Category: Down Payment

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FHA vs. Conventional Loans: How Do They Differ?

What Is an FHA Loan?

An FHA loan is one of multiple government-backed home loan options. This loan type is insured by the Federal Housing Administration, which makes the requirements to qualify less restrictive for homebuyers. FHA loans are a good option for homebuyers with lower credit scores or lower down payment potential. 

What Is a Conventional Loan?

Conventional loans are a mortgage type insured by private lenders. Conventional loans are not government-backed, which means the qualifications are more stringent than those of an FHA loan. Homebuyers typically need a higher credit score and down payment to secure this loan type. 

Fannie Mae & Freddie Mac

Because conventional loans conform to Fannie Mae and Freddie Mac’s standards, they are also known as conforming loans. Fannie Mae & Freddie Mac are the two government-affiliated organizations associated with conventional loans. They purchase mortgages from private lenders and hold the mortgages or convert them into mortgage-backed securities. 

Credit Scores

FHA Loan

Many factors decide the credit score requirements for each loan option. With an FHA loan, a credit score of 580 is typical for you to qualify. A credit score as low as 500 is a possibility for some homebuyers through certain lenders, however, lenders establish their minimum credit score requirement based on risk. When trying to qualify for an FHA loan with a lower credit score, a homebuyer typically needs a higher down payment. The more you’re willing to put down on your home, the lower the credit score required to secure the loan. 

Keep this in mind: If you have a co-borrower, the credit score used to determine eligibility will be the lowest median score. Your middle credit score will be used if you’re borrowing as an individual. 

Conventional Loan 

With conventional loans, qualifying credit scores vary from lender to lender. However, a minimum credit score of 620 or higher is the standard. Like the FHA loan, your median credit score will be used to determine eligibility if you’re borrowing as an individual. If co-borrowers are present, Fannie Mae can make qualification easier by using the average median score of each borrower instead of the lowest median score. 

Keep this in mind: Conventional loan credit score requirements are higher than FHA loans because of the risk associated with loans that don’t have the backing of a government agency.

Down Payments

Conventional Loan 

It might come as a surprise to new homebuyers, but putting 20% down is not always necessary to secure a conventional loan. Down payment expectations are often flexible. However, if you can’t put 20% or more down on your home, you’ll have to pay private mortgage insurance (PMI).

Smaller down payments create a higher risk scenario for lenders, and PMI keeps that risk in check in case you default on your loan. 

FHA Loan

If you opt for an FHA loan, you can put down as little as 3.5% if you have a 580 or higher credit score. If your credit score falls within the 500-579 range, a 10% down payment is required. 

Mortgage Insurance

Conventional Loan 

Conventional loans often come with private mortgage insurance. Private mortgage insurance (PMI) is an assurance fee typically applied to monthly payments if a homebuyer can’t put 20% or more down on the home. 

Though putting down less than 20% on a conventional loan makes paying mortgage insurance more likely, mortgage insurance payments change when you reach 20% equity in your home. When you achieve this equity milestone, you can ask that your lender remove PMI from your mortgage. 

Your PMI payments automatically end once you reach 22% equity based on your original appraised value. As your home value increases, you can request the lender remove PMI if a new appraisal proves the equity is 20% or more of the appraised value. 

With a rate between 0.58% and 1.86% of the conventional loan amount, a portion of your PMI is included in each monthly mortgage payment to prevent you from paying any upfront costs.

FHA Loan 

If you opt for an FHA loan, you’ll receive a mortgage insurance premium (MIP). Unlike private mortgage insurance, MIP is applied no matter your down payment amount.

Alongside an annual MIP payment (which falls between 0.45% and 1.05% of the loan amount), you will need to pay an upfront mortgage insurance premium (UFMIP). UFMIP is 1.75% of the amount you borrow and can either be paid in full at closing or added to your loan amount. 

Generally, MIP can’t be canceled and is a payment that remains for the duration of the loan regardless of equity. However, if you want to get rid of MIP payments, there are other options. When your equity reaches 20% or more, you can refinance your home with a conventional loan and no PMI. 

Which Loan Offers the Best Benefits?

Conventional Loans Benefit Borrowers Who…

  • Have a credit score of at least 620.
  • Have a down payment of 3% or higher; have a down payment of 20% if they want to avoid PMI payments. 
  • Have a low debt-to-income ratio (DTI).

FHA Loans Benefit Borrowers Who…

  • Have a credit score on the lower end. 
  • Don’t have much saved for a down payment. 
  • Have a higher debt-to-income ratio (DTI).
Make Homeownership Happen!

