mortgage lender

Apache is functioning normally

It turns out defaulting on the mortgage isn’t as bad as some made it out, per a study from credit bureau TransUnion.

The company noted that mortgage-only defaulters, those who stay current on other lines of credit while letting the mortgage slip away, perform better on new loans versus those with multiple delinquencies.

In other words, those who are late on all types of loans continue to exhibit high rates of delinquency, whereas those who only skip their mortgage payments tend to keep other bills in check.

For example:

60+ days delinquency levels on a new auto loan:
– 5.8 percent — mortgage-only delinquency
– 13.1 percent — multiple delinquencies

60+ days delinquency levels on a new credit card:
– 11.4 percent — mortgage-only delinquency
– 27.1 percent — multiple delinquencies

So basically those who were late on everything from credit cards to auto loans and leases continue to make missteps, while those who simply can’t handle their mortgages stay on top of other bills.

Perhaps these were the folks who thought they could afford a house during the peak years, while relying on interest-only home loans, option arms, and other payment-deferring home loan programs.

The study also debunked, or at least did not find strong support for, the “excess liquidity theory,” which suggests consumers who stopped paying their mortgage have increased cash flow to use for other debts.

“This recession was unique in that certain consumers who defaulted on mortgages would otherwise be good credit risks,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit, in a release.

“It appears their actions were driven more by difficult economic circumstances than by any inherent inability to manage debt.”

Good luck trying to explain this to their subsequent mortgage lender or loan underwriter…

Source: thetruthaboutmortgage.com

Apache is functioning normally

No it’s not déjà vu, or Groundhog Day. Guaranteed Rate has launched yet another 1% down payment mortgage in the span of about a month.

However, their new “Double Match” loan program is quite a bit different than their previously announced 1% down mortgage that relied on a grant from the City of Chicago and Chicago Infrastructure Trust (CIT).

Guaranteed Rate Double Match Mortgage Available Nationwide

  • This is yet another 1% down home loan
  • That relies upon a 2% grant from the mortgage lender
  • The result is a 97% LTV mortgage (3% down)
  • That fits the agency guidelines of Fannie Mae and Freddie Mac

For one, the Double Match program is available to home buyers nationwide, not just in the city of Chicago.

One thing that is the same is the down payment requirement, which is set at a low, low 1%. That’s right, you just need 1% of the purchase price to get into the home.

It’s a 97% LTV mortgage, meaning it qualifies for backing from Fannie Mae and Freddie Mac, but you only have to come up with 1% of the total 3% down payment.

The other 2% is a “completely forgivable” grant that doesn’t need to be paid back, even if the buyer moves or refinances their mortgage. They claim this is unlike other down payment assistance programs.

I asked Guaranteed Rate for specifics regarding the grant and was told the following via their communications department:

  • Guaranteed Rate is providing the grant
  • There is no waiting period to get it
  • And no penalty if borrowers sell or refinance

This seems to mirror a similar loan program recently launched by United Wholesale Mortgage via the broker channel that gifts 2% of the home purchase price.

It also seems to be a trend in the mortgage world – despite max LTVs capping out at 97%, many lenders are getting creative to stretch it to an effective 99% LTV, which clearly isn’t far from the days of zero down financing.

[Check your local credit union for 100% LTV mortgages.]

Double Match Mortgage Guidelines

  • The biggie here is a minimum 680 FICO score
  • Which is significantly higher than the 620 score required
  • For the 3% down loan program offered by Fannie and Freddie
  • The maximum loan amount is also set at the conforming limit
  • And while property types can vary, it must be owner-occupied and likely a single unit

As mentioned, the loan program appears to run on the back of the Fannie or Freddie loan programs, such as the Home Possible Advantage.

However, there are some lender overlays specific to Guaranteed Rate, such as a minimum FICO score requirement of 680, which is significantly higher than the 620 required by Fannie/Freddie.

Of course, 99% LTV presents more risk to lenders, so requiring a good credit score (not great or excellent by any means) is probably a prudent measure.

The maximum loan amount is also set at the conforming limit of $453,100, and there are income limits depending on where the subject property is located.

Allowable property types include single-family homes, condos, and townhomes, and all must be owner-occupied. I’m assuming they all must be one-unit as well.

The Double Match program can also work in conjunction with a Mortgage Credit Certificate if you want to save even more money on mortgage interest.

Speaking of mortgage interest, I have no idea what the mortgage rates are like on this program, or if mortgage insurance is paid separately or built into the rate. My assumption is that rates will be higher than 97% LTV mortgages to account for risk.

If you’re interested, reach out to Guaranteed Rate to get more details. They originate mortgages in all 50 states and have local offices all over the place.

