Cash-Out Refinance Archives - Page 11 of 38

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January 19, 2024 by Brett Tams

Getting a loan on a home you own outright

If you’re considering a loan on a home you own outright, it’s important to note that when you own your home without any current mortgage, its entire value is equity.

You can utilize this equity by securing a loan against the home’s worth. Multiple mortgage loan options are available, such as a cash-out refinance, home equity loan, or HELOC.

To make the most informed decision, delve deeper into each option and discover which suits your needs best.

Check your loan options. Start here

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Can I get a loan on a house that’s paid for?

Yes, you can get a loan on a home you own outright through a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance.

A home equity loan allows you to borrow a fixed amount of money using your home as collateral and pay it back with interest over a set term. A HELOC, on the other hand, works like a credit card where you can borrow money as you need it up to a certain amount, and pay it back with interest.

When you take out a home equity loan or a HELOC, the lender will determine the amount of equity you have in your home and use that as collateral for the loan. The amount of equity you have is determined by the difference between the current value of your home and the outstanding balance on your mortgage
Cash-out refinancing allows you to borrow up to 80% of your home’s appraised value. You’ll repay the loan via monthly payments, just like you did before you paid off your mortgage balance

Keep in mind that taking out a loan on a paid-off house puts your home at risk if you are unable to make payments. If you default on the loan, the lender may foreclose on your home to recoup their losses.

So, before taking out a home equity loan, or HELOC, make sure you can comfortably make the monthly payments and understand the risks involved.

Verify your eligibility. Start here

Home equity loans for a paid-off house

Getting a loan on a house you already own lets you borrow against the value of your home without selling.

The type of loan you’ll qualify for depends on your credit score, debt-to-income ratio (DTI), loan-to-value ratio (LTV), and other factors. But assuming your personal finances are in good shape, you can likely choose from any of the following loan options that we summarized above.

Check your loan options. Start here

1. Cash-out refinance

Cash-out refinancing typically involves applying for a new mortgage to replace an existing one and borrowing cash from your home equity. When you already own your home outright, you aren’t paying off an existing mortgage. So most or all of the loan will come to you as a lump sum of cash.

You can typically borrow up to 80% of your home’s value using a cash-out refinance. However, with the VA cash-out refi, you could potentially get up to 100% of your home’s value. But only veterans and active-duty service members have VA loan eligibility.

Refinancing requires a home appraisal to measure your home’s market value. Unless your home is worth over $1 million, in which case you may be able to get an appraisal waiver. You’ll also pay closing costs, ranging between 2% and 5% of your loan balance.

You can pay closing costs out of pocket, or your lender might be willing to cover part of them in exchange for a higher interest rate. Alternatively, you could roll the closing costs into your loan balance.

Cash-out refinancing typically requires a credit score of at least 620. But a higher score (720 and up) will earn you a lower mortgage rate and help you save on interest costs.

2. Home equity loan

Another option is a home equity loan. As with a cash-out refinance, the amount you can borrow is based on your home’s value. Your loan terms will also depend on your credit score.

Homeowners can typically borrow up to 80% of their home’s equity with a home equity loan, which is also known as a second mortgage. However, some smaller banks and credit unions may allow you to pull out up to 100% of your equity.

Once approved, you’ll receive the entire loan amount in cash to use as you wish. Then you’ll repay the loan with interest by making monthly payments.

Home equity loans have higher interest rates than refinancing but lower interest rates than credit cards or personal loans. Since it’s an installment loan with a fixed interest rate, you’ll also have a fixed monthly payment.

Many lenders set their minimum credit score for a home equity loan between 620 and 700.

Verify your home equity loan eligibility. Start here

3. Home equity line of credit (HELOC)

A home equity line of credit is similar to a home equity loan. But rather than receiving a lump sum of cash, borrowers can draw from a line of credit as needed.

Home equity lines of credit often have a draw period of 10 years, meaning you can borrow from the credit line and repay it as often as you want within that time frame. After the draw period ends, there’s typically a repayment period of up to 20 years, during which you cannot borrow from the HELOC and must repay any outstanding balance with interest.

Check your HELOC options. Start here

A HELOC is a revolving account, like a credit card, so the amount borrowed determines your monthly payment. HELOCs usually have variable interest rates.

How to choose a loan on a home you own outright

Although you have several options when getting a loan on a home you own outright, the right mortgage depends on your specific goals. Here’s how to choose the best loan for your financial situation.

Talk to a lender about your mortgage options. Start here

You need cash to buy another property. You can purchase a new property with the aid of a cash-out refinance or a home equity loan. Both loans give you a lump sum payment up front and let you extend the fixed repayment term over a longer period of time. HELOCs can have higher interest rates and variable rates, leaving you with less certainty about your future rate and monthly payments HELOCs can have higher interest rates and variable rates, leaving you with less certainty about your future rate and monthly payments
You want to make home improvements. Home equity loans and HELOCs can be used to improve your home by making renovations or repairs. A home equity loan is great for a single project, while a HELOC is better for completing several projects over many years. You can also use a cash-out refi, but if you extend your loan term, you may pay more in interest over the life of the loan. This could make it harder for you to pay off your mortgage and add value to your home.
You want to consolidate high-interest debts. A cash-out refinance is a way to use home equity to pay off high-interest debts, such as credit card debt or personal loans. It can be a smart way to save money on interest, but it has risks, such as a risk of foreclosure and using a long-term asset, the value of your real estate, to pay for shorter-term needs

Regardless of the type of loan you choose, request quotes from at least three mortgage lenders to compare interest rates, discount points, and upfront fees. This will help you get the best deal.

Pros and cons of getting a loan on a home you already own

Leveraging a fully paid-off home for a loan comes with its own set of benefits and drawbacks. Here’s what you should consider before opting for a home equity loan.

Verify your home equity loan eligibility. Start here

Pros

Enjoy cost-effective borrowing. Home loans, when taken against a fully-owned property, typically offer more competitive interest rates than personal loans or credit cards. This is due to the house acting as a guarantee. Moreover, when opting for a new loan like a refinance, the associated closing expenses might be on the lower side
Unlock most of your home’s value. With no existing liens on your property, such a loan lets you access a large part of your equity. Lenders find this arrangement favorable, knowing you’ve successfully cleared a first mortgage. It’s important to keep in mind that the property’s valuation and your credit history will still determine the loan amount
Benefit from fixed-rate repayments. Such home loans usually come with fixed interest rates, ensuring consistent monthly outflows throughout the loan’s tenure
Flexibility in how you use your money. The loan amount can be channeled into various needs, be it home refurbishments, debt clearance, or any significant expenditure
Potential tax benefits. If the loan amount is reinvested into property enhancements, the interest might be deductible, giving it an edge over other financial products like personal loans or credit cards

Cons

Your property is on the line. If you default on the home equity loan repayments, you risk losing your fully owned home to foreclosure
It might cost more than other home loans. Generally, home equity loans have steeper interest rates compared to refinancing options and Home Equity Lines of Credit (HELOCs), making them potentially pricier
Be prepared for closing costs. Typically, these can range from 2% to 5% of the loan value, adding to the overall cost
Repayment terms might be rigid. Unlike some other options, such as HELOCs, which offer flexibility in repayment and re-borrowing, home equity loans have a fixed repayment schedule
Risk of the loan exceeding the property value. If you secure a loan on a home you own outright prior to a downturn in the property market, you might find yourself owing more than the property’s worth

3 things to consider before getting a loan on a home you already own

Considering taking a loan on a home you own outright? It’s an important decision with several facets to consider. Let’s delve into three key aspects:

1. Do you really need the liquidity?

What’s your primary motivation for tapping into equity? If you’re planning significant home improvements that could enhance its market value, that’s a strategic approach.

However, if the goal is to address other debts or make purchases that won’t hold their value, exercise caution. You wouldn’t want to jeopardize your home without good reason.

2. How much do you need to borrow and for how long?

The size of your loan will directly determine your monthly commitments. When considering a larger loan amount, it’s important to evaluate the monthly payments, interest rate, and the loan’s lifespan. If you’ve been enjoying a mortgage-free status for a while, it’s worth reflecting on whether you’re ready to recommit to a long-term debt.

3. Are you financially stable?

A few things to consider here. First, ensure that the monthly payments of the new loan align with your budget without overstretching. You should also ensure the offered rate is competitive and aligns with current market rates.

Lastly, always consider if there might be more suitable alternatives. Sometimes, continuing to save or exploring other financing avenues might be more beneficial.

Remember, leveraging your home’s equity is a significant step, and it’s essential to make decisions that resonate with your long-term goals and financial well-being.

How to get a loan on a home you own outright

Getting a home equity loan on home you own outright can be a smart financial decision, allowing you to tap into the equity you’ve built. It can be used for various purposes, such as home improvement, debt consolidation, or funding a significant purchase.

Verify your home equity loan eligibility. Start here

Here is a step-by-step guide on how to obtain a home equity loan on a fully paid-off house:

Determine your needs: Before applying for a home equity loan, identify why you need the loan and how much you want to borrow. Keep in mind that borrowing more than you need might lead to increased costs and interest rates.
Calculate your equity: Equity is the difference between your home’s current market value and any outstanding debts secured by the property. Since your house is paid off, your equity is equal to the current market value of your home. You can calculate your home’s equity using online tools or consulting a local real estate agent.
Check your credit score: A good credit score is essential for obtaining a home equity loan with favorable terms. Check your credit report for any errors and take steps to improve your credit score, if necessary, by paying off outstanding debts and ensuring timely bill payments.
Shop around for lenders: Research various financial institutions, including banks, credit unions, and online lenders, to find the best home equity loan terms and interest rates. Compare loan offers and choose the one that best suits your needs.
Gather necessary documents: Prepare the required documentation, including pay stubs, W-2 forms, bank statements, and tax returns.
Apply for the loan: Fill out the loan application and provide the required documentation. The lender will review your application and determine whether you qualify for the loan.
Close the loan: If you are approved for the loan, you will need to sign the loan documents and pay any closing costs or fees associated with the loan.

Once the loan is closed, you will receive the loan proceeds in a lump sum, which you can use for any purpose. Remember that you will be required to make monthly payments on the loan, and failure to do so could result in foreclosure on your home.

Alternatives to getting a loan on a home you own

Mortgages on your current home aren’t always necessary when buying a second home, vacation home, or investment property.