Whether you’re leaning toward a conventional loan, an FHA loan, or are still unsure where you stand—we can help you! Contact us today to have all your mortgage questions answered or to start your home-buying journey!

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5 Ways to Get the Best Mortgage

One of the most important things to do when getting a mortgage is to ensure the mortgage you choose fits all your home-buying requirements. It’s possible to get the right interest rate, monthly payment amount, and more! You simply need to make the most of available mortgage options, and put your best foot forward where your finances are concerned. Here’s how you can get the best mortgage for your needs. 

Improve your credit score.

No matter which loan you choose, better mortgage rates tend to come to borrowers with higher credit scores. To lenders, your credit score is a risk assessment tool. Typically, the lower your credit score, the riskier it is to lend to you. Borrowers with a low credit score are more likely to default on a loan or fail to meet contractual obligations. This leads lenders to charge higher interest rates to applicants with lower credit scores.

If your credit score is preventing you from buying the perfect home, these tips will help you improve it:

  • Be consistent with payments – On-time debt payment is the number one way to raise your credit score. If you have trouble making payments on time, consider using automatic payment systems. 
  • Consider paying your debts off early – Paying down certain debt before it’s due or making more payments a month than required can also benefit your credit score. Going this route can also decrease your debt-to-income ratio.

Need more help increasing your credit score? Download our FREE Credit Repair Guide.

Choose your loan term carefully.

Short-term loans

Short-term mortgage loans are those that are shorter than the typical 30-year term. Risk is less of an issue with short-term loans, so they typically come with lower mortgage rates. Short-term loans also tend to save borrowers more money over time. However, because you’ll be paying the principal for a shorter amount of time, your monthly payments will be higher.

This loan option is less suitable for borrowers who fall into a lower income bracket, don’t have enough savings to offset higher monthly payments, or are less financially stable. If you’re adamant about a lower mortgage interest rate and can handle higher mortgage payments, a short-term loan might be your best bet.

Long-term loans

Long-term loans are the most common and are typically a 30-year term. These loans allow you to spread your payments over a longer period of time, which will lower monthly mortgage payments and leave you with more disposable income each month than a short-term loan would.

 Make a larger down payment.

The more money you put down on your home, the less you will owe on the mortgage loan. If you make a larger down payment, you can build more equity in your home from the start. Because interest is calculated from the principal, larger down payments also open the door for lower interest costs over the life of the loan.

A borrower’s inability to put down a significant amount on a home could make lenders view their loan as riskier than those who put more money down. In this case, less money down can result in a higher interest rate. 

Keep this in mind: A sizable down payment has its perks, but some loans don’t require a large (or any) down payment at all! FHA and VA loans are excellent mortgage options for those that qualify and want to put less money down.

Remember rate locks.

Rate locks are a great way to potentially avoid rate changes before you close on your home loan. Our Lock & Shop program preapproves a borrower’s budget ahead of time and applies a 60-day interest-rate lock before they start shopping for a home. Lock & Shop is available for all conforming Conventional, VA, FHA, and USDA loans.

Keep this in mind: Like most rate-lock options, borrowers do have to pay an upfront fee to access our program. To learn more, reach out to your closest branch here.

Want to change your mortgage? Refinance!

If you’ve already purchased your home but you’re unsatisfied with your current loan, refinancing is an option! Renegotiating the terms of your mortgage can save you money over the new course of the loan. There are many available refinancing options, each with its own advantages and drawbacks. 

Here are a few ways a refinance can benefit you:

  • If you have an adjustable-rate mortgage and interest rates are on an upward trend, you can benefit by refinancing to a fixed-rate mortgage. 
  • Sometimes expenses pop up, and you need cash to pay for them. If you have enough equity built up in your home, you can use a cash-out refinance to get a lump sum and pay for anything that needs funding.
  • Many borrowers improve their financial situation over time, so it is possible for you to renegotiate a fixed-rate mortgage to a lower rate if you have a better credit score or if rates have decreased since you initially closed on your loan.
Make sure your mortgage is RIGHT for you!

Landing the right mortgage can make or break your home-buying experience, so we want to help you make the best mortgage decision you can! Reach out today to get started on your home-buying journey. 

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Budgeting Down Payment First-time Homebuyer Government Loans Homebuying Homebuying Tips Mortgages Purchase

Homeownership 101: What Are the Costs?

When faced with consistently rising rent prices and the desire to build wealth, homeownership is one of the most beneficial money moves you can make in your lifetime. But that doesn’t mean it comes without its costs. 

To avoid any surprise expenses after buying and moving into your new home, future homeowners need to understand all the costs of homeownership before signing any dotted lines.