For the record, Guaranteed Rate is now the eight largest retail mortgage lender in the country.

Source: thetruthaboutmortgage.com

Apache is functioning normally

I was on Zillow the other day looking at real estate when it occurred to me that I never really touched upon the so-called “Zestimates” offered up by the famous real estate portal.

Most consumers have heard of the Zillow Zestimate, which made its debut back in 2006.

But they’ve been largely written off by industry folk (real estate agents) as “unreliable” and various other expletives, assuming the value estimation is lower than it should be.

First things first, let’s define a Zestimate. By Zillow’s own account, a Zestimate is the “estimated market value” of a property.

By estimated, they mean a home value assigned using proprietary computer algorithms developed by statisticians.

They also refer to Zestimates as a “starting point in determining a home’s value,” which is important to note when browsing around Zillow.

A Zestimate is computed based on data, not human touch, vision, interaction, etc. And we all know how computers can fall short…this explains why there are error rates.

Speaking of, the median error rate for the entire nation is currently 4.6%, which means half of Zestimates nationwide were within 4.6% of their sales price, and the other half were off by more than 4.6%.

Where to Find a Zestimate?

  • Simply visit the home details page of any property
  • And you’ll see the Zestimate near the top of the page in the center
  • Below the most recent sold price
  • There is also a section below dedicated to the Zestimate

If you look up any property on Zillow, whether it’s for sale or not, you should see a Zestimate at the very top of the page, directly under the last sales price (or current listing price).

And if you scroll down a bit more, you’ll see an entire section dedicated to the property’s Zestimate, including a 1-year, 5-year, and 10-year graph.

On the graph, you’ll be able to track the history of the Zestimate alongside home prices for both the city and zip code to get a better feel for the property in question.

It also displays the movement of the Zestimate over the past 30 days to give you more information about recent price movements, as seen below.

Recently, the company launched a Zestimate forecast, which as the name implies is an estimate of the home’s value over time, in this case the next 12 months (both dollar amount and percentage wise).

Finally, you’ll see a so-called “Rent Zestimate,” which is simply the estimated monthly rental price of the property.

Is Zillow Accurate?

  • It depends on the number of recent sales comps in the immediate area
  • How unique or not unique the property is
  • If any major home improvements have been made since the last sale
  • Or if the neighborhood dynamics have shifted considerably

A Zestimates accuracy is clearly of utmost important, especially if it’s being relied upon by millions of prospective home buyers.  But Zillow says themselves that Zestimates track the market, as opposed to drive it. So it’s not a forward-looking valuation tool.

So are these Zillow estimates accurate? This is a tough question to answer because like any other statistical model they could get the value right on the nose or be $100,000 or more off.

It’s a bit of a crapshoot really.  But it certainly depends on the property. And the day because they’re apparently updated daily.

For example, a 3-bedroom, 2-bathroom single-family residence built in 1982 in Your Town, USA may be assigned a Zestimate of $250,000, based on public data culled by Zillow.

You’ll also see a value range, which displays the high and low estimated value of the property.

A large range indicates less data/higher volatility, whereas a small range means Zillow has plenty of information to make an informed decision, and hopefully a lower median error rate.

In other words, if there are lots of sales in a given area where homes are pretty uniform (same style/size/layout/number of beds and baths), the Zestimate will probably be pretty accurate.

Conversely, if the property is unique and in a sparsely populated area where homes only sell a few times a year, the Zestimate may be a far cry from its true value.  And this can be too low OR too high.

So if a multi-million dollar home sells next to yours, and it’s the only recorded sale over the past six months, your Zestimate will probably be inflated if it’s not truly a multi-million dollar home.

Zestimates may also appear to be too low if there’s a ton of demand in a certain area because home buyers are technically overpaying based on the value Zillow comes up with.

The opposite is also true.  That being said, the seller won’t care that they’re selling well above their Zestimate so long as someone is willing to pay.

And if you make the “Zestimate is too high” argument, you’ll probably get laughed at by the seller and the real estate agent.

Of course, if I were buying a home and had the choice, I’d want to be making an offer on a home that was listed below the Zestimate, whether accurate or not.  It’s not a must, but if I had the choice…

If you want to get really deep, you have to question what accurate really means.  Is what a property is worth what you should pay for it?  Does it matter what it’s “worth” if someone is willing to pay an entirely different amount?

I’m sure over time we’ll see improved Zestimate accuracy, which is a good thing, but it will always leave many unanswered questions like those just posed.  Then again, so will full-blown appraisals.

In fact, there have been three different versions of the algorithm released thus far (2006, 2008, 2011, and 2019) with probably more to come.

Note: Only about 100 million homes have an associated Zestimate, so you could get extremely unlucky, but chances are the property you’re researching will have one.