Verify your eligibility. Start here

“You may already have enough savings for a down payment without tapping into your equity,” says Jon Meyer, The Mortgage Reports loan expert and licensed MLO.

Before getting a loan on a home you own outright, look into mortgage loans that allow low down payments. Home buyers should consider the following types of loans.

Conventional loans

If you’re buying a new home to use as your primary residence, conventional loans allow financing with as little as a 3% down payment. You could qualify with a credit score as low as 620.

At least a 10% down payment is required for a vacation home, 20% to avoid private mortgage insurance, and 20-25% for a rental or investment property.

Check your conventional loan eligibility. Start here

FHA loans

FHA loans require only a 3.5% down payment, allowing FICO scores as low as 580. You cannot use an FHA loan to purchase a vacation home or an investment property. But you can use one to buy a multi-unit property with up to four units, live in one of the units, and rent out the others.

Check your FHA loan eligibility. Start here

VA loans

VA loans are the best option for eligible veterans and service members due to their low mortgage rates, lack of mortgage insurance, and no down payment. However, they can only be used for a vacation or investment home when buying a multi-unit property with up to four units. You can also use a VA loan to buy a second home, but only if the second home becomes your primary residence.

Check your VA loan eligibility. Start here

Interest rates for a second home

If you’re using cash from your equity to buy another home, make sure you understand how interest rates work on a vacation home, second home, and investment property.

Check your loan options. Start here

Since the new home won’t be your primary residence, you can expect a slightly higher mortgage rate. This rate increase protects the lender because these properties have a higher risk of default. That’s because mortgage lenders know that in the event of financial hardship, homeowners prioritize paying the mortgage on their primary home before a second home or investment property.

But although you’ll pay a higher rate when buying a second home, shopping around and comparing loans can help you save. To see the impact of higher mortgage rates, you can experiment with a mortgage calculator.

FAQ: Loan on a home you own outright

How do you get a loan on a home you own outright?

To obtain a loan on a home you own outright, you can approach a financial institution or lender and apply for a home equity loan, HELOC, or cash-out refinance. The process typically involves an assessment of your property’s value, a review of your credit history, and verification of your income sources. Once approved, you can use your home as collateral to secure the loan.

What does it cost to get a loan on a house you own outright?

The costs associated with getting a loan on a house you own outright can vary based on the lender and the type of loan. Common expenses include appraisal fees to determine the home’s value, origination fees, title search fees, and potential closing costs. If you’re considering a reverse mortgage, there might be additional fees and insurance costs involved.

How much can you borrow against a house if you owe more than it’s worth?

If you owe more on your home than its current market value, you’re in a situation known as being u0022underwateru0022 on your mortgage. In such cases, borrowing additional funds against your home can be challenging. Lenders typically want the home’s value to exceed the loan amount to minimize their risk. However, some government programs might assist homeowners in this situation, but a reverse mortgage might not be an option unless there’s sufficient equity in the home.

What is the maximum amount I can borrow against a home that I own outright?

Typically, for home equity loans, lenders allow you to borrow up to 80-90% of your home’s value. But the maximum amount you can borrow against a home you own outright depends on several factors, including the home’s appraised value, your age (especially if considering a reverse mortgage), current interest rates, and lender-specific guidelines.

Should you mortgage the house you own?

Owning your home outright provides a valuable equity cushion, and it’s exciting when you no longer shoulder the burden of monthly mortgage payments. The good news is that you don’t have to sell your home to access your equity.

Using a cash-out refinance, home equity loan, or home equity line of credit, homeowners can pull cash from their equity and use the money for many different purposes.

Make sure you understand the pros and cons of each type of financing and choose the best one for you based on your specific goals.

Time to make a move? Let us find the right mortgage for you

Source: themortgagereports.com

Apache is functioning normally

January 16, 2024 by Brett Tams

Our experts answer readers’ home-buying questions and write unbiased product reviews (here’s how we assess mortgages). In some cases, we receive a commission from our partners; however, our opinions are our own.

Last year, it seemed like rates would never stop climbing, with 30-year mortgage rates reaching a more than two-decade high in October 2023. Now rates are much lower, but they’re still relatively high compared to pre-pandemic levels.

The good news is that mortgage rates should go down in 2024, with some forecasts predicting they’ll drop close to 6% by the end of the year. The not-so-good news is that as rates go down, houses are probably going to get more expensive.

The latest housing market predictions for 2024 see home prices rising this year as lower mortgage rates drive an increase in homebuying demand. High mortgage rates have kept a lot of would-be buyers out of the market over the past couple of years. Once rates fall, all that pent-up demand is going to be unleashed on a market that doesn’t have anywhere near enough inventory to meet it.

This will push home prices up. But that doesn’t necessarily mean it will be impossible to buy in 2024, or that prices will spike dramatically everywhere. There will still be opportunities for many buyers to carve out some affordability in this market.

For cash-strapped first-timers who are hoping to buy in 2024, things like down payment assistance and first-time homebuyer loans can make homeownership more affordable, even as prices rise.

Current Mortgage Rates

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Current Refinance Rates

Mortgage type	Average rate today

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Mortgage Calculator

Use our free mortgage calculator to see how today’s mortgage rates would impact your monthly payments. By plugging in different rates and term lengths, you’ll also understand how much you’ll pay over the entire length of your mortgage.

Mortgage Calculator

$1,161
Your estimated monthly payment

Total paid$418,177

Principal paid$275,520

Interest paid$42,657

Paying a 25% higher down payment would save you $8,916.08 on interest charges
Lowering the interest rate by 1% would save you $51,562.03
Paying an additional $500 each month would reduce the loan length by 146 months

Click “More details” for tips on how to save money on your mortgage in the long run.

30-year Fixed Mortgage Rates

The average 30-year fixed mortgage rate was 6.66% last week, according to Freddie Mac. This is a four-basis-point increase from the previous week.

The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.

The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you’ll have a higher rate than you would with shorter terms or adjustable rates.

15-year Fixed Mortgage Rates

Last week, average 15-year mortgage rates were 5.87%, a two-basis-point decrease from the previous week, according to Freddie Mac data.

If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.

When Will Mortgage Rates Go Down?

Mortgage rates started ticking up from historic lows in the second half of 2021 and increased over three percentage points in 2022. Rates also increased dramatically last year, though they’ve been trending back down in recent months.

As inflation comes down, mortgage rates will recede as well. Most major forecasts expect rates to trend down throughout 2024.

For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.

A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.

Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.

How Do Fed Rate Hikes Affect Mortgages?

The Federal Reserve increased the federal funds rate a lot last year to try to slow economic growth and get inflation under control. Inflation has come down a lot in response to this, though it’s still a little bit above the Fed’s target rate of 2%.

Mortgage rates aren’t directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed policy moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed hikes to affect the broader economy.

Fed hikes have pushed mortgage rates up over the last two years. But the Fed has indicated that it’s likely done hiking rates and could start cutting in 2024. Once the Fed cuts rates, mortgage rates should fall even further.

Molly Grace

Mortgage Reporter

Source: businessinsider.com

Apache is functioning normally

January 16, 2024 by Brett Tams

Our experts answer readers’ home-buying questions and write unbiased product reviews (here’s how we assess mortgages). In some cases, we receive a commission from our partners; however, our opinions are our own.

Despite the latest Consumer Price Index data coming in a bit hot according to Thursday’s report, mortgage rates have been holding steady this week. Average 30-year mortgage rates remained in a tight 6.3%-to-6.45% range, only up a little bit from the previous week.

The hotter-than-expected CPI numbers, which showed that inflation rose 3.4% year over year in December, led many to wonder if this would cause the Federal Reserve to push back its timeline for rate cuts in 2024.

But investors are currently pricing in an almost 80% likelihood that the Fed will make its first cut to the federal funds rate at its meeting in March, up from 64% a week ago, according to the CME FedWatch Tool. If that happens, we could see mortgage rates inch down further.

But Fed officials may also decide that they want to wait a bit longer before making any moves, in which case mortgage rates may generally stay near their current levels for at least the next few months. We’ll likely get a better idea of when to expect rate cuts at the Fed’s next meeting at the end of January.

Most experts believe mortgage rates will go down in 2024, but the timing will depend a lot on the path of inflation and when the Fed starts lowering the federal funds rate.

Mortgage Rates Today

Mortgage type	Average rate today

This information has been provided by
Zillow. See more
mortgage rates on Zillow

Real Estate on Zillow

Mortgage Refinance Rates Today

Mortgage type	Average rate today

This information has been provided by
Zillow. See more
mortgage rates on Zillow

Real Estate on Zillow

Mortgage Calculator

Use our free mortgage calculator to see how today’s mortgage rates will affect your monthly and long-term payments.

Mortgage Calculator

$1,161
Your estimated monthly payment

Total paid$418,177

Principal paid$275,520

Interest paid$42,657

Paying a 25% higher down payment would save you $8,916.08 on interest charges
Lowering the interest rate by 1% would save you $51,562.03
Paying an additional $500 each month would reduce the loan length by 146 months

By plugging in different term lengths and interest rates, you’ll see how your monthly payment could change.

Mortgage Rate Projection for 2024

Mortgage rates increased dramatically for most of 2023, though they started trending back down in the final months of the year. As the economy continues to normalize in 2024, rates should come down even further.

In the last 12 months, the Consumer Price Index rose by 3.4%, a significant slowdown compared to when it peaked at 9.1% in 2022. This is good news for mortgage rates — as inflation slows and the Federal Reserve is able to start cutting the federal funds rate, mortgage rates are expected to trend down as well.

For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of the best HELOC lenders to start your search for the right loan for you.

A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.

Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.

When Will House Prices Come Down?

We aren’t likely to see home prices drop anytime soon thanks to extremely limited supply. In fact, they’ll likely rise this year.

Fannie Mae researchers expect prices to increase 6.7% in 2023 and 2.8% in 2024, while the Mortgage Bankers Association expects a 5.7% increase in 2023 and a 4.1% increase in 2024.

Sky high mortgage rates pushed many hopeful buyers out of the market last year, slowing homebuying demand and keeping price growth somewhat moderate. But rates are expected to drop this year, which will likely push home prices even higher. The current supply of homes is also historically low, which only exacerbates the problem.