Let’s take a look at the most common costs of owning a home so you can enter homeownership financially prepared. 

Upfront Costs

Down Payment

The most widely mentioned homeownership expenses are the out-of-pocket amounts you will need to close on your home. Typically, these upfront costs consist of your down payment and other closing costs. 

Down payments vary in amount, but they are often between 3% and 20% of a home’s price. Some government-backed loan programs, such as VA and USDA, require zero down payment; however, if you don’t qualify for a zero-down-payment loan, it will be in your best interest to save up a decent amount of money to be able to purchase your home. 

Closing Costs

Closing costs are fees that you acquire throughout the home-buying process. Closing costs consist of lender fees, taxes, insurance, title search fees, etc. They are typically between 3% and 6% of a home’s purchase price. 

Monthly Mortgage Costs

Property Taxes

When you get a mortgage, property taxes might be included in your monthly mortgage payment, which would allow your lender to hold the funds in an escrow account and pay them on your behalf. 

The U.S. Bureau of Labor Statistics’ Consumer Expenditures Survey (CES) estimates homeowners paid an average of $3,370 in property taxes in 2019. 

Insurance

Homeownership will likely also come with an insurance cost added to your monthly mortgage payment:

  • General Home Insurance – covers loss and damage to your house, as well as the assets inside your home if a damaging event occurs and would be used to restore your home to its original value. 
  • PMI – Private mortgage insurance is a cost only applicable to conventional (or non-government-backed) loans. PMI is an “assurance fee” typically applied to monthly payments if a borrower cannot put 20% or more down on the home they purchase. PMI acts as a buffer for lenders when the risk of default is on the table while making homeownership possible for borrowers who can only put a small percentage down on the home they want.
  • MIP – A mortgage insurance premium is much like PMI, but it only applies to government-backed (FHA) loans, and it is required no matter your down-payment amount. This mortgage insurance consists of an annual MIP and UFMIP (upfront mortgage insurance premium).

Day-To-Day Costs

Once you’ve closed on your home and moved in, there are other living costs to consider aside from the expected monthly mortgage expenses.

Utilities

An umbrella term familiar to any new homeowner who was first a renter, utilities consist of all electricity, fuels, and services needed to keep your home livable. 

The 2020 Consumer Expenditures Survey (CES) supports the idea that utilities can make up a sizable chunk of monthly expenditure when they state that the average homeowner spent around $4,150 on utilities, or about $350 a month.

But don’t let these numbers scare you. Utility costs can vary depending on your location, the size and features of your house, and how much you use them overall.

Homeowners Association (HOA) Fees

Nowadays, many communities have a homeowners association that you will likely have to join, which means you will need to pay a monthly fee to that association. 

HOA fees generally pay for the following services shared by neighbors or community members:  

  • repair of shared community buildings 
  • neighborhood walkways or roads
  • upkeep of common areas
  • landscaping or weather-related services (such as lawn care or snow removal). 

Monthly HOA fees are often $200 – $300, but the exact cost is dependent on the extent of shared spaces and services your community offers. The fewer community spaces and services available, the lower your HOA fee will tend to be. 

In some cases, HOAs will ask you to pay a special assessment if an unforeseen emergency expense arises and they don’t have funds set aside to cover the cost. If this occurs, your HOA will request the special assessment fee in addition to your typical monthly HOA fees.

If you’re considering moving into a neighborhood with an HOA, make sure you understand the regular dues (and special assessments) you’ll have to pay.

Internal Upkeep: Maintenance 

Homeownership comes with the responsibility to fix things that need fixin’. This is where maintenance costs come in. If some part of your home needs to be replaced, cleaned, or otherwise serviced, you will need to have the money (and time) set aside to get things working as they should. 

According to a 2021 index from Thumbtack, a home services organization, the average homeowner should “budget $4,886 for a single-family home—up about $450 from last year, in part due to labor and material shortages.” 

The above price estimate may seem daunting to new homebuyers, but be aware that this estimate is a result of the past few years of unique, global circumstances. As things continue to fall back into normalcy, so should maintenance expenses. 

Here are the most common repairs and maintenance services homeowners need:

  • water damage
  • roof issue
  • HVAC care
  • plumbing problems
  • pest removal

If you want to be as prepared as possible to cover these costs if they arise, a good rule of thumb is to save 1% of your home’s value each year. 

Renovation Costs

Renovation costs are also something new homeowners should consider. However, they are not a definite expense. If you feel the need to make aesthetic additions to your home in the form of painting, rearranging, or upgrading, be sure to set aside enough funds for your home makeover to go smoothly. 