The 2019 Zestimate Update

In late June 2019, Zillow announced a major update to its Zestimate, calling it the “most sophisticated and accurate” version to date.

What makes it different now is that it relies upon so-called computer vision and neural networks to identify and value any improvements present in a home, along with real-time data.

For example, it can analyze a property’s photographs and determine if a countertop or fixture is high-end or low-end, merely by classifying different patterns found in the pixels.

It’s pretty wonky stuff, a product of the $1 million Zillow Prize science competition that spanned two years.

But if your house has nice stuff inside, like a new kitchen, and perhaps good curb appeal outside, it can help pump up its value.

It appears to go beyond the black and white data stuff to find the qualities that make a particular property special or unique, and most importantly, more valuable.

The use of real-time data will bolster accuracy as well, with the list price and time on market of for-sale homes also factored in.

As a result of the update, Zillow says the error rate is now less than 2%, meaning half of all Zestimates will fall within 2% of a home’s eventual selling price.

That’s down from nearly 5% in prior iterations, which should be welcome news to those who saw their value go up (and not down!).

A Zestimate Is Not an Appraisal!

  • Despite what you might think or hear
  • A Zestimate is not an appraisal, Zillow says this verbatim
  • It’s just an estimated market value
  • Also check out the market appreciation number for increased accurary

This is where things get ugly. A lot of homeowners, and I suppose some in the industry, seem to get tripped up into thinking a Zestimate is a home appraisal.

Zillow explains right on its informational page that a Zestimate is not an appraisal, and cannot be used in place of an appraisal.

Why? Because Zillow hasn’t physically inspected your home, like a real appraiser would.

And the data they receive may be dated, incomplete or inaccurate, especially if recent changes have been made to the home in question, such as major home improvement, or if a home has just sold nearby.

Of course, they do allow homeowners to edit their home facts if thing change.

But it’s still really nothing more than a home value estimator, just like the Redfin Estimate.

Zillow also shows a so-called “market appreciation” tab in the Zestimate section for certain properties that reveals the local housing market appreciation. I’ve seen it for homes in Los Angeles.

For example, if home prices rise by 10% in a given neighborhood since purchase, they’ll provide a sale-based estimate by combining the purchase price and the dollar amount of that appreciation.

So a home that sold for $250,000 with 10% appreciation would get an estimate of $275,000, which could exceed the home’s Zestimate.

Different properties have different types of estimates available, all of which you’ll be able to see on the individual property page.

Regardless, you can’t get a mortgage with a Zillow Zestimate. You’d be laughed right out of the bank.

An appraisal from a certified appraiser will be required by the mortgage lender to obtain financing in most cases unless you’re paying with cash.

So what does that tell us? Well, it means Zestimates are exactly what Zillow says they are, a starting point. An idea, a ballpark, an estimation of a home’s value using a computer. The actual sales price could be entirely different.

In other words, take them with a huge grain of salt, just like advertised mortgage rates.  But still brag to your friends if and when your Zestimate rises!

Read more: How much house can I afford?

(photo: AlexiUeltzen)

Source: thetruthaboutmortgage.com

Apache is functioning normally

A week or so ago, I was scanning through my archived posts and it occurred to me that my blog’s 10-year anniversary was just days away.

I found the first post I wrote and laughed a bit as I read it, thinking how naïve and young I was at the time. I was in my mid-20s, working for a wholesale mortgage lender and pondering a home purchase.

But property values were sky-high at the time and I was aware of that. I couldn’t wrap my head around buying a place at those prices. And in hindsight, I’m glad I didn’t.

I know a lot of people who did buy back then, and many no longer own their homes, while some actually stuck it through and are now sitting fairly pretty.

Those Who Held On Since 2006 Are Doing Fine

As mentioned last week, time tends to heal all real estate wounds. Even if you buy at a particularly bad time, if you hold onto your property and pay down your mortgage, you’ll likely come out ahead.

The problem 10 years ago was that the mortgages tied to those expensive properties weren’t sustainable. Many borrowers couldn’t afford to hold them beyond their first rate reset, which may have come in just six months’ time.

But for those with a fixed-rate mortgage, or the income to endure the ups and downs, it was possible to ride out the storm and wind up in a decent equity position.

Let’s pretend someone purchased a home back in July 2006, when home prices peaked, for around $650,000. Today, prices might be closer to $750,000, thanks to rapid appreciation over the past several years.

Sure, that same property may have fallen as low as $450,000 at some point in time over the past decade, but things have corrected big time.

For sake of simplicity, we will assume they took out a 30-year fixed at a rate of 6.76%, the average for July 2006 per Freddie Mac data.