Fixed-Rate vs. Adjustable-Rate Mortgage Pros and Cons

Fixed-rate mortgages lock in your rate for the entire life of your loan. Adjustable-rate mortgages lock in your rate for the first few years, then your rate goes up or down periodically.

So how do you choose between a fixed-rate vs. adjustable-rate mortgage?

ARMs typically start with lower rates than fixed-rate mortgages, but ARM rates can go up once your initial introductory period is over. If you plan on moving or refinancing before the rate adjusts, an ARM could be a good deal. But keep in mind that a change in circumstances could prevent you from doing these things, so it’s a good idea to think about whether your budget could handle a higher monthly payment.

Fixed-rate mortgage are a good choice for borrowers who want stability, since your monthly principal and interest payments won’t change throughout the life of the loan (though your mortgage payment could increase if your taxes or insurance go up).

But in exchange for this stability, you’ll take on a higher rate. This might seem like a bad deal right now, but if rates increase further down the road, you might be glad to have a rate locked in. And if rates trend down, you may be able to refinance to snag a lower rate

How Does an Adjustable-Rate Mortgage Work?

Adjustable-rate mortgages start with an introductory period where your rate will remain fixed for a certain period of time. Once that period is up, it will begin to adjust periodically — typically once per year or once every six months.

How much your rate will change depends on the index that the ARM uses and the margin set by the lender. Lenders choose the index that their ARMs use, and this rate can trend up or down depending on current market conditions.

The margin is the amount of interest a lender charges on top of the index. You should shop around with multiple lenders to see which one offers the lowest margin.

ARMs also come with limits on how much they can change and how high they can go. For example, an ARM might be limited to a 2% increase or decrease every time it adjusts, with a maximum rate of 8%.

Molly Grace

Mortgage Reporter

Source: businessinsider.com

Apache is functioning normally

January 14, 2024 by Brett Tams

Our experts answer readers’ home-buying questions and write unbiased product reviews (here’s how we assess mortgages). In some cases, we receive a commission from our partners; however, our opinions are our own.

Mortgage rates are set to go down in 2024, but when and how much largely depends on inflation and when the Federal Reserve starts cutting the federal funds rate.

Last week, 30-year mortgage rates averaged 6.26%, though they inched up a big higher toward the end of the week. Many experts believe we could see rates end up near 6% or lower by the end of the year.

But hotter-than-expected economic data could shift that timeline. On Thursday, we’ll see the Consumer Price Index data for December. Inflation has slowed significantly since it peaked in 2022, but it’s still a bit above the Fed’s target rate.

The Fed has indicated it may be ready to cut rates this year, and markets have priced in a possible 25-point cut at the Fed’s meeting in March, according to the CME FedWatch Tool. But stubborn inflation could mean we’ll have to wait until later in the year for the Fed to cut rates, which would likely mean a longer wait for lower mortgage rates as well.

Mortgage Rates Today

Mortgage type	Average rate today

This information has been provided by
Zillow. See more
mortgage rates on Zillow

Real Estate on Zillow

Mortgage Refinance Rates Today

Mortgage type	Average rate today

This information has been provided by
Zillow. See more
mortgage rates on Zillow

Real Estate on Zillow

Mortgage Calculator

Use our free mortgage calculator to see how today’s mortgage rates will affect your monthly and long-term payments.

Mortgage Calculator

$1,161
Your estimated monthly payment

Total paid$418,177

Principal paid$275,520

Interest paid$42,657

Paying a 25% higher down payment would save you $8,916.08 on interest charges
Lowering the interest rate by 1% would save you $51,562.03
Paying an additional $500 each month would reduce the loan length by 146 months

By plugging in different term lengths and interest rates, you’ll see how your monthly payment could change.

30-Year Fixed Mortgage Rates

The average 30-year fixed mortgage rate was 6.62% last week, according to Freddie Mac. This is a single basis point increase from the week before.

The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.

The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you’ll have a higher rate than you would with shorter terms or adjustable rates.

15-Year Fixed Mortgage Rates

Average 15-year mortgage rates were 5.89% last week, according to Freddie Mac data, which is a four-basis-point drop from the previous week.

If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.

Are Mortgage Rates Going Up?

Mortgage rates increased throughout most of 2023. But mortgage rates are expected to trend down in the coming months and years.

In the last 12 months, the Consumer Price Index rose by 3.1%. As inflation comes down and the Federal Reserve is able to start cutting the federal funds rate, mortgage rates should fall further as well.

For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.

A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.

Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.

How Do Fed Rate Hikes Affect Mortgages?

The Fed aggressively raised the federal funds rate in 2022 and 2023 to slow economic growth and get inflation under control. As a result, mortgage rates spiked.

Mortgage rates aren’t directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed policy moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed hikes to affect the broader economy.

Now that the Fed has paused hiking rates, mortgage rates have come down a bit. Once the Fed starts cutting rates, which is likely to happen this year, mortgage rates should fall even further.

Molly Grace

Mortgage Reporter

Source: businessinsider.com

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January 14, 2024 by Brett Tams

How to pick the best loan for home improvements

Home renovations can be expensive. But the good news is that you don’t have to pay out of pocket.

Home improvement loans let you finance the cost of upgrades and repairs to your home.

Some — like the FHA 203(k) mortgage — are specialized for home renovation projects, while second mortgage options — like home equity loans and HELOCs — can provide cash for a remodel or any other purpose. Your best financing option for home improvements depends on your needs. Here’s what you should know.

Check home improvement loan options and rates. Start here

In this article (Skip to…)

What is a home improvement loan?

A home improvement loan is a financial tool that allows you to borrow money for various home projects, such as repairs, renovations, or upgrades.

Unlike a secured loan like a second mortgage, home improvement loans are often unsecured personal loans, meaning you don’t have to put up your home as collateral. You get the money in a lump sum and pay it back over a predetermined period, which can range from one to seven years.

Now, you might be wondering how this is different from a home renovation loan. While the terms are often used interchangeably, there can be subtle differences.

Home improvement loans are generally more flexible and can be used for any type of home project, from installing a new roof to landscaping. Home renovation loans, on the other hand, are often more specific and may require you to use the funds for particular types of renovations, like kitchen or bathroom remodels.

How does a home improvement loan work?

So, you’ve decided to spruce up your home, and you’re considering a home improvement loan. But how does it work? Once you’re approved, the lender will give you the money in a lump sum. You start repaying the loan almost immediately, usually in fixed monthly installments. The interest rate you’ll pay depends on various factors, including your credit score and the lender’s terms.

Be mindful of additional costs like origination fees, which can range from 1% to 8% of the loan amount. Unlike a credit card, where you can keep using the available credit as you pay it off, the loan amount is fixed. If you find that you need more money for your project, you’ll have to apply for another loan, which could affect your credit score.

Home improvement loan rates

Interest rates for home improvement loans can vary widely, generally ranging from 5% to 36%. Your credit score plays a significant role in determining your rate—the better your credit, the more favorable your rate. Some lenders even offer an autopay discount if you link a bank account for automatic payments.

You can also prequalify to check your likely interest rate without affecting your credit score, making it easier to plan for the loan purpose, whether it’s a new kitchen or fixing a leaky roof.

So, whether you’re dreaming of solar panels or finally fixing up your master bedroom, a home improvement loan can be a practical way to finance your projects. Just make sure to read the fine print and understand all the terms, including any potential autopay discounts and bank account requirements, before you apply.

Types of home improvement loans

1. Home equity loan

A home equity loan (HEL) is a financial instrument that lets you borrow money using the equity you’ve built up in your home as collateral. The equity is determined by subtracting your existing mortgage loan balance from your current home value. Unlike a cash-out refinance, a home equity loan “issues loan funding as a single payment upfront. It’s similar to a second mortgage,” says Bruce Ailion, Realtor and real estate attorney. “You would continue making payments on your original mortgage while repaying the home equity loan.”

Check home equity loan options and rates. Start here

This kind of loan is particularly useful for big, one-time expenditures like home remodeling. It offers a fixed interest rate, and the loan terms can range from five to 30 years. You could potentially borrow up to 100% of your home’s equity.

However, there are some cons to consider. Since you’re essentially taking on a second loan, you’ll have an additional monthly payment if you still have a balance on your original mortgage. Also, the lender will usually charge closing costs ranging from 2% to 5% of the loan balance, as well as potential origination fees. Because the loan provides a lump-sum payment, careful budgeting is necessary to ensure the funds are used effectively.

As a bonus, “a home equity loan, or HELOC, may also be tax-deductible,” says Doug Leever with Tropical Financial Credit Union, member FDIC. “Check with your CPA or tax advisor to be sure.”

2. HELOC (home equity line of credit)

A Home Equity Line of Credit (HELOC) is another option for tapping into your home’s equity without going through the process of a full refinance. Unlike a standard home equity loan that provides a lump sum upfront, a HELOC functions more like a credit card. You’re given a pre-approved limit and can borrow against that limit as you need, paying interest only on the amount you’ve actually borrowed.

Check your HELOC options. Start here

While there’s more flexibility because you don’t have to borrow the entire amount at once, be aware that by the end of the term, “the loan must be paid in full. Or the HELOC can convert to an amortizing loan,” says Ailion. “Note that the lender can be permitted to change the terms over the loan’s life. This can reduce the amount you can borrow if, for instance, your credit goes down.”

The pros of a HELOC include minimal or potentially no closing costs, and loan payments that vary according to how much you’ve borrowed. It offers a revolving balance, which means you can re-use the funds after repayment. This kind of financial instrument may be ideal for ongoing or long-term projects that don’t require a large sum upfront.

“HELOCs offer flexibility, and you only pull money out when needed, within the maximum loan amount. And the credit line is available for up to 10 years, which is your repayment period.” Leever says.

3. Cash-out refinance

A cash-out refinance is a viable option if you’re considering home improvements or other significant financial needs. When opting for a cash-out refinance, you essentially take on a new, larger mortgage than your existing one and then pocket the difference in cash.

This cash comes from your home’s value and can be used for various purposes, including home improvement projects like finishing a basement or remodeling a kitchen. However, the money can also be used for other things, like paying off high-interest debt, covering education expenses, or even buying a second home. Importantly, a cash-out refinance is most beneficial when current market rates are lower than your existing mortgage rate.