Though renovation is not a requirement, it can be a great investment, as many of these projects can help boost your home’s value. MortgageRight also has an awesome Renovation Loan Program to help you fund any renovations you might want to undertake. 

Financial Preparedness Is The RIGHT Way To Approach Homeownership

Homeownership is rewarding, but it’s not something you should jump into unprepared. If you need more help navigating the ins and outs of homeownership expenses, or you’re ready to put your money where your mouth is, contact us here, and we’ll get you started!

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Upfront Underwriting: A Better Way to Pre-approval

Getting approved for a mortgage without knowing which home you want to purchase might seem like a pipe dream. But MortgageRight is in the business of making the impossible a reality! Let’s look at how an underwritten pre-approval will allow you to get conditionally approved for a mortgage even if a home hasn’t caught your eye yet. 

How Does It Work?

Upfront underwriting, also known as To-Be-Determined (TBD) Pre-approval, is a method that sends the necessary information to an underwriter at the beginning of the mortgage process instead of at the end. This way, a lender can give you conditional approval of a dollar amount before you have a house picked out.  

Which Documents Will Be Reviewed?

Much like traditional loan underwriting, the upfront underwriting process requires documentation that supports your financial stability to ensure a successful pre-approval. To verify your eligibility, an underwriter will review the following:

  • Past two years of W-2s
  • Most recent pay stubs
  • Past two years of tax returns
  • Credit report
  • Other asset documentation
Underwritten Pre-approval vs. Pre-qualification 

The most notable difference between a true pre-approval and pre-qualification is underwriting review. If you opt for pre-qualification, you must submit income, asset, and credit-related information that will initially land in the hands of your mortgage loan originator. At that point, your mortgage loan originator will review the information and determine which loan programs and amounts you could be qualified for on your home purchase. Because pre-qualification does not involve an underwriter reviewing your information at the onset, loan circumstances are subject to change as you move through the home-buying process.

On the other hand, our Underwritten Pre-approval Program allows for upfront underwriting and faster issuance of a conditional approval of a loan amount. That is why an underwritten pre-approval is so valuable. Instead of having an underwriter review your information later in the process, it is sent directly to them. This way, you can get a well-founded assurance about which loan program and maximum loan amount you can use to purchase the home of your dreams. 

What Are the Other Advantages of Underwritten Pre-approval?

One of the greatest advantages of underwritten pre-approval is securing an upfront review and verification of your credit, income, assets, and loan application by an underwriter before you decide on your perfect home. It’s a great way to get ahead of the game, understand your budget, and start shopping with certainty.

An underwritten pre-approval is the ticket to peace of mind because it drastically reduces surprises on your way to the closing table. Plus, an underwriter’s stamp of approval gives realtors and sellers confidence that issues with your mortgage loan are unlikely, which earns you more negotiating power over other potential buyers when you finally find the house you want. 

Is an Underwritten Pre-approval RIGHT for You?

Many homebuyers can benefit from getting pre-approved at the beginning of the home-buying process. Think the underwritten pre-approval route is RIGHT for you? Contact us here, and we’ll get you into a new home in no time!

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5 First-Time Homebuyer Mistakes and How to Avoid Them

We get it. Today’s home-buying landscape can leave many first-time homebuyers wondering if they’re making the right choices when it comes to securing a mortgage. The good news is, you don’t have to go into this blind. Let’s look at five common mistakes homebuyers make and how to avoid them.

Making a down payment that’s too small

Contrary to popular belief, you don’t always have to make a 20% down payment to purchase a home. Some loan programs will allow you to put as little as 3.5% on the table, or no down payment at all. Now, you might be thinking, of course I’m going to go with the option that takes the least out of my pocket upfront. But paying a smaller down payment does not suit everyone’s needs. 

Smaller down payments might lessen the hit to your savings in the short term, but you will be left with larger monthly mortgage payments as a result. On the flip side, going into a home purchase with a larger down payment might deplete funds you had saved up for other situations.

Use this advice to avoid a setback:  The answer to the question “which down payment amount is best?” comes down to one thing—your judgment. You’ll want to decide on a down payment (and supporting loan program) that will guarantee a monthly mortgage payment you’re satisfied with. If you’re aiming for a higher down payment, save more beforehand. If a lower down payment is more your style, make sure your finances can withstand a higher monthly payment.  

Not checking credit reports and correcting errors

Your credit report is one of the holy grail documents lenders use when deciding whether to approve your loan and at what interest rate. If there are any errors, unknown or otherwise, in your credit report, it could lead to a lender landing you with a higher interest rate than you anticipate. That’s why it’s so important to make sure your credit report is accurate. 