If they put 20% down, that would leave them with a starting loan amount of $520,000. The monthly payment on that loan at 6.75% would be a whopping $3,372.71 per month.

Had they held the loan for 10 years, the balance would be whittled down to roughly $444,000. Assuming prices today are closer to $750,000, they’d have over $300,000 in home equity. Not too bad for buying at the height of the market.

Chances are they would have refinanced too, to a lower rate, so they’d be in pretty good shape, even if some years were especially brutal.

Rates Were Nearly Double 10 Years Ago

Today, mortgage rates are nearly half what they were a decade ago. Using Freddie Mac data, the 30-year fixed has fallen from 6.76% in July 2006 to 3.48% today.

That’s very close to double, and might explain why home buyers are snapping up properties left and right at the moment.

If you factor in inflation since 2006, home prices are actually pretty flat. Using a CPI calculator, a $650,000 home purchase in 2006 is equivalent to buying a $777,000 home today.

The difference is that you get an interest rate that is nearly half what it was back then. That seems like a pretty good deal, even if it all feels a bit frothy given the massive gains recently.

Mortgages Are Boring Now

So we know home prices are reasonable, and interest rates are super cheap, and to make matters even better, mortgages are ultra-boring these days.

When I was working for a lender in the early 2000s, it was more common to originate an option arm than it was a 30-year fixed. If it wasn’t an option arm, there’s a good chance it was some kind of adjustable-rate mortgage.

It likely wasn’t a 15-year fixed, and if it was a 30-year fixed, it may very well have been interest-only as well.

Today, most mortgages are fully-amortized 30-year and 15-year fixed mortgages, meaning borrowers are paying down their mortgages and enjoying payments that never change over the course of the loan.

This makes the situation even better for everyone because we shouldn’t see a deluge of foreclosures anytime soon due to unsustainable mortgage payments.

To sum it up, relatively flat home prices, rock bottom rates, and plain vanilla mortgages. Sounds good.

What We Should Worry About Over the Next 10 Years

While the current situation looks pretty solid on paper, home prices have increased dramatically, and without the availability of ultra-low mortgage rates, we could face some serious affordability issues.

Heck, folks are already having trouble affording homes in certain hotspots throughout the country, even if they’re making money hand over fist.

Another big problem developing is the lack of a down payment, which was one of the major catalysts during the prior crisis. No skin in the game.

We aren’t quite at zero down nationwide again, but there are many more low-down payment options available today than there were a year ago.

Today, we’ve got plenty of 3% down options at our disposal via programs like Bank of America’s Affordable Loan Solution and the Wells Fargo yourFirstMortgage.

If 3% down is still too much for you, you can now take advantage of 1% down programs from Guaranteed Rate and United Wholesale Mortgage.

Or if you don’t want to provide any down payment at all, you can go with BancorpSouth, Fifth Third, or simply take out a USDA loan.

Of course, the payment (and interest rate) will be higher if you put nothing down. But there is at least one company willing to split the down payment with you in order to keep your LTV at 80% or less.

Things could get ugly again if higher and higher home prices force lenders to come up with the creative financing of old, especially if inventory rises at the same time. But I don’t think we’re there just yet.

Looking back over the past 10 years, a lot has changed and a lot has remained the same. We went through one of the worst crises in recent history but came out stronger, as we usually do.

For those who stuck it through, they should be back above water and in a good equity position.

Those who sold (by necessity or by choice) and are working to get back in the housing market might find themselves in the unfortunate position of buying nearer to the top, again. But at least they’ll get a really low mortgage rate this time around.

It’s hard to say what the future will hold, or how the next decade will play out. But when I read my first post, it feels like we’re facing the same problems again, just without the bad mortgages. In place of exotic financing features are interest rates at 50% off.

What goes down must come up, right? What happens when rates rise? Are we destined to repeat history or will we get it right this time around? Maybe there is no right and wrong. Maybe it’s all cyclical and booms and busts are just a part of life.

Perhaps it doesn’t matter if you don’t speculate and just buy a home you can genuinely afford that you also truly love.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Fannie Mae has rolled out a new version of its automated writing system, known as Desktop Underwriter® (DU®) Version 10.0.

The new version has a number of important changes, two involving consumer credit scores.

Firstly, this release will use trended credit data, which I wrote about back when it was initially announced about a year ago.

This basically allow mortgage lenders to see your balance history on revolving accounts for the past two years, not just the minimum payment and credit limit.

There’s a correlation between carrying a balance and becoming delinquent on the mortgage.

Specifically, borrowers who pay off their credit card debt in full every month are 60% less likely to fall behind on the mortgage versus the borrowers who only make the minimum payment.