Check your eligibility for a cash-out refinance. Start here

The advantages of going for a cash-out refinance include the opportunity to reduce your mortgage rate or loan term, which could potentially result in paying off your home earlier. For instance, if you initially had a 30-year mortgage with 20 years remaining, you could refinance to a 15-year loan, effectively paying off your home five years ahead of schedule. Plus, you only have to worry about one mortgage payment.

However, there are downsides. Cash-out refinances tend to have higher closing costs that apply to the entire loan amount, not just the cash you’re taking out. The new loan will also have a larger balance than your current mortgage, and refinancing effectively restarts your loan term length.

4. FHA 203(k) rehab loan

The FHA 203(k) rehab loan is backed by the Federal Housing Administration that consolidates the cost of a home mortgage and home improvements into a single loan, which makes it particularly useful for those buying fixer-uppers.

Check your eligibility for an FHA 203(k) loan. Start here

With this program, you don’t need to apply for two different loans or pay closing costs twice; you finance both the house purchase and the necessary renovations at the same time. The loan comes with several benefits like a low down payment requirement of just 3.5% and a minimum credit score requirement of 620, making it accessible even if you don’t have perfect credit. Additionally, first-time home buyer status is not a requirement for this loan.

However, there are some limitations and downsides to be aware of. The FHA 203(k) loan is specifically designed for older homes in need of repairs, rather than new properties. The loan also includes both upfront and ongoing monthly mortgage insurance premiums. Renovation costs have to be at least $5,000, and the loan restricts the use of funds to certain approved home improvement projects.

According to Jon Meyer, a loan expert at The Mortgage Reports, “FHA 203(k) loans can be drawn out and difficult to get approved. If you go this route, it’s important to choose a lender and loan officer familiar with the 203(k) process.”

5. Unsecured personal loan

If you’re looking to finance home improvements but don’t have sufficient home equity, a personal loan could be a viable option. Unlike home equity lines of credit (HELOCs), personal loans are unsecured, meaning your home is not used as collateral. This feature often allows for a speedy approval process, sometimes getting you funds on the next business day or even the same day.

Check home improvement loan options and rates. Start here

The repayment terms for personal loans are less flexible, usually ranging between two and five years. Although you’ll most likely face closing costs, personal loans can be easier to access for those who don’t have much home equity to borrow against. They can also be a good choice for emergency repairs, such as a broken water heater or HVAC system that needs immediate replacement.

However, there are notable downsides to consider. Unsecured personal loans generally have higher interest rates compared to HELOCs and lower borrowing limits. The short repayment terms could put financial strain on your budget. Additionally, you may encounter prepayment penalties and expensive late fees. Financial expert Meyer describes personal loans as the “least advisable” option for homeowners, suggesting that they should be considered carefully and perhaps as a last resort.

6. Credit cards

Using a credit card can be the fastest and most straightforward way to finance your home improvement projects, eliminating the need for a lengthy loan application. However, you’ll need to be cautious about credit limits, especially if your renovation costs are high.

You might need a card with a higher limit or even multiple cards to cover the costs. The interest rates are generally higher compared to home improvement loans, but some cards offer an introductory 0% annual percentage rate (APR) for up to 18 months, which can be a good deal if you’re sure you can repay the balance within that time frame.

Check home improvement loan options and rates. Start here

Credit cards might make sense in emergency situations where you need immediate funding. For longer-term financing, though, they’re not recommended. If you do opt for credit card financing initially, you can still get a secured loan later on to clear the credit card debt, thus potentially saving on high-interest payments.

How do you choose the best home improvement loan for you?

The best home improvement loan will match your specific lifestyle needs and unique financial situation. So let’s narrow down your options with a few questions.

Check your home improvement loan options. Start here

Do you have home equity available?

If so, you can access the lowest rates by borrowing against the equity in your home with a cash-out refinance, a home equity loan, or a home equity line of credit.

Here are a few tips for choosing between a HELOC, home equity loan, or cash-out refi:

Can you get a lower interest rate? If so, a cash-out refinance could save money on your current mortgage and your home improvement loan simultaneously
Are you doing a big, single project like a home remodel? Consider a simple home equity loan to tap into your equity at a fixed rate
Do you have a series of remodeling projects coming up? When you plan to remodel your home room by room or project by project, a home equity line of credit (HELOC) is convenient and worth the higher loan rate compared to a simple home equity loan

Are you buying a fixer-upper?

If so, check out the FHA 203(k) program. This is the only loan on our list that bundles home improvement costs with your home purchase loan. Just review the guidelines with your loan officer to ensure you understand the disbursement of funds rules.

Taking out just one mortgage to cover both needs will save you money on closing costs and is ultimately a more straightforward process.

“The only time I’d recommend the FHA203(k) program is when buying a fixer-upper,” says Meyer. “But I would still advise homeowners to explore other loan options as well.”

Do you need funds immediately?

When you need an emergency home repair and don’t have time for a loan application, you may have to consider a personal loan or even a credit card.

Which is better?

Can you get a credit card with an introductory 0% APR? If your credit history is strong enough to qualify you for this type of card, you can use it to finance emergency repairs. But keep in mind that if you’re applying for a new credit card, it can take up to 10 business days to arrive in the mail. Later, before the 0% APR promotion expires, you can get a home equity loan or a personal loan to avoid paying the card’s variable-rate APR
Would you prefer an installment loan with a fixed rate? If so, apply for a personal loan, especially if you have excellent credit

Just remember that these options have significantly higher rates than secured loans. So you’ll want to reign in the amount you’re borrowing as much as possible and stay on top of your payments.

How to get a home improvement loan

Getting a home improvement loan is similar to getting a mortgage. You’ll want to compare rates and monthly payments, prepare your financial documentation, and then apply for the loan.

Check home improvement loan options and rates. Start here

1. Check your financial situation

Check your credit score and debt-to-income ratio. Lenders use your credit report to establish your creditworthiness. Generally speaking, lower rates go to those with higher credit scores. You’ll also want to understand your debt-to-income ratio (DTI). It tells lenders how much money you can comfortably borrow.

2. Compare lenders and loan types

Gather loan offers from multiple lenders and compare costs and terms with other types of financing. Look for any benefits, such as rate discounts, a lender might provide for enrolling in autopay. Also, keep an eye out for disadvantages, including minimum loan amounts or expensive late payment fees.

3. Gather your loan documents

Be prepared to verify your income and financial information with documentation. This includes pay stubs, W-2s (or 1099s if you’re self-employed), and bank statements, to name a few.

4. Complete the loan application process

Depending on the lender you choose, you may have a fully online loan application, one that is conducted via phone and email, or even one that is conducted in person at a local branch. In some cases, your mortgage application could be a mix of these options. Your lender will review your application and likely order a home appraisal, depending on the type of loan. You’ll get approved and receive funding if your finances are in good shape.

Get started on your home improvement loan. Start here

Home improvement loan lenders

When considering a home improvement loan, it’s necessary to explore various lending options to find the one that best suits your needs. The lending landscape for home improvement is diverse, featuring traditional banks, credit unions, and online lenders. Each type of lender offers different interest rates, loan terms, and eligibility criteria.

It’s advisable to prequalify with multiple lenders to get an estimate of your loan rates, which generally doesn’t affect your credit score. This way, you can compare offers and choose the most favorable terms for your renovation project.

Among the popular choices in the market, Sofi and LightStream stand out for their competitive rates, easy online application, and customer-friendly terms. Both are equal housing lenders, ensuring they adhere to federal anti-discrimination laws. In addition to these, other lenders like Wells Fargo and LendingClub also offer home improvement loans with varying terms and conditions.

How can I use the money from a home improvement loan?

When you do a cash-out refinance, a home equity line of credit, or a home equity loan, you can use the proceeds on anything — even putting the cash into your checking account. You could pay off credit card debt, buy a new car, pay off student loans, or even fund a two-week vacation. But should you?

It’s your money, and you get to decide. But spending home equity on improving your home is often the best idea because you can increase the value of your home. Spending $40,000 on a new kitchen remodel or $20,000 on finishing your basement could add significant value to your home. And that investment would be appreciated along with your home.

That said, if you’re paying tons of interest on credit card debt, using your home equity to pay that off would make sense, too.

Average costs of home renovations

Home renovations can vary widely in cost depending on the scope of the project, the quality of the materials used, and the region where you live. However, here’s a general idea of what you might expect to pay for various types of home renovations.

Renovation Type	Average Cost Range
Kitchen Remodel	$10,000 – $50,000
Bathroom Remodel	$5,000 – $25,000
Master Bedroom Remodel	$1,500 – $10,000
New Roof	$5,000 – $11,000
Exterior Paint	$6,000 – $20,000
Interior Paint	$1,500 – $10,000
New Deck	$15,000 – $40,000
Solar Panel Installation	$15,000 – $25,000
Window Replacement	$5,000 – $15,000

The information is based on data from HomeGuide.com and is current as of August 2023.

Please note that these are just average figures, and the actual costs can vary. For instance, a high-end kitchen remodel could cost significantly more, especially if you’re planning to use custom cabinetry and high-end appliances. Similarly, the cost of a new deck can vary depending on the size and type of materials used.

Home improvement loans FAQ

Check home improvement loan options and rates. Start here

What type of loan is best for home improvements?

The best loan for home improvements depends on your finances. If you have accumulated a lot of equity in your home, a HELOC, or home equity loan, might be suitable. Or, you might use a cash-out refinance for home improvements if you can also lower your interest rate or shorten the current loan term. Those without equity or refinance options might use a personal loan or credit cards to fund home improvements instead.

Should I get a personal loan for home improvements?

That depends. We’d recommend looking at your options for a refinance or home equity-based loan before using a personal loan for home improvements. That’s because interest rates on personal loans are often much higher. But if you don’t have a lot of equity to borrow from, using a personal loan for home improvements might be the right move.

What credit score is needed for a home improvement loan?

The credit score requirements for a home improvement loan depend on the loan type. With an FHA 203(k) rehab loan, you likely need a good credit score of 620 or higher. Cash-out refinancing typically requires at least 620. If you use a HELOC, or home equity loan, for home improvements, you’ll need a FICO score of 680–700 or higher. For a personal loan or credit card, aim for a score in the low-to-mid 700s. These have higher interest rates than home improvement loans, but a stronger credit profile will help lower your rate.