Use this advice to avoid a setback: Now more than ever, it’s easier to get access to your credit report. Request a free credit report from the three main credit bureaus to check for discrepancies. From there, you can dispute any errors you notice. 

Ignoring VA, USDA, & FHA loan programs

Making a small down payment is at the top of the list for many first-time homebuyers. But they aren’t always aware of the benefits that come with government-backed loan programs. VA, USDA, and FHA loans often make it easier to buy a home by requiring as little as zero down. 

Use this advice to avoid a setback:  Learn how these loan programs can benefit you: 

  • VA – For the majority of military borrowers, the VA loan program is the most beneficial. These versatile, $0-down payment mortgages have made it possible for more than 24 million service members to achieve their dream of homeownership. 
  • USDA – A USDA (United States Department of Agriculture) loan is a government-backed loan that allows lenders to offer borrowers lower rates and no down payment. This loan aims to boost rural economies and build a better quality of life for rural communities across the nation. The USDA makes this possible by creating a more affordable option for families looking to buy a new home. 
  • FHA – An FHA loan is a mortgage insured by the Federal Housing Administration. With a minimum 3.5% down payment for borrowers and a wider range of acceptable credit scores, FHA loans are popular among first-time homebuyers who have little savings or have credit challenges.
Emptying your savings

For most homebuyers, savings are an integral part of the home-buying process. That’s why you should make sure you have enough funds stashed away to pay for the cost that comes with a home purchase. 

Having ample savings is especially important for borrowers who buy older or previously owned homes. Why? Because more often than not, home repairs or renovations will be on your to-do list, and if you blow through your savings, you might find yourself dealing with a leaky roof longer than you want to. 

Use this advice to avoid a setback: Be sure to save enough money to make your down payment, pay for closing costs and moving expenses, and tackle any repairs that may crop up. Your lender will provide estimates of closing costs. MortgageRight also has a great Renovation Loan option that you can make the most of!

Applying for credit too soon

Once you apply for a mortgage, the financial choices you make between that moment and the date you close on your home are crucial. During this period, you shouldn’t make any financial decision involving opening new lines of credit.  

 Use this advice to avoid a setback:  If you need to get a new credit card, finance a new car, or make any other large purchase using credit, be sure to do it after your mortgage loan closes to avoid any unwanted surprises.

Make the RIGHT choice with us!

Mistakes are a part of life, but they don’t have to be a part of your home-buying experience. If you have any questions about the do’s and don’ts of getting a mortgage, or you’re ready to take that first step, contact us today, and we’ll guide you home.

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Down Payment First-time Homebuyer Homebuying Homebuying Tips Mortgages

PMI vs. MIP: A Guide to Mortgage Insurance

Mortgage insurance is a gateway to homeownership. It adds an extra layer of accessibility for those who can’t put forward a sizable down payment. By paying mortgage insurance in addition to the monthly mortgage payment, a borrower can buy the home of their dreams with less than 20% down. 

Private mortgage insurance (PMI) and a mortgage insurance premium (MIP) are the two most common types of mortgage insurance. Though these types of mortgage insurance are prevalent, which one you get depends on a variety of factors. 

PMI vs. MIP: What Are They?

PMI

Private mortgage insurance is a cost only applicable to conventional (or non-government-backed) loans. PMI is an “assurance fee” typically applied to monthly payments if a borrower cannot put 20% or more down on the home they purchase. PMI acts as a buffer for lenders when the risk of default is on the table while making homeownership possible for borrowers who can only put a small percentage down on the home they want. 

MIP

A mortgage insurance premium is much like PMI, but it only applies to government-backed (FHA) loans, and it is required no matter your down-payment amount. This mortgage insurance consists of an annual MIP and UFMIP (upfront mortgage insurance premium). 

Notable Differences Between PMI And MIP

Beyond the type of loan each mortgage insurance policy applies to, there are other notable differences to keep in mind. 

Can You Cancel?

If you put down less than 20% on a conventional loan, mortgage insurance is something you will more than likely have to pay. However, mortgage insurance payments change when you acquire 20% equity in your home. When you reach this equity benchmark, you can request that your lender remove PMI from your mortgage. Even borrowers who get caught up in the motions of paying PMI alongside their mortgage and forget to request a stop on PMI have the chance to see it go. 

PMI is automatically canceled once you reach 22% equity based on your original appraised value. As your home value increases, you can request the lender remove PMI if a new appraisal demonstrates the equity is 20% or more of the appraised value. 