That being said, I don’t know how mortgage lenders will view those who revolve their balances. Will they just be further scrutinized, or face some sort of pricing hit that leads to a higher mortgage rate?

I suppose time will tell, but we do know it’s a big deal that it’s being included, with Equifax saying consumers will “see significant update to mortgage decisioning process” after the first tri-merge credit report update in 30 years.

They further note that the inclusion of this new data will “more accurately identify and potentially reward responsible credit behavior,” meaning it could help too.

However, per Fannie Mae, so-called “classic credit scores models” don’t actually use trended data, and these scores can continue to be used by lenders, so at the moment it shouldn’t affect the LLPAs passed onto borrowers.

Eventually, trended credit data may lower/raise credit scores and that can affect your mortgage rate.

Either way, the takeaway is to pay all bills in full each month, not only to save on interest, but to avoid any unwanted attention from your mortgage lender. Also stop swiping months before you apply.

Automated Underwriting for Borrowers with No Credit Scores

Now let’s turn to another key change rolling out with DU 10.0. Fannie will now use automated underwriting (DU) for borrowers who lack the traditional credit necessary to generate a credit score.

Previously, borrowers without credit scores had to have their loan applications manually underwritten, and my assumption is that few lenders made such loans due to the complexity and risk involved.

Beginning with this release, lenders will be able to run the numbers through DU, which should provide both peace of mind and more approvals for borrowers who lack traditional credit.

So if you’re that person who eschews credit, this is great news if you still don’t have several hundred thousand dollars available to purchase a home with cash.

Requirements to Get a Mortgage with No Credit Score

[checklist]

  • Owner-occupied single-unit properties only
  • 10% minimum down payment
  • Max DTI of 40%
  • Max loan amount of $417,000
  • Must provide two lines of nontraditional credit (one must be housing-related)
  • Purchase and rate/term refi only

[/checklist]

If you don’t have any credit scores, lenders will likely be pretty critical of your borrowing profile. Let’s take a look at what Fannie Mae demands in order to get a mortgage without a credit score.

Fannie is the leader in this space so expect most others to follow suit and/or enact similar guidelines.

Most importantly, you must be able to document a “housing-related source of nontraditional credit,” aka rental payments. That must be one of your two nontraditional credit sources. Another might be a cell phone bill or utility payment.

Additionally, you are restricted in what you can purchase. The property must be an owner-occupied, single-unit house or condo, excluding manufactured housing.

Financing is limited to purchases and rate and term refinance transactions – no credit score, no cash out!

The loan amount must be at or below the conforming loan limit of $417,000 (no high balance permitted).

Borrowers must also be able to muster a minimum down payment of 10%. The max CLTV is also 90%, so no getting around that requirement with a second mortgage.

Lastly, your DTI ratio must not exceed 40%, which is a bit lower than the 43% limit for QM loans and the 45-50% allowed under certain circumstances when strong compensating factors are present.

As you can see, it’s not very easy to get a mortgage without a credit score, though Fannie is opening the door a bit more by letting its robot make the decision.

My take is that you’re better off just establishing a traditional credit history. I understand there are individuals who hate credit, but a mortgage is a form of credit, so if you want one, it’s good to have some prior experience…

Source: thetruthaboutmortgage.com

Apache is functioning normally

Posted on: July 26, 2022

While there are some specific steps pertinent to those using their VA loan benefits, the overall process is similar for all homebuyers.

The good news? It’s not complicated.

The VA home program has allowed millions of veterans, active-duty service members and surviving spouses to purchase or refinance homes. If all of those fellow military members managed it, so can you.

Check your VA home buying eligibility. (May 1st, 2023)

VA Home Loan Program Offers Valuable Benefits

VA loans are backed by the U.S. Department of Veterans Affairs and offer considerable benefits for eligible borrowers. Some of the most valuable aspects of the VA home loan benefit include:

  • Low or zero down payment
  • Competitively low mortgage interest rates
  • ​No private mortgage insurance (PMI)

12 Steps To Buy a Home With a VA Loan

1. Work out what you can afford

The first step toward your home purchase is determining what you can afford to spend. This involves taking a close look at your household budget.

Once you know where your money is going each month, you’ll have a sense of your potential buying power and the monthly mortgage payment amount you can handle. Keep in mind that homeowners have extra expenses including property taxes, homeowner’s insurance and home repairs.

Creating a budget isn’t a requirement for loan qualification, but it makes you a more informed consumer.

2. Get pre-approved

Getting pre-approved gives you “serious buyer” status in the eyes of sellers and real estate agents. It means you’ve talked to a mortgage lender who has run your finances.

Getting pre-approved includes establishing your eligibility for a VA loan, checking your credit, confirming your income, and working out how big a mortgage you can afford.