What is the best renovation loan

If you’re buying a fixer-upper or renovating an older home, the best renovation loan might be the FHA 203(k) mortgage. The 203(k) rehab loan lets you finance (or refinance) the home and renovation costs into a single loan, so you avoid paying double closing costs and interest rates. If your home is newer or of higher value, the best renovation loan is often a cash-out refinance. This lets you tap the equity in your current home and refinance into a lower mortgage rate at the same time.

Is a home improvement loan tax deductible?

Home improvement loans are generally not tax-deductible. However, if you finance your home improvement using a refinance or home equity loan, some of the costs might be tax-deductible.

Disclaimer: The Mortgage Reports do not provide tax advice. Be sure to consult a tax professional if you have any questions about your taxes.

Shop around for your best home improvement loan

As with anything in life, it pays to compare all your options. So don’t just settle on the first loan offer you find.

Compare lenders, mortgage types, rates, and terms carefully to find the best loan for home improvements.

Time to make a move? Let us find the right mortgage for you

Source: themortgagereports.com

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January 13, 2024 by Brett Tams

Both 15-year fixed and 30-year fixed refinances saw their mean rates sink this week. The average rates for 10-year fixed refinances made gains.

30-year fixed refinance: 7.02%
15-year fixed refinance: 6.37%
10-year fixed refinance: 6.24%

Refinance rates remain relatively high, and millions of homeowners are keeping their original mortgages until rates ease more. Though home loan rates have been dipping since November, current rates are still well above the 3.5% average on existing mortgages, according to Mark Zandi, chief economist at Moody’s Analytics. And, although refinancing activity has picked up recently, the overall level of refinance applications is still very low compared to early 2021. “Rates will need to fall substantially more for refi activity to meaningfully increase,” said Zandi.

With the Federal Reserve taking its third consecutive pause from its aggressive rate-hike policy and promising interest rate cuts throughout this year, the opportunity to refinance might come sooner rather than later.

About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.

Current mortgage refinance rates

In today’s high-rate environment, refinancing is less attractive. Rates are currently between 6% and 7%, but your personal interest rate will depend on your credit history, financial profile and application.

Here are the average refinance rates provided by lenders across the country. We track refinance rate trends using information collected by Bankrate:

Average refinance interest rates

Product	Rate	A week ago	Change
30-year fixed refi	7.15%	7.23%	-0.08
15-year fixed refi	6.37%	6.43%	-0.06
10-year fixed refi	6.24%	6.17%	+0.07

Rates as of Jan. 12, 2024

What does it mean to refinance?

When you refinance your mortgage, you take out another home loan that pays off your initial mortgage. With a traditional refinance, your new home loan will have a different term and/or interest rate. With a cash-out refinance, you’ll tap into your equity with a new loan that’s bigger than your existing mortgage balance, allowing you to pocket the difference in cash.

Refinancing can be a great financial move if you score a low rate or can pay off your home loan in less time, but consider whether it’s the right choice for you. Reducing your interest rate by 1% or more is an incentive to refinance, allowing you to cut your monthly payment significantly. But today’s mortgage market conditions aren’t ideal. If you decide to refinance, compare rates, fees and the annual percentage rate — which reflects the total cost of borrowing — from different lenders to find the best deal.

30-year fixed-rate refinance

The current average interest rate for a 30-year refinance is 7.15%, a decrease of 8 basis points from what we saw one week ago. (A basis point is equivalent to 0.01%.) A 30-year fixed refinance will typically have lower monthly payments than a 15-year or 10-year refinance, but it will take you longer to pay off and typically cost you more in interest over the long term.

15-year fixed-rate refinance

The average rate for a 15-year fixed refinance loan is currently 6.37%, a decrease of 6 basis points compared to one week ago. Though a 15-year fixed refinance will most likely raise your monthly payment compared to a 30-year loan, you’ll save more money over time because you’re paying off your loan quicker. Also, 15-year refinance rates are typically lower than 30-year refinance rates, which will help you save more in the long run.

10-year fixed-rate refinance

The current average interest rate for a 10-year refinance is 6.24%, an increase of 7 basis points from what we saw the previous week. A 10-year refinance typically has the lowest interest rate but the highest monthly payment of all refinance terms. A 10-year refinance can help you pay off your house much quicker and save on interest, but make sure you can afford the steeper monthly payment.

Where will refinance rates end up?

When mortgage rates hit historic lows during the pandemic, there was a refinancing boom, as homeowners nabbed lower interest rates on their home loans. But refinancing might not actually save you money right now. “Refinancing for some people will make sense if they have rates above 8%,” said Logan Mohtashami, lead analyst at HousingWire. “However, with all refinancing options, it’s a personal financial choice because of the cost that goes with the loan process,” Mohtashami said.

If economic data goes in the right direction, 2024 should lead to lower rates. “The best bet there is to keep an eye on day-to-day rate changes and have a game plan on how to capitalize on a big enough drop,” said Matt Graham of Mortgage News Daily.

When should I refinance?

Homeowners usually refinance to save money, but there are other reasons to do so. Here are the most common reasons homeowners refinance:

To get a lower interest rate: If you can secure a rate that’s at least 1% lower than the one on your current mortgage, it could make sense to refinance.
To switch the type of mortgage: If you have an adjustable-rate mortgage and want greater security, you could refinance to a fixed-rate mortgage.
To eliminate mortgage insurance: If you have an FHA loan that requires mortgage insurance, you can refinance to a conventional loan once you have 20% equity.
To change the length of a loan term: Refinancing to a longer loan term could lower your monthly payment. Refinancing to a shorter term will save you interest in the long run.
To tap into your equity through a cash-out refinance: If you replace your mortgage with a larger loan, you can receive the difference in cash to cover a large expense.
To take someone off the mortgage: In case of divorce, you can apply for a new home loan in just your name and use the funds to pay off your existing mortgage.

How to find the best refinance rate

The rates advertised online often require specific conditions for eligibility. Your personal interest rate will be influenced by market conditions as well as your specific credit history, financial profile and application. Having a high credit score, a low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates. To get the best refinance rates, make your application as strong as possible by getting your finances in order, using credit responsibly and monitoring your credit regularly. And don’t forget to speak with multiple lenders and shop around.

Refinancing can be a great move if you get a good rate or can pay off your loan sooner, but consider whether it’s the right choice for you at the moment.

Source: cnet.com

Apache is functioning normally

January 12, 2024 by Brett Tams

Whether you’re taking your first steps or fine-tuning your strategy, understanding the fundamental language of real estate is paramount. In this post, I’ll cover the top 5 real estate investment terms that are essential for every investor’s toolkit. From cash flow to leverage, these terms form the bedrock of successful investing. I think it is also important to know the right meaning for these terms and many people stretch the meanings or completely change them!

So, let’s dive in and equip ourselves with the knowledge that will shape our journey towards financial prosperity.

1. Cash Flow – The Foundation of Financial Success

Let’s start with a term close to every investor’s heart – cash flow. Beyond the straightforward inflow and outflow of funds, it serves as the cornerstone of financial success in real estate. It is one of the primary metrics I use to make purchase decisions. I also look at how good the deal is and how much value I can add.

Many people will tell you that cash flow is simply the rent minus the mortgage and insurance. However, if you want to know the true cash flow you will need to know all of your expenses. Here is an example of what true cash flow looks like:

Rent: $2,000
Mortgage: $1,100
Taxes: $200
Insurance: $200
Hoa: $50
Vacancies: $100
Maintenance: $200
Property management: $180

One investor might tell you the cash flow is $500 a month but they are leaving out many of the expenses the property will incur over time. The true cash flow would be -$30!

Determining cash flow requires a variety of calculations, so I’ve created a calculator to help you out: InvestFourMore Cash Flow Calculator

2. Cap Rate – A Metric for Strategic Decision-Making

Cap rate, a metric mostly used on commercial properties and multifamily housing gives an idea of what the property will make without financing and what the property is worth based on the NOI or net operating income. The basic formula is:

net income / price = cap rate

The Cap Rate formula may seem simple enough but it can be manipulated very easily. Investors may not include all the expenses in the NOI or they may use projected income instead of actual income. Never take these numbers as absolute without digging into them.

You can use my calculator here: InvestFourMore Cap Rate Calculator

3. ROI – Evaluating Investment Performance

Return on Investment (ROI) serves as the scorecard for your property’s performance. As a pair to cash flow, ROI helps you determine what the property will make based on many factors like loan pay down, appreciation, and value add. Cash flow looks at what the property makes on a monthly basis and ROI looks at the big picture.

ROI is not easy to figure because some years may have a huge increase in value thanks to adding tenants or making repairs while other years may have much more modest returns. You would figure ROI on an annual basis and may want to separate out first-year ROI from the later years’ ROI because of those jumps in value.

Below is a video of a value-added play I invested in recently.

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4. Leverage – Maximizing Potential While Mitigating Risks

Leverage is the prime weapon of real estate investors if you are looking to scale quickly. With leverage, you only invest a fraction of the total purchase price, which can cause your returns to be significantly higher than investing in something like stocks. To achieve leverage, you use financing. Financing is one of the most important aspects of investing in real estate. You can make more money with loans than by paying cash.

On this site, I talk about the many different, creative ways you can finance real estate investments.

5. Equity – The Silent Wealth Builder

Equity, an often-underestimated force in wealth accumulation, goes beyond property values, embodying true ownership.

equity = current market value - amount financed

Equity can be built slowly through market appreciation and loan pay down. You can also build equity by adding value and getting great deals on properties. I prefer to use both! Many people may say equity does not matter because it is not cash in hand, but it can become cash in hand by using a cash-out refinance, or selling. You can even use a 1031 exchange to sell and not pay taxes on the profit.

Thanks to leverage and equity, my net worth has skyrocketed to over $10 million just from real estate.

What’s the best way to invest in real estate?

Even better, you can use equity and leverage together to purchase additional properties and scale up your business using the BRRRR method.

Conclusion

This primer serves as a solid foundation for fundamental real estate investment terms. As you navigate real estate, I invite you to explore the extensive resources on InvestFourMore, where a wealth of data-driven insights and strategies await.

Feel free to engage with the community, sharing your experiences or seeking guidance. Here’s to your continued success in the world of real estate investment – stay informed, stay strategic, and keep building your path to financial prosperity!