This is great news for most borrowers who pay PMI, but things work a little differently for those who have FHA loans. Typically, the MIP can’t be canceled on this government-backed loan and is a payment that remains for the duration of the loan regardless of equity. 

If the MIP payments tacked onto FHA loans aren’t for you, there are still other options. When your equity reaches 20% or more, you can refinance your home with a conventional loan and no PMI. 

Upfront Costs

An FHA loan is a mortgage option that requires both an upfront mortgage insurance premium (UFMIP) and MIP.

With this loan, UFMIP is 1.75% of the amount borrowed. It can either be paid in full at closing or added to the loan amount. 

PMI, however, is typically paid annually, with a portion included in each monthly mortgage payment. This prevents you from paying any upfront costs.

Annual Costs

Those who finance their home with an FHA loan will pay an annual MIP. This falls between 0.45% and 1.05% of the loan amount. 

Alternatively, the PMI rate is determined by your down payment amount and creditworthiness. PMI rates are typically between 0.58% and 1.86% of the loan amount.

PMI vs. MIP: Which One Is RIGHT For You?

Whether PMI or MIP, mortgage insurance is a payment that many borrowers will come across on their home-buying journey. But it doesn’t have to hold you back from getting your perfect home! Contact us here, and we’ll help you navigate the ins and outs of mortgage insurance with ease!

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Down Payment First-time Homebuyer Homebuying Homebuying Tips Purchase

Down Payments: How Much Do You Really Need?

When preparing to buy a home, it’s important to consider one of the most significant financial components of the purchase—your down payment. A down payment is an out-of-pocket amount you pay toward your home that translates into home equity. Because guidelines and lending practices vary when it comes to down payments, it can be hard to figure out how much you need. Let’s find out which down-payment option is right for you!

Is a 20% down payment necessary?

A 20% down payment can seem daunting for a first-time homebuyer. But there are other options. Most lenders are flexible about how much money they will allow you to put down. With that said, everything in life has its pros and cons, and making a sizable down payment is no different. 

Pros

If putting 20% down on your home is financially feasible, here are a few benefits you’ll reap.

You can land a better interest rate

When you put down 20% or more, you’re less of a risk to lenders. And when you’re not as risky to lend to, you gain access to lower interest rates. 

Your interest rate is simply the percentage of the principal or outstanding balance that you’re charged monthly for borrowing money. An interest rate that’s even one point lower can save you thousands of dollars throughout the life of your loan. 

Want to know more about interest rates? Find out here.

Your monthly payments will be lower

Your down payment goes toward the cost of your home. If you can put a sizable amount of money down, you can borrow less from your lender to pay for the rest of your home. With less money borrowed, you will have lower monthly mortgage payments. 

You won’t have to worry about PMI

PMI, or private mortgage insurance, is an assurance fee typically applied to a borrower’s monthly payments if they cannot put a certain amount down on the home they purchase. It acts as a buffer for lenders when the risk of default is on the table, and if you put 20% down, you won’t have to worry about it.

Even if putting 20% down isn’t in the cards, you can request that your lender remove PMI when you reach 20% equity in your home. Typically, if you don’t make the request, a lender will automatically cancel PMI when you build at least 22% equity in your home. However, this does not apply to FHA loans. 

Need to know the basics of equity? Learn more here.

You’ll pay less interest over time

The higher your down payment, the lower your borrowed amount, so you’ll pay less interest over the duration of your loan. 

Cons 

Though putting 20% down seems like it might be the best option for every buyer, there are potential disadvantages to consider. 

Saving takes time 

Most borrowers will spend months (or even years) putting money away for a down payment, but some borrowers’ savings might be better used elsewhere. If you think you might need the money to fund an important event in your future, it might be more beneficial to put down less than 20%. 

Less money for repairs and home improvements

Some borrowers have their eye on a home that will require a few repairs, and they might be able to snag it for a bargain because of it. With a larger down payment, there are fewer funds left to go toward the maintenance of the purchased home. 

This might be less of a drawback if you’re willing to hold back on the repairing process. Once you’ve built up enough equity in your home, you may be eligible for a cash-out refinance to fund your home improvement project(s).

Is it possible to buy a house with a low or no down payment?

Of course! Not being able to put money down may not exclude you from being able to buy the home of your dreams. However, it does prevent you from being able to access certain loans. If you want to put 0% down, you’ll need to get a government-backed loan. 

Government-backed loans are those that the government insures. They are beneficial to borrowers because the government will cover any financial losses if you default on the loan. Lenders will also be more likely to give lower interest rates and less stringent down payment requirements on these loans. 