Once completed, the lender sends you a letter confirming your loan amount. This means sellers and agents take you way more seriously. And, gives you an advantage when negotiating the price, especially when up against other potential buyers who aren’t approved.

Don’t get confused between pre-approval and pre-qualification. Pre-qualification is better than nothing, but it only means the lender asked you a few questions and relied on your answers (with zero verification) to estimate how much you can borrow. It’s less credible than pre-approval.

VA Loan Eligibility Requirements & Your Certificate of Eligibility (COE)

Your mortgage lender can help you request your Certificate of Eligibility (COE), a document that establishes your VA loan eligibility. Your COE includes information about your military service (confirming you meet the VA’s service requirements), along with the amount of your VA loan entitlement and your VA funding fee.

3. Shop for lenders

You may think all VA loans are the same. While these loans are government-backed, your loan will be issued by a private lender. Some lenders offer great deals and others less great — or flat-out bad.

You should shop around between lenders to find the very best deal for you. But, it’s not just us saying that.

Last year, the Consumer Financial Protection Bureau (CFPB) wrote:

Mortgage interest rates and loan terms can vary considerably across lenders. Despite this fact, many homebuyers do not comparison shop for their mortgages. In recent studies, more than 30 percent of borrowers reported not comparison shopping for their mortgage, and more than 75 percent of borrowers reported applying for a mortgage with only one lender. Previous Bureau research suggests that failing to comparison shop for a mortgage costs the average homebuyer approximately $300 per year and many thousands of dollars over the life of the loan.”

Lenders are required to send you a loan estimate detailing everything you need to know about the mortgage you’re being offered. The CFPB has an exceptionally helpful guide about how to read these — and how to compare them.

Read more: Questions To Ask Before Picking A Lender.

4. Find a reputable buyer’s real estate agent

Usually, as a buyer, retaining a real estate agent costs you nothing. This is because sellers generally pay the buyer’s real estate agent’s commissions. Not every buyer has an agent, but it’s a good idea. Your real estate agent can be one of your greatest assets throughout the transaction. (Just don’t use the same one the seller is using. Their first duty is to the seller.)

A good real estate agent helps you with the following:

  • Finding your dream home
  • Negotiating the best possible purchase deal
  • Completing the buying paperwork
  • Guiding you throughout each step of the transaction
  • Troubleshooting any issues

5. Find your home

This is the fun part: picking out your new home.

Depending on your local real estate market, it may take time to find the right property.

Think ahead about your future needs as well as your existing ones. Choose a home that meets your requirements for many years to come if possible and realistic.

Don’t be tempted by a quick-fix purchase with the expectation that you can move again in a few years. Buying and selling a home is expensive and the real estate market unpredictable — you don’t want to do it more often than you absolutely have to.

6. Make an offer

This is the moment when a good real estate agent proves most valuable. So listen to their advice.

It’s a real estate agent’s job to get you the best deal and they should have the knowledge and expertise to achieve that. So leave the negotiations up to them. Of course, your real estate agent should talk through tactics with you. Basically, how to pitch an offer that won’t alienate the owner but will have you paying the smallest amount possible.

Your real estate agent will also advise you on any “contingencies” that should be included in your offer. These are items that allow you to walk away at no cost if certain eventualities arise like an inspection contingency (if the home inspection uncovers unexpected issues) or a finance contingency (in case your mortgage loan has problems). There may be others as well.

7. Pay earnest money

You’ll typically be expected to pay earnest money when your offer is accepted. Your agent can negotiate the amount, but expect to pay between 1 to 5 percent of the purchase price.

As its name implies, earnest money indicates to the seller that you’re a serious (aka earnest) buyer. This isn’t lost money, though. You’ll get it back either as a deduction from your closing costs, or if your closing costs are covered by a third party, you’ll be refunded the amount.

8. Get a home inspection

Home inspections aren’t required to purchase a home, but they’re highly recommended — especially if you’re buying an older home. A home inspection gives you a top-down evaluation of the home and property, including the roof and home exterior, and shouldn’t be confused with a VA home appraisal.

Typically, you can back out of your offer and receive your earnest money back as long as there is an “inspection contingency” written into the purchase contract.

The VA home appraisal is required for a VA home loan and is arranged by your VA lender. It evaluates the property according to the VA’s minimum property requirements (MPRs) and is intended to protect you from purchasing a property that isn’t safe, sound, and sanitary; it also establishes a fair value of the property.

Read more: VA Appraisal & Home Inspection Checklist

9. Update your lender documentation

Every document used to approve your loan must be the most recent. Ultimately, your lender will ask for what it needs, but you can avoid delays by having it all ready in advance. Gather copies of your personal documents, including your latest pay stubs and bank statements.