Build a Rental Property Empire

Source: investfourmore.com

Apache is functioning normally

January 10, 2024 by Brett Tams

Jacob Wackerhausen/Getty images

Key takeaways

Personal loan amounts range from $2,000 to $100,000, which may not be enough to buy a regular home but could work if you need a small mortgage for a tiny or mobile home.
Personal loan interest isn’t tax deductible like a mortgage.
You can typically receive faster funding with a personal loan than a mortgage.

With median home sale prices approaching $400,000 at the end of 2023, a personal loan typically won’t give you the borrowing power you need to buy a home compared to a regular mortgage, However, if you’re in the market for a tiny home or a manufactured home, a personal loan may be a great financing choice. If not, a personal loan can help you tidy up your finances so you can qualify for a mortgage to buy your dream home.

Can you use a personal loan to buy a house?

Yes, if you can find a home at a price within standard personal loan amount limits (typically between $2,000 and $100,000) and can afford the payment timeline. That’s probably not enough to buy a regular home, but it may be perfect if you need a small mortgage for a tiny home or a mobile home.

Using a personal loan to buy a tiny home

Personal loans may be the right financing fit to buy tiny homes with prices averaging between $30,000 and $70,000. Mortgage lenders often shy away from loans below $100,000 because they aren’t profitable. In other cases, tiny homes don’t fit minimum property requirements. For example, tiny homes are typically less than 400 square feet, which is less than the Federal Housing Administration’s minimum.

Personal loans are typically unsecured, which means you won’t risk losing your home if you can’t make the payments. One disadvantage of a loan versus a mortgage is you can’t write off personal loan interest because it’s not tax-deductible like mortgage interest.

Using a personal loan to finance a manufactured home

On average, you’ll pay between $86,100 and $158,633 to buy a manufactured home, which means you could use a personal loan to buy one on the lower end of the price range. If you don’t plan to attach your home to land that you own, you may not be able to get mortgage financing, which makes personal loans a good option.

A personal loan may also be cheaper than a chattel loan, an expensive type of financing used to buy mobile homes that aren’t considered real estate.

6 ways you can use a personal loan to buy a house

If you’re buying a standard family home, you can use a personal loan to spruce up your finances to help you qualify for a home loan.

If you’re saddled with multiple credit card payments at high interest rates, you can use a personal loan for debt consolidation to combine them all into one monthly payment. Rates are typically lower than credit cards, and you’ll reduce your credit utilization ratio, which has a major impact on your credit score.

If your scores improve, lower monthly payments could help you qualify for a higher sales price or a better interest rate. Having fewer monthly payments reduces the chances of a late payment, which can really damage your credit score.
You’ll need a credit score of 780 or higher to get the best mortgage interest rates with the lowest closing costs. You could see a big boost to your credit score if you pay off maxed-out credit cards with a debt consolidation loan.

Besides allowing you to qualify for a higher-priced house, a lower interest rate can save you thousands of dollars in interest charges over the life of a 30-year mortgage.
If you took out an auto loan with a short term (12 to 36 months) to buy a new car, the payment will affect your debt-to-income (DTI) ratio, which measures how much total debt you have compared to your income. The higher your DTI ratio, the lower the mortgage amount you can qualify for.

If you’ve found your forever home but have been told your mortgage DTI ratio is too high, consider replacing your short-term auto loan with a longer-term personal loan. Keep in mind that you’ll end up paying more in interest if you choose a longer loan term than the loan you’re paying off.
If you don’t have enough saved up for a down payment for a house, consider putting the savings from steps one and two above into a down payment savings account. The more you put down, the lower your monthly mortgage payment will be. If you can swing a 20% down payment, you’ll avoid monthly mortgage insurance on a conventional mortgage.
Mortgage underwriting guidelines don’t allow you to use money from an unsecured loan like a credit card or personal loan toward your down payment or closing cost requirement to buy a home. However, there is an exception if your loan is secured to an asset like a car.

Mortgage lenders will allow you to use funds from a secured personal loan to qualify if you meet the DTI ratio requirements with the new payment. You’ll also need to provide paperwork to prove you own the asset and document the value of the asset with some third-party service (like Kelly Blue Book for a car loan).
If you’re trying to buy a home in a competitive market, your agent may recommend an all-cash offer, which may involve bidding more than the asking price on the home. If you’re short of funds to make an offer and need a quick path to extra cash, a personal loan may be worth a look.

Many personal loan lenders can get you cash within a day or two, which keeps you in the running against other cash buyers. If you want to pay the personal loan off once you’ve purchased the home, you borrow the funds against your home’s equity with a home equity loan, HELOC or a cash-out refinance.

Pros and cons of using a personal loan to buy a house

Pros

Replace multiple debts with one easy-to-remember monthly payment.
Improve your credit scores by paying off revolving credit card debt.
No assets are required for collateral.
Faster funding times than most mortgage products.
Can use debt consolidation savings to build a down payment fund.

Cons

Payment may affect your DTI ratio.
Rates are often higher than home equity loan and HELOC rates.
Shorter terms mean higher monthly payments than home equity products.
Potential prepayment penalties and high origination fees.
Personal loan interest isn’t tax-deductible for a home purchase.

Can you use a personal loan for a down payment?

The answer is a definite no if it’s an unsecured personal loan. However, as mentioned above, if the personal loan is secured by an asset like a car, collectible, artwork or other asset, then lenders will usually allow the borrowed funds to count toward your down payment. You’ll need to qualify with the extra payment and prove you own the secured asset.

Source: bankrate.com

Apache is functioning normally

January 9, 2024 by Brett Tams

For those who are at or getting close to retirement age and are looking for ways to rev up their cash flow, a reverse mortgage may seem like a wise move. After all, the TV ads make them look like a simple solution to pump up the money in one’s checking account.

A reverse mortgage can be a way to translate your home equity into cash, but, you guessed it: There are downsides along with the benefits. Whether or not to take out a reverse mortgage requires careful thought and research.

Here, you’ll learn the pros and cons to these loans, so you can decide if it’s the right move for you and your financial situation.

Reverse Mortgages 101

There are many different types of mortgages out there. Here are the basics of how reverse mortgages work.

• A reverse mortgage is a loan offered to people who are 62 or older and own their principal residence outright or have paid off a significant amount of their mortgage. You usually need to have at least 50% equity in your home, and typically can borrow up to 60% (or more, but not 100%) of the home’s appraised value.

• The lender uses your home as collateral in order to offer you the loan, although you retain the title. The loan and interest do not have to be repaid until the last surviving borrower moves out permanently or dies. A nonborrowing spouse may be able to remain in the home after the borrower moves into a health care facility for more than 12 consecutive months or dies.

• Here’s another aspect of how reverse mortgages work: Fees and interest on the loan mean that over time, the loan balance increases and home equity decreases.

• You may see reverse mortgages referred to as HECMs, which stands for Home Equity Conversion Mortgage. This is a popular, federally insured option.

💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you through the process.

Pros of Reverse Mortgages

A reverse mortgage offers older Americans the opportunity to turn what may be their largest asset — their home — into spendable cash. There are a variety of ways in which this can be attractive.

Securing Retirement

Many seniors find themselves with a fair amount of their net worth rolled up in their home but without many income streams. A reverse mortgage is a relatively accessible way to cover living expenses in retirement.

Paying Off the Existing Home Loan

While you have to have some of your home loan paid down in order to qualify for a reverse mortgage, any remaining mortgage balance is paid off with reverse mortgage proceeds. This, in turn, can free up more cash for other expenses.

No Need to Move

Those who take out reverse mortgages are allowed to remain in their homes and keep the title to their home the entire time. For established seniors who aren’t eager to pick up and move somewhere new — or downsize — to lower expenses, this feature can be a major benefit.

No Tax Liability

While most forms of retirement funding, like money from a traditional 401(k) or IRA, are considered income by the IRS, and are thus taxable, money you receive from a reverse mortgage is considered a loan advance, which means it’s not.

Heirs Have Options

Heirs can sell the home, buy the home, or turn the home over to the lender. If they choose to keep the home, under HECM rules, they will have to either repay the full loan balance or 95% of the home’s appraised value, whichever is less.

Thanks to FHA backing, if the home ends up being worth less than the remaining balance, heirs are not required to pay back the difference, though they’d lose the house unless they chose to pay off the reverse mortgage or refinance the home.

Recommended: Guide to Cost of Living by State

Cons of Reverse Mortgages

As attractive as all of that may sound, reverse mortgages carry risks, some of which are pretty serious.

Heirs Could Inherit a Loss

While heirs may not be forced to pay the shortfall of an upside-down reverse mortgage, inheriting a home in that scenario could come as an unpleasant surprise. Keeping a home in the family is an accessible way to build generational wealth and ensure that heirs have a home base for the future. Therefore, the potential for them to lose — or have to refinance — the house can be painful.

Losing Your Home to Foreclosure

Unfortunately, losing your house with a reverse mortgage is a possibility. You’ll still be required to pay property taxes, any HOA fees, homeowners insurance, and for all repairs, along with your regular living expenses, and if you can’t, even with the reverse mortgage proceeds, the house can go into foreclosure.

Reverse Mortgages Are Complicated

As you probably realize this far into an article explaining the pros and cons of reverse mortgages, these loans aren’t exactly simple. Even if you understand the basics, there may be caveats or exceptions written into the documentation.

Before applying for an HECM, you must meet with a counselor from a HUD-approved housing counseling agency. The counselor is required to explain the loan’s costs and options to an HECM, such as nonprofit programs, or a single-purpose reverse mortgage (whose proceeds fund a single, lender-approved purpose) or proprietary reverse mortgages (private loans, whose proceeds can be used for any purpose).

Impacts on Other Retirement Benefits

Although your reverse mortgage “income” stream isn’t taxable, it may affect Medicaid or Supplemental Security Income benefits, because those are needs-based programs. (Proceeds do not affect Social Security or Medicare, which are non-means-tested programs.)

Costs of Reverse Mortgages

Like just about every other loan product out there, reverse mortgages come at a cost. You’ll pay:

• A lender origination fee

• Closing costs

• An initial and annual mortgage insurance premium charged by your lender and paid to the FHA, guaranteeing that you will receive your expected loan advances.

These can be rolled into the loan, but doing so will lower the amount of money you’ll get in the reverse mortgage.