An FHA loan is a government-backed loan insured by the Federal Housing Administration. With this mortgage option, you can typically purchase a home with as little as 3.5% down if you have a credit score of 580 or above. However, if your credit score is within the 500-579 range, you’ll be required to put down as much as 10% 

If you’re thinking about buying a home with no money down, a VA loan or USDA loan may be the right option for you. You may qualify for a VA loan if you’re a current or former service member or a surviving spouse of a former service member. To qualify for a USDA loan, the home you want to purchase must be located in an eligible rural or suburban area.

Both VA and USDA loans come with a zero-down payment guarantee as long as you meet the minimum requirements set by the Department of Veteran Affairs (VA) and the U.S. Department of Agriculture (USDA).

Down-payment requirements for non-government loans

Outside of government loans, down-payment requirements can vary:

Conventional Loan: Conventional loan requirements a determined on a lender-by-lender basis. Some lenders may require you to put higher than 5% down, but at MortgageRight, 3-5% is common. 

Jumbo Loan: Though they don’t have a designated down-payment requirement, Jumbo loans typically require higher down payments and credit scores to be eligible. 

Don’t let a down payment keep you from owning your dream home

Whether you’re in the financial position to put more than 20% down or a zero-down payment is more suitable, MortgageRight can help you secure the RIGHT loan option for your home-buying needs. Get a quote or pre-approval letter or contact us at mortgageright.com/contact to make your dream home a reality!

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Budgeting Down Payment First-time Homebuyer Homebuying Homebuying Tips Mortgages Pre-approval Purchase Self-Employed

How to Get a Mortgage if You’re Self-Employed

You’ve finally put some action behind the go-getter title your friends gave you and started a successful business. Now you’re looking for the perfect place to wind down after putting in the work. But as a self-employed individual, are there extra hoops you’ll need to jump through to buy your new home? Let’s find out. 

Does Being Self-Employed Make it Harder to Get a Mortgage?

The answer depends on what you consider harder. The biggest difference between a self-employed and an otherwise employed person is the documentation a lender may request to increase your chances of approval. 

When applying for a mortgage while self-employed, you need to be realistic about your income and what you can afford, prepared to submit more paperwork, and willing to pay constant attention to detail. 

Understanding Your Unique Self-Employed Situation

When assessing a self-employed borrower, most lenders will want to have a good understanding of the nature and location of your business, your business’ financial viability when it comes to current and future income generation, and your personal income stability.  

Employment Verification

Employment verification is the first step in proving you are successfully self-employed. Documents verifying self-employment status can include written communication from the following:

  • Current (and past) clients indicating services performed
  • A letter from your licensed CPA, or tax preparer
  • A professional organization that can attest to your membership
  • Any state or business license that you hold
  • Evidence of worker compensation and insurance for your business
  • A Doing Business As (DBA) issued at least 2 years prior to your application date

Income Documentation

You’re much more likely to be approved for a mortgage if you can provide proof of a steady income. You may think you only need a few tax documents to breeze through the income verification portion of the approval process, but there have been recent changes in requirements, and you need to be prepared.

In June 2020, mortgage organizations Fannie Mae and Freddie Mac instated specific income verification practices for self-employed borrowers. According to a bulletin posted by the organizations, “the mortgage file must include a written analysis of the self-employed income amount and justification of the determination that the income used to qualify the borrower is stable.”

Because of these new stipulations, your lender will now ask for the following to verify your income:

  • 2 years of personal tax returns (this includes W-2s if you’re paid through your corporation)
  • An unaudited year-to-date (YTD) profit and loss statement that is signed by the borrower and reports business revenue (i.e., gross receipts or sales), expenses, and net income                      Note: The statement must cover the most recent month preceding the application received date.
  • 3 months business account statements no older than the latest two months represented on the YTD profit and loss statement                                                                                                                Note: Personal asset account statements evidencing business deposits and expenses may be used when the borrower owns a small business and does not have a separate business account.
The Road to Approval

Documentation is not the only thing you should consider when it’s time to submit your mortgage application. The road to approval may be clear of speedbumps if you have these four segments of your financial portfolio in order.

Credit Score

If there’s one thing self-employed mortgage applicants share with every other applicant out there, it’s what lenders will view as an acceptable credit score. 

Lenders look to your credit score for information on your debt repayment history, and a better score may equal more favorable loan terms, so be sure to keep your credit score as high as possible at all times.

Debt-To-Income-Ratio 

When it comes to getting a mortgage while self-employed, underwriters look at your existing debts instead of your income. This is how your debt-to-income ratio (DTI) is calculated.