You’ll also send a copy of the signed purchase contract to your lender. This allows your lender to order the VA appraisal and update your loan application with the address for your next home.

At this point, you may be asked to sign mortgage disclosure documents. These are sent to you by your lender and lay out the terms of your loan in detail — terms may have changed now that a specific home was found and purchase price agreed upon.

Read more: VA Mortgage Loan Document Checklist

10. Meet your lender’s underwriting conditions

Once it has all the required documentation, your lender submits your application to its underwriting department. This is the final step to officially approve your mortgage loan. It’s not uncommon for underwriters to request more information — called conditions — at this stage. Usually, additional documentation is all that is needed.

After the underwriter gives final loan approval, your lender sends your final loan documents to an escrow company.

11. Sign the final paperwork

You’ll likely go to the escrow agent’s office to sign all the final paperwork. Review all the documents carefully. Compare your most recent loan estimate with the closing disclosure. (Closing disclosures provide a final breakdown of all your loan’s details, including “projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs),” according to the CFPB.)

If there are discrepancies between your closing disclosure and your last loan estimate, your lender must justify them. While some costs can increase at closing, others legally can’t. Call your lender immediately if something doesn’t look right.

If you need to pay any closing costs, you’ll pay those at this time too. Bring a cashier’s check or other certified funds to the escrow office when you sign your documents; your escrow company provides the total amount needed.

12. Monitor the status of your loan

Unfortunately, your loan is not complete when you sign the documents. Your lender could take up to a week or more to finalize your loan and transfer the money. Once the lender funds the loan, the seller and all other parties are paid. (The final step: when the transaction is recorded in your jurisdiction’s official records.)

You might think now’s the time to relax. You can, soon. But, not quite yet.

Few home buyers realize that lenders routinely carry out a second (or third) credit check before closing. If your credit score has taken a hit, your lender could cancel your loan — or increase your mortgage rate. That means no late payments and no new credit cards until the loan process is complete.

Buy a home one step at a time

If you’re just getting started, then consider the VA loan program. VA loans can save you a lot of money and make your homeownership dreams come true.

VA loans typically come with lower interest rates than most other mortgages. The ICE Origination Insight Report shows they’re consistently lower than FHA and conventional loan interest rates. VA home loans also require zero money down and no continuing private mortgage insurance.

See if you’re eligible for a VA home loan (May 1st, 2023)

Source: militaryvaloan.com

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Most homebuyers have to pay a portion of the property’s purchase price upfront. This amount is called a down payment. Exactly how much you’ll need to put down hinges on several factors beyond just the price of the home. Here’s what to know.

What is a down payment on a house?

A home down payment is the part of a home’s purchase price that you pay upfront and does not come from a mortgage lender via a loan.There are many ways to come up with a down payment to buy a home. For repeat buyers who have positive equity in their current home, it’s often the proceeds from selling that home that helps make a down payment on another one. Other sources include:

Some down payment sources, however, are not allowed by lenders. These include loans or gifts from anyone who would benefit from the transaction, such as the home seller, real estate agent or lender.

How do down payments work?

Suppose you want to buy a house priced at $300,000. If you were to put $9,000 toward the purchase price, or 3 percent down, you’d take out a mortgage for the remaining $291,000. If you were to put down $60,000, your down payment would equal 20 percent of the purchase price, and your loan would be for $240,000.

Mortgage lenders often refer to the percentage of the purchase price that they finance as the loan-to-value ratio, or LTV. Using the above examples, here’s how that looks:

  • When you put $9,000 down (3 percent) on a $300,000 home, your LTV ratio is 97 percent.
  • When you put $60,000 down (20 percent) on a $300,000 home, your LTV ratio is 80 percent.

Who gets the down payment on a house?

As the homebuyer, your down payment goes into an escrow account, often managed by a real estate attorney or settlement officer. This third party holds onto the funds and distributes them to the seller once the deal is finalized. The seller ultimately receives the down payment.

How to choose the best down payment amount

Putting a large down payment comes with plenty of perks, but it’s not necessarily the best decision for every homebuyer. Consider these pros and cons:

Benefits of a bigger down payment

  • Smaller monthly payments: Making a bigger down payment upfront translates to smaller mortgage payments each month. Consider the difference between 3 percent down and 20 percent down on a $400,000 home. With a 30-year loan at a fixed 6 percent interest rate, Bankrate’s down payment calculator shows that the bigger down payment translates to a monthly mortgage payment savings of around $400.
  • Lower lifetime interest charges: Those smaller monthly payments add up to significant savings in the long run. In that $400,000 home example, a 20 percent down payment would save more than $78,000 over the course of a 30-year mortgage.
  • Potentially better terms: Lenders like to see larger down payments. By putting more of your own money into the transaction, you’re borrowing less of theirs, which can put you in the running for the lowest rates possible.
  • Ability to skip PMI: If your down payment is 20 percent on a conventional loan, you won’t have to deal with the additional monthly fee of mortgage insurance.