Reverse Mortgage Requirements

Not everyone is eligible to take out a reverse mortgage. While specific requirements vary by lender, generally speaking, you must meet the following:

• You must be 62 or older

• You must own your home outright (or have paid down a considerable amount of your primary mortgage)

• You must stay current on property expenses such as property taxes and homeowners insurance

• You must pass eligibility screening, including a credit check and other financial qualifications

Recommended: How Homeownership Can Help Build Generational Wealth

Is a Reverse Mortgage Right for You?

While everyone interested in a reverse mortgage needs to weigh the pros and cons for themselves, there are some instances when this type of loan might work well for you:

• The value of your home has increased significantly over time. If you’ve built a lot of equity in your home, you probably have more wiggle room than others to take out a reverse mortgage and still have some equity left over for heirs.

• You don’t plan to move. With the costs associated with initiating a reverse mortgage, it probably doesn’t make sense to take one out if you plan to leave your home in the next few years.

• You’re able to comfortably afford the rest of your required living expenses. As discussed, if you fall delinquent on your homeowners insurance, flood insurance, HOA fees, or property taxes, you could lose your home to foreclosure under a reverse mortgage.

There are options to consider. They include a cash-out refinance, home equity loan, home equity line of credit, and downsizing to pocket some cash.

The Takeaway

A reverse mortgage may be a way to turn your home equity into spendable cash if you’re a qualified older American, but there are important risks to consider before taking one out. While reverse mortgages can free up funds, they are complicated, can involve fees, and can wind up putting your home into foreclosure if you can’t keep up with payments.

Reverse mortgages are just one of many different mortgage types out there — all of which can be useful under the right circumstances. SoFi doesn’t offer reverse mortgages at this time but has an array of home loan products that may meet your needs.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

Photo credit: iStock/Prostock-Studio

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Source: sofi.com

Apache is functioning normally

January 7, 2024 by Brett Tams

Why use an FHA loan?

FHA loans have been making homeownership more accessible for decades. Tailored to borrowers with lower credit, the FHA makes it possible to buy a house with a credit score of just 580 and only 3.5% down.

But home buyers aren’t the only ones who can benefit. For current homeowners, an FHA refinance may let you access low rates and home equity, even without great credit.

Not sure whether you’ll qualify for a mortgage? Check out the FHA program. You might be surprised.

Verify your FHA loan eligibility. Start here

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>Related: How to buy a house with $0 down: First-time home buyer

What is an FHA loan?

An FHA loan is a mortgage insured by the Federal Housing Administration (FHA).

FHA insurance protects mortgage lenders, allowing them to offer loans with low interest rates, easier credit requirements, and low down payments (starting at just 3.5%).

Thanks to their flexibility and low rates, FHA loans are especially popular with first-time home buyers, home shoppers with low or moderate incomes, and/or lower-credit home buyers.

But FHA financing isn’t limited to a certain type of buyer — anyone can apply.

Verify your FHA loan eligibility. Start here

How does an FHA loan work?

The first thing to know about FHA mortgages is that the Federal Housing Administration doesn’t actually lend you the money. You get an FHA mortgage loan from an FHA-approved bank or lender, just like you would any other type of home mortgage loan.

The FHA’s role is to insure these mortgages, offering lenders protection in case borrowers can’t pay their loans back. In turn, this lets mortgage lenders offer FHA loans with lower interest rates and looser standards for qualifying.

The one catch — if you want to call it that — is that you pay for the FHA insurance that protects your mortgage lender. This is called “mortgage insurance premium” or MIP for the life of the loan or until the FHA home loan is refinanced into another type of mortgage. We go over this in detail below.

Types of FHA loans

FHA loans offer various options to meet different home buying needs. These government-backed loans are designed to make homeownership more accessible, especially for those with less-than-perfect credit scores or limited savings.

Each type of FHA loan is tailored to different financial situations and home buying needs. Here’s what you can expect.

Compare FHA loan quotes from multiple lenders. Start here

FHA mortgage loan

An FHA mortgage is ideal for first-time home buyers, requiring a minimum credit score of 580 for a 3.5% down payment. Those with credit scores between 500 and 579 can still qualify for a 10% down payment. These loans are popular due to their lenient credit score requirements and low-down payment options.

FHA rate-and-term refinance

An FHA refinance loan is suited for borrowers looking to improve their loan terms or lower interest rates, especially if their credit scores have improved since obtaining their original mortgage. It offers a way to adjust loan terms to better fit current financial situations.

FHA Streamline Refinance

For current FHA loan holders, the FHA Streamline Refinance provides an efficient way to refinance with minimal documentation and underwriting. It often results in lower interest rates and can potentially reduce mortgage insurance premiums. This option is advantageous for those who want to refinance without a complicated process.

FHA cash-out refinance

An FHA cash-out refinance allows homeowners to tap into their home equity, converting it into cash. It requires a minimum credit score of 620, and borrowers must leave at least 15% equity in their home after the refinance. It’s suitable for those needing extra funds for expenses or investments.

FHA Home Equity Conversion Mortgage (HECM)

HECM is a reverse mortgage for homeowners aged 62 and older, allowing the conversion of home equity into cash. It provides financial flexibility for seniors by enabling access to their home equity without selling the home.

FHA 203(k) loan

The FHA 203(k) loan is designed for home purchases requiring renovations. It combines the cost of the home and renovation expenses into one loan. Borrowers must meet specific credit score requirements and ensure that renovations are completed within six months.

FHA Energy Efficient Mortgage

This loan type allows borrowers to include energy-efficient upgrades in their FHA loan. It’s aimed at reducing utility costs and increasing the home’s environmental friendliness, thereby potentially increasing its value.

Section 245(a) loan

The Section 245(a) program is for borrowers expecting an increase in their income. It offers a graduated payment schedule that starts low and increases over time, aligning with anticipated income growth. This loan is particularly beneficial for young professionals expecting career advancement.

Check your FHA loan eligibility. Start here

FHA loan requirements

Homeownership can be a liberating experience, especially for first-time buyers. With their flexible guidelines and government backing, FHA home loans provide a welcoming path.

Understanding FHA loan requirements can make the process much easier, opening the door to a future in your ideal home.

Check your FHA loan eligibility. Start here

To be eligible for an FHA loan, applicants must adhere to specific guidelines:

The property must undergo a home appraisal by an FHA-approved appraiser.
The property must serve as the applicant’s primary residence; investment properties and second homes are not eligible.
Occupancy of the property is required within two months following the closing.
A mandatory inspection is conducted to ensure the property meets FHA’s basic standards.

There are a few more specific conditions to qualify, such as a down payment amount, mortgage insurance, credit score, loan limits, and income requirements.

FHA loan down payment requirements

FHA loans require a minimum down payment, which varies based on credit score. For credit scores of 580 and above, a minimum down payment of 3.5% is required. Borrowers with credit scores between 500 and 579 must make a 10% down payment.

FHA mortgage insurance premiums

FHA mortgage insurance premium (MIP) is what makes the FHA program possible. Without the MIP, FHA-approved lenders would have little reason to make FHA-insured loans.

There are two kinds of MIP required for an FHA loan. One is paid as a lump sum when you close the loan, and the other is an annual premium, which becomes less expensive each year as you pay off the loan balance:

Upfront Mortgage Insurance Premium (UFMIP) = 1.75% of the loan amount for current FHA loans and refinances
Annual Mortgage Insurance Premium (MIP) = 0.85% of the loan amount for most FHA loans and refinances

MIP is split into monthly payments that are included in your mortgage payment. You’ll have to pay FHA insurance for the life of the loan or if you refinance into another type of mortgage loan.

The good news is that, as a homeowner or home buyer, your FHA loan’s MIP rates have dropped. Today’s FHA MIP costs are now as much as 50 basis points (0.50%) lower per year than they were in previous years.

Also, you have ways to reduce what you’ll owe in FHA MIP.

Depending on your down payment and loan term, you can reduce the length of your mortgage insurance to 11 years instead of the entire loan.

Loan term	Original down payment	MIP duration
20, 25, 30 years	Less than 10%	Life of loan
20, 25, 30 years	More than 10%	11 years
15 years or less	Less than 10%	Life of loan
15 years or less	More than 10%	11 years

Or, you could refinance out of FHA MIP at a later date.

With FHA interest rates as competitive as they are today, refinancing could reduce your monthly mortgage payments and cancel your mortgage insurance premium if you have enough equity in the home.

Check your FHA loan rates. Start here

FHA loan credit score minimums

The minimum credit score requirement for an FHA loan is 500. However, a score of 580 or higher allows for a lower down payment. Credit scores directly impact loan terms and down payment amounts.

Debt-to-income ratio

FHA loans consider the borrower’s debt-to-income (DTI) ratio, a measure of monthly debt payments against monthly income. The FHA prefers a DTI ratio of no more than 43%, though exceptions can be made for higher ratios with compensating factors.

Income and employment requirements

There is no specific income threshold for FHA loans, but borrowers must demonstrate steady employment history. Verification includes pay stubs, W-2s, tax returns, and bank statements.

FHA loan limits

Loan limits for FHA loans vary by county. However, starting January 1, 2024, the new FHA loan limit will be $498,257 for a single-family home in most parts of the country. Limits increase for 2-, 3-, and 4-unit properties.

FHA loan rates

Interest rates for FHA loans are competitive and can vary based on factors such as prevailing market rates, borrower’s credit score, income, loan amount, down payment, and DTI ratio. Government backing often enables lenders to offer lower rates compared to conventional mortgages.

Compare your FHA loan rates from multiple lenders. Start here

Today’s rates for a 30-year, fixed-rate FHA loan start at % (% APR), according to The Mortgage Reports’ daily rate survey.

Thanks to their government backing, FHA loan rates are competitive even for lower-credit borrowers. But interest rates can vary a lot from one lender to the next, so be sure to shop around for your best offer.

FHA loan benefits

Check your FHA loan eligibility. Start here

1. Lower down payment: Just 3.5 %

For today’s home buyers, there are only a few mortgage options that allow for down payments of 5% or less. The FHA loan is one of them.

With an FHA mortgage, you can make a down payment as small as 3.5% of the home’s purchase price. This helps home buyers who don’t have a lot of money saved up for a down payment along with home buyers who would rather save money for moving costs, emergency funds, or other needs.

2. FHA allows 100% gift funds for the down payment and closing costs

The FHA is generous with respect to using gifts for a down payment. Very few loan programs will allow your entire down payment for a home to come from a gift. The FHA will.

