs. They specialize in helping homebuyers save thousands of dollars with local vendors, grants, and rebates. They want to see you in the home of your dream and they work hard to help you fulfill that dream.

Original post here: Understanding LP and DU Mortgage

Is “Bad Credit Mortgage Loans Guaranteed Approval” Safe?

When it comes time to purchase a home, finding a lender that gives you the best options is important. Having good credit simplifies the process and allows you to buy a home with a good interest rate, leading to less cost in the long term. However, having bad credit is not necessarily a hindrance to having your own home. You can own the home you’ve always dreamed of!

Explaining the credit scores

Lenders use credit scores to determine how trustworthy a borrower is or how likely they are to pay back the money loaned to them. The higher a credit score is, the more likely they are to loan money to the borrower.

FICO scores range from a low of 300 to a high of 800. How your credit score is determined is based upon a number of factors, including how reliable your payment history is, how many credit accounts you have opened, how old the credit accounts are, and how much debt you have.

Credit Score Chart
Very poor: 300-579
Fair: 580-669
Good: 670-739
Very good: 740-799
Excellent: 800-850

If your credit score is low, it may be beneficial for you to monitor your credit with a credit monitoring service, giving you tips and advice for improving your credit. If your credit is really low and you are struggling to improve it on your own, enlisting the help of a credit repair company can help. Taking steps to improve your credit before purchasing a home will ensure you get a better interest rate, which affects the amount of money you will pay over the life of the loan.

Bad credit mortgage loans with ‘guaranteed approval’

Many times, someone with bad credit is desperate to find a solution to purchasing their own home and they stumble upon mortgage loans that guarantee approval. This is a red flag because, under federal rules, a lender must verify the ability of a borrower to repay their mortgage. There is no guaranteed mortgage loan, whether you have good credit or bad credit.

While there is no guarantee, there are programs that offer bad credit home loans. It is possible to obtain a home loan with bad credit—so, if you’ve been looking around with no luck, don’t give up yet. There are several companies and loan programs available to people with less-than-stellar credit.

Lending Tree

Lending Tree is not a traditional lender. Rather, they are a service that helps people with bad credit find a lender by submitting the borrower’s information to a variety of lenders.

Pros

• Lending Tree boasts a simple four-step process.
• They eliminate the need to look at each lender’s requirements, allowing the borrower to simply compare and contrast their options.
• There is no fee to use their service.
• Potentially better rates because the lenders compete with one another to offer better rates to the borrower.

Cons

• They submit offers to all their lending partners, which leads to the potential of unwanted offers and spam.
• Rates go as high as 29% APR, which leads to a much higher cost for the borrower for the life of the loan.

PNC Bank Mortgage

Pros

• PNC considers non-traditional credit history, such as rental payment history to approve a loan.
• Their website has updated mortgage rates so that a customer is never blindsided by current rates.
• They offer a variety of loan programs including VA and FHA loans.

Cons

• Their application is not available entirely online, meaning it must be completed in person.
• In-person service is unavailable in some states, which means that PNC will not work for everyone.

Wells Fargo Mortgage

Pros

• Wells Fargo has their updated rates posted on their website. They are updated daily.
• They offer a variety of loan programs including FHA, USDA, and VHA loans.
• Their website boasts many educational products including videos and articles that will help you obtain a mortgage and understand the process.

Cons

• Their trust has been eroded because of government scandals.
• New applications for home equity lines of credit have been suspended because of COVID-19.

New American Funding

Pros

• They offer a variety of loan programs.
• You can install their app on your mobile device for convenient mortgage management.
• Their website offers calculators and a variety of other mortgage educational resources.
• Their mortgages are bilingual, making it easier for a native Spanish speaker to purchase a home.

Cons

New American Funding programs are not available in some states, such as Hawaii and New York.

Navy Federal Credit Union Mortgage

Pros

• Navy Federal Credit Union offers loans with no down payment, making it easier for first-time homebuyers to purchase a home.
• They offer a variety of loan services include VA loans.
• They offer an online application for pre-approval making applying for a mortgage simple and easy.

Cons

• The website does not offer customized rates based on your credit score before you apply.
• Their mortgages are meant for military members or their families only.

CITI Mortgage

Pros

• CITI Mortgage offers customizable loan rates on their website based on credit and other factors.
• They offer low down-payment mortgages, which is beneficial for first-time homeowners.
• Their fees and rates are lower than many other lenders.

Cons

• They charge a fee for applying for a mortgage through them.
• They require you to complete the mortgage application with a loan officer, meaning the loans cannot be applied for online only.

FHA Rate Guide

Pros

• FHA loans are easier to apply for because they have less stringent requirements than a VA loan or USDA loan.
• They offer low-credit score FHA loans which allow people with bad credit or low credit to apply for a mortgage with a low down payment.
• Homebuyers can apply for an FHA loan with a credit score as low as 500
• Most banks offer FHA loans.

Cons

Buyers with poor credit scores are still subject to higher interest rates.

Government-backed agencies

Government-backed loans are less risky than subprime loans and they boast lower interest rates and lower down payments. These loans are better for someone who has bad credit and is looking to become a homeowner because the requirements are less stringent than a conventional home loan.

VA Loans

VA loans are reserved for active-duty military members and veterans. These types of loans are guaranteed by the Department of Veteran Affairs. VA loans typically have a lower interest rate and can even be acquired with a 0% down-payment in some cases. These loans are especially beneficial for people with a credit score of 620 or higher, but they can be acquired with a credit score of 580 or above in some cases.

USDA Loans

A USDA loan is a loan that is typically offered to lower-income home buyers that are looking to purchase a home in a rural area. These loans boast a 0% down payment. The credit requirements for a USDA loan are a little bit higher, generally requiring a score of 640. However, there are exceptions, so if you are interested in a home in a rural area, a USDA loan might be a good fit.

FHA Loans

An FHA loan is a government-backed loan through the Federal Housing Authority. The loan is meant for borrowers that have low credit, usually around 580 or above. As long as the borrower can provide a 3.5% down payment on the house, they’ll likely qualify for an FHA loan. The requirements for an FHA loan are less stringent than those for a VA or USDA loan making them a good choice for low-credit borrowers.

It is absolutely possible to find the right house for you, even if you have low or bad credit. There are a variety of tools available for you to increase your credit score. If your credit score is still lower than a conventional loan requires, you can search for a loan that is less risky and government-backed. Another option is to improve your credit score so you can enjoy the benefits of a lower interest rate and better terms for your home mortgage.

If you’re ready to start the home buying journey, reach out to the experts at Hero Home Programs. They will utilize their expertise to find grants and rebates for home buyers, as well as set you up with service vendors at reduced rates. Contact us today and we could help you save thousands of dollars on your home purchase.

Original post here: Is “Bad Credit Mortgage Loans Guaranteed Approval” Safe?