Drawbacks of a bigger down payment

  • Potential to stretch your savings too thin: If you’re draining nearly all your savings to make a bigger down payment, you’re putting yourself in a precarious position as a new homeowner. What happens if you need to cover an emergency cost?
  • The need for more time to save: You might be tempted to keep saving up money to make a bigger down payment, but that strategy can backfire. While you’re trying to cut every expense, home prices might still be rising at a pace you can’t keep up with.

Bigger vs. smaller down payment example

A bigger down payment can make it easier for you to get approved for a mortgage and allow you to buy more house for the same monthly payment, or even less. You might also get a lower rate and lower mortgage insurance premiums (if any). Here’s a breakdown of a 30-year, $375,000 mortgage with a 6.5 percent interest rate, using data from Bankrate’s mortgage calculator and mortgage insurance estimates from Freddie Mac’s PMI calculator:

$375,000 $11,250 (5%) $2,299 $342 $2,641
$375,000 $37,500 (10%) $2,133 $219 $2,352
$375,000 $56,250 (15%) $2,014 $89 $2,103
$375,000 $75,000 (20%) $1,896 $0 $1,896

Note this example doesn’t account for the interest rate savings you’d likely see if you were to make a larger down payment. With 20 percent down, for example, you might pay a lower rate compared to the rate you’d get with 10 percent down.

Keep in mind, as well: There is a trade-off between your down payment and credit rating. Bigger down payments can offset (to some extent) a lower credit score; higher credit scores can offset (to some extent) a lower down payment. It’s a balancing act.

For many first-time buyers, the down payment is the biggest obstacle to homeownership. That’s why they often turn to loans with smaller minimum down payments. Many of these loans, though, require borrowers to purchase some form of mortgage insurance.

However, mortgage insurance is not necessarily a bad thing if it gets you into a home and starts you on the road to building equity. Consider this: If you were to save $250 a month, it would take you 25 years to accumulate the $75,000 needed for a 20 percent down payment on a $375,000 home. That’s a long time to keep renting just to save up the money. Plus, by the time that 25-year period is up, that $375,000 house is going to cost a lot more.

What is the minimum down payment on a house?

The minimum down payment on a house depends on the mortgage program, the type of property you buy and the price of the home. In some cases, you might be eligible for a loan that doesn’t actually require a down payment at all.

Most conventional loans allow for as little as 3 percent of the purchase price if you have great credit. FHA loans require a small down payment as well: just 3.5 percent.

There are two government-backed loan programs that don’t have a down payment requirement: VA loans for service members and veterans and USDA loans for eligible buyers in rural areas.

Why mortgage lenders require a down payment

Very few mortgage programs allow 100-percent, or zero-down, financing. That’s because a down payment on a home reduces the risk to the lender in several ways:

  • Homeowners with their own money invested are less likely to default (stop paying) on their mortgages.
  • If the lender has to foreclose and sell the property, it’s not on the hook for the entire purchase price, which can limit its potential losses if the home is sold for less than the remaining mortgage balance.
  • Saving a down payment requires discipline and budgeting. This can help set up borrowers to be successful homeowners.

Why down payments are good for homebuyers

That initial down payment might feel like a huge obstacle standing in your way, but saving for a down payment provides good practice for the financial responsibilities of homeownership.

Suppose you currently rent for $800 per month, and the payment for the home you want to buy would be $1,200 per month. You can “practice” for homeownership by putting the $400 difference into savings. This accomplishes three things:

  • Your down payment savings grows.
  • You’ll get used to having less spending money.
  • You might avoid an expensive mistake if you realize you can’t handle the larger payment.

Many financial experts agree that having a down payment is a good sign you’re ready for homeownership. If you can make the necessary sacrifices to amass a down payment, then you’ll likely be able to manage expenses that come with owning a home, including monthly mortgage payments, homeowners insurance and maintenance, repairs, property taxes, HOA dues and utilities.

Plus, a larger down payment can also help you win a bid for a home against other buyers. By reducing uncertainty about whether the transaction can go through, the higher down payment makes your offer more competitive.

Bottom line on down payments

The size of your mortgage down payment is a personal and practical decision. Take a holistic look at your monthly budget, debts and cost of living in your city. Bankrate’s affordability calculator can help you determine the right amount for you, and so can a trusted mortgage professional. Ultimately, the decision comes down to your desire, discipline and resources.

Source: thesimpledollar.com