Via the FHA, your entire 3.5% down payment can be a gift from parents or another family member, an employer, an approved charitable group, or a government homebuyer program.

If you’re using a down payment gift, though, you’ll need to follow the process for gifting and receiving funds.

3. FHA loans allow higher debt-to-income ratios

FHA loans also allow higher debt-to-income ratios.

Your debt-to-income ratio, or DTI, is calculated by comparing two things: your debt payments and your before-tax income.

For instance, if you earn $5,000 a month and your debt payment total is $2,000, your DTI is 40%.

Officially, FHA maximum DTIs are as follows.

31% of gross income for housing costs
43% of gross income for housing costs plus other monthly obligations like credit cards, student loans, auto loans, etc.

However, a 43% DTI is actually on the low end for most FHA borrowers. And FHA will allow DTI ratios as high as 50%. Although to get approved at such a high ratio, you’ll likely need one or more compensating factors — for instance, a great credit score, significant cash savings, or a down payment exceeding the minimum.

In any case, FHA is more lenient in this area than other mortgage loan options.

Most conventional mortgage programs — those offered by Fannie Mae and Freddie Mac — only allow debt-to-income ratios between 36% and 43%.

With down payments of less than 25%, for example, Fannie Mae lets you go to 43% DTI for FICOs of 700 or higher. But most people don’t get conventional loans with debt ratios that high.

4. FHA loans accept lower credit scores

Officially, the minimum credit scores required for FHA mortgage loans are:

580 or higher with a 3.5% down payment
500-579 with a 10% down payment

High credit scores are great if you have them. But past credit history mistakes take a while to repair.

FHA loans can help you get into a home without waiting a year or more for your good credit to reach the “excellent” level. Other loan programs are not so forgiving when it comes to your credit rating.

Fannie Mae and Freddie Mac (the agencies that set rules for conventional loans) say they accept FICOs as low as 620. But in reality, some lenders impose higher minimum credit scores.

5. FHA even permits applicants with no credit scores

What if an applicant has never had a credit account? Their credit report is, essentially, blank.

FHA borrowers with no credit scores may also qualify for a mortgage. In fact, the U.S. Department of Housing and Urban Development (HUD) prohibits FHA lenders from denying an application based solely on a borrower’s lack of credit history.

The FHA allows borrowers to build non-traditional credit as an alternative to a standard credit history. This can be a huge advantage to someone who’s never had credit scores due to a lack of borrowing or credit card usage in the past.

Borrowers can use payment histories on items such as utility bills, cell phone bills, car insurance bills, and apartment rent to build non-traditional credit.

“Not all lenders who are FHA approved offer these types of loans, so check with your loan officer individually,” cautions Meyer.

6. FHA loans can be up to $ in most of the U.S.

Most mortgage programs limit their loan sizes, and many of these limits are tied to local housing prices.

FHA mortgage limits are set by county or MSA (Metropolitan Statistical Area), and range from $ to $ for single-family homes in most parts of the country.

Limits are higher in Alaska, Hawaii, the U.S. Virgin Islands, and Guam, and also for duplexes, triplexes, and four-plexes.

7. FHA also allows extended loan sizes

As another FHA benefit, FHA loan limits can be extended where home prices are more expensive. This lets buyers finance their home using FHA even though home prices have skyrocketed in certain high-cost areas.

In Orange County, California, for example, or New York City, the FHA will insure up to $ for a mortgage on a single-family home.

For 2-unit, 3-unit and 4-unit homes, FHA loan limits are even higher — ranging up to $.

If your area’s FHA’s loan limits are too low for the property you’re buying, you’ll likely need a conventional or jumbo loan.

8. If you have an FHA loan, you can lower your rate with an FHA Streamline Refinance

Another advantage for FHA-backed homeowners is access to the FHA Streamline Refinance.

The FHA Streamline Refinance is an exclusive FHA program that offers homeowners one of the simplest, quickest, and most affordable paths to refinancing.

An FHA Streamline Refinance requires no credit score checks, no income verifications, and home appraisals are waived completely.

In addition, via the FHA Streamline Refinance, homeowners with a mortgage pre-dating June 2009 get access to reduced FHA mortgage insurance rates.

Verify your FHA loan eligibility. Start here

FHA loan disadvantages

What is the downside to an FHA loan? Among the numerous benefits of FHA loans, there are certain disadvantages that potential borrowers should be aware of. These drawbacks can impact the overall cost and flexibility of the loan.

Here are the downsides that you should know about FHA home loans.

FHA loan mortgage insurance premiums

One of the primary drawbacks of FHA loans is the mandatory mortgage insurance premiums. These include an upfront premium at closing, generally 1.75% of the loan amount, and ongoing monthly payments. This additional cost can make FHA loans more expensive over the long term

Loan limits

One notable limitation of FHA loans is the lower loan limits compared to conventional loans, which can be restrictive for higher-income buyers. The FHA mortgage limit for a one-unit property ranges from $ to $ for single-family homes in most parts of the country, which may not be sufficient in areas with higher property values.

Strict property requirements

FHA loans come with stringent property requirements. The purchased home must be the borrower’s primary residence and must meet specific safety and condition standards. This requirement can limit the types of properties that qualify for an FHA loan.

FHA loan alternatives

Alternative loans, like USDA and VA loans, offer distinct advantages, such as no down payment requirements, but come with specific eligibility criteria. Understanding these alternatives ensures you make a well-informed decision about the type of mortgage that’s right for you.

Conventional 97

The Conventional 97 program comes with a down payment requirement of just 3%. It stands out due to the absence of income limits and mandatory home buyer education, making it accessible to a broader range of homebuyers.

Check your conventional loan eligibility. Start here

HomeReady Mortgage by Fannie Mae

The HomeReady mortgage program is designed for low- to moderate-income families, allowing a home purchase with only a 3% down payment. Furthermore, this program permits the entire downpayment and closing costs to be covered by gifts or grants, offering significant financial flexibility.

Freddie Mac Home Possible

The Home Possible loan is notable for its reduced mortgage insurance costs compared to other similar programs. With a 3% down payment requirement and lower ongoing costs, Home Possible is an attractive alternative for those looking to save on mortgage insurance.

USDA loans

USDA loans, backed by the U.S. Department of Agriculture, are an attractive alternative, especially for moderate-income buyers in rural areas. They don’t require a down payment, which is a significant advantage. However, eligibility for USDA loans is restricted based on income and geographical limits, and not every property qualifies for this type of financing.

VA loans

VA loans are another viable alternative, particularly for U.S. military service members, veterans, and certain surviving spouses. Like USDA loans, VA loans also require no down payment. However, eligibility for VA loans is exclusive to the military community, limiting their accessibility to the general public.

FAQ: FHA loans

Can I choose between a fixed rate and an adjustable-rate FHA loan?

Yes, FHA loans offer both fixed-rate and adjustable-rate (ARM) options. A fixed-rate FHA loan provides a consistent interest rate and monthly payment for the life of the loan, ideal for those who prefer stability. An adjustable-rate FHA loan, on the other hand, has an interest rate that can change over time, typically offering lower initial rates.

Do FHA loans have lower interest rates?

FHA loans often have lower interest rates compared to many conventional loan options. This is largely due to the government backing of FHA loans, which reduces the risk for lenders. As a result, lenders are generally able to offer more competitive mortgage rates to borrowers. However, the actual interest rate you’ll receive on an FHA loan can vary based on several factors, including your credit score, loan amount, and the current market conditions. It’s always a good idea to compare rates from multiple lenders to ensure you’re getting the best deal possible for your situation.

Are FHA loans assumable?

Yes. A little-known FHA benefit is that the agency will allow a home buyer to assume the existing FHA mortgage on a home being purchased. The buyer must still qualify for the mortgage with its existing terms but, in a rising mortgage rate environment, it can be attractive to assume a home seller’s loan. Five years from now, for example, a buyer of an FHA-insured home could inherit a seller’s sub-3 percent mortgage rate. This can make it easier to sell the home in the future.

Can you buy a rental property with an FHA loan?

While you can’t buy a true rental property with an FHA loan, you can buy a multi-unit property — a duplex, triplex, or fourplex — live in one of the units, and rent out the others. The rent from the other units can partially, or even fully, offset your mortgage payment.

Are closing costs higher for FHA loans?

Closing costs are about the same for FHA and conventional loans with a couple of exceptions. First, the appraiser’s fee for an FHA loan tends to be about $50 higher. Also, if you choose to pay your upfront MIP in cash (instead of including this 1.75% fee in your loan amount), this one-time fee will be added to your closing costs. Additionally, the fee can be rolled into your loan amount.

What credit score do I need for an FHA loan?

Most borrowers will need a minimum credit score of 580 to get an FHA loan. However, home buyers who can put at least 10% down are eligible to qualify with a 500 score. Yet, each lender may have their own credit score minimums, separate to those established by the Federal Housing Administration.

What is the loan-to-value ratio requirement for FHA loans?

The loan-to-value (LTV) ratio for FHA loans typically cannot exceed 96.5%, meaning you can borrow up to 96.5% of your home’s value. This high LTV ratio is part of what makes FHA loans accessible, especially for first-time homebuyers who might not have substantial savings for a down payment.

How does PMI work with FHA loans?

For FHA loans, the equivalent of private mortgage insurance (PMI) is the mortgage insurance premium (MIP). MIP is required for all FHA loans, regardless of the down payment or loan-to-value ratio. This insurance protects lenders from losses in case of borrower defaults and is included in both upfront and ongoing mortgage costs.

What happens if I default on an FHA loan?

If you default on an FHA loan, the lender can initiate foreclosure proceedings. The FHA loan program, backed by the Federal Housing Administration, is designed to minimize the risk of defaults by offering more lenient qualification criteria. However, consistent failure to make mortgage payments may lead to foreclosure, impacting your credit score and homeownership status.

Today’s FHA loan rates

Now is an opportune time to consider an FHA loan, with current mortgage rates being historically competitive.

FHA loan interest rates are typically among the most competitive. To capitalize on these favorable rates, start by comparing offers from FHA-approved lenders.

Finding the most affordable loan could be just a few clicks away. Begin your journey towards homeownership today by exploring your options and discovering the best rates available for your financial situation.

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Source: themortgagereports.com