Your DTI is a measurement of your income against your recurring debts, and it determines how much money you have available for potential monthly mortgage payments. 

DTI may hold more weight for self-employed borrowers because lenders might view tax write-offs as lowered income. This could result in existing debts becoming a larger share of your approved budget. 

If your DTI is 50% or higher, it may be wise to pay some current debts down before you apply for a mortgage. 

Down Payment

Your lender will also require proof that you have the funds for a down payment, miscellaneous fees, and enough funds to cover the initial monthly mortgage payments. 

This is why having a thorough understanding of your financial situation is so important. If you know that you will not be able to afford these expenses or you’re not willing to make the necessary financial adjustments, you should hold off on applying for a mortgage.

Separate Personal & Business Expenses

People who own businesses tend to intermingle business and personal debts, but this can backfire on those seeking a mortgage. The increase in credit usage may hurt your mortgage application if you charge business purchases, such as office phones or other supplies, to your personal cards or accounts.  

Keeping your business and personal accounts separate will more accurately reflect your financial profile (and increase your chances of being approved for a mortgage). 

Ready to Be a Self-Employed Homeowner?

Landing a mortgage while self-employed doesn’t have to be difficult! All you need is the RIGHT information and the RIGHT preparation to become a homeowner. Think you’re ready to take the next home-buying step? Click here to get started. 

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Budgeting Credit Down Payment First-time Homebuyer Homebuying Tips Loans Mortgages Purchase

How to Get a Mortgage in 2021: A Step-by-Step Guide 

For many people, getting a mortgage can feel like learning to walk all over again—that is, if they go into the process uninformed. Information is what separates the runners from the crawlers, and knowing how to prepare will make it that much easier to walk into the front door of your dream home.

Ready to make strides in the home-buying process? Let’s look at how to get a mortgage, step-by-step. 

Step 1: Financial Preparedness is Key

When looking to get a mortgage, be sure you’re financially prepared to take on homeownership. Buying a home is a major investment, and you need to consider how it will affect your finances. Can you save enough for a down payment? Are you deep in debt? Can you cover closing costs? 

If you answered no to any of those questions, you may want to improve your financial situation before applying for a mortgage. 

Additionally, lenders take a close look at your credit score when determining your mortgage eligibility; so make sure your credit score is in good condition before applying for a mortgage. If your credit score needs a little work, give it a boost by paying off debts or holding off on opening new lines of credit until you can secure a mortgage. 

Step 2: Decide Which Mortgage Loan Type Suits Your Needs

There are many loan types out there with different eligibility requirements, so it’s best to learn which one will fit your unique home-buying needs before you apply. 

Here are some loan types you might be interested in:

  • FHA loans have features, such as low down payment options, flexible credit & income guidelines, and a fixed rate, that may make it easier for first-time homebuyers to achieve the dream of homeownership.
  • USDA loans are popular among today’s home buyers because the USDA program offers no-money-down financing where homebuyers can finance 100% of a home’s purchase price.
  • Conventional loans are home loans not insured by the federal government. This type is best suited for borrowers who have a strong credit score, stable employment history, and can make a down payment of at least 3% of the home’s cost. 
  • VA loans are most beneficial for the vast majority of military borrowers. These versatile, $0-down payment mortgages have made it possible for more than 24 million service members to achieve their dream of homeownership. 
  • Jumbo loans are for home prices that exceed federal loan limits. These are best suited for affluent buyers with good credit, a high income, and who can offer a substantial down payment. 

Fixed or Adjustable Rates?

Fixed-rate mortgages keep the same interest rate over the life of your loan. They also provide a consistent monthly payment on your mortgage and come in 15-year, 20-year, or 30-year loans. 

Adjustable-rate mortgages have flexible interest rates that change with market conditions. These come with a certain level of risk but are beneficial if the home is temporary. 

Step 3: What Documentation Is Needed?

You’ll need to have all of your documentation in order before you apply for a mortgage. Here’s a rundown of the paperwork your lender will request.

Proof of Income

A lender will ask for a variety of documents to verify your income. Here are some items you might need to provide:

  • 2+ years of federal tax returns
  • 2 most recent W-2s and pay stubs
  • If you’re self-employed, 1099 forms or profit and loss statements, or other additional documents
  • If applicable, legal documentation that proves you have been receiving child support, alimony, or other types of income for at least 6 months

Credit Documentation

A lender will always ask for verbal or written permission to view your credit report. While looking at your credit report, lenders will keep an eye out for factors that might exclude you from getting a mortgage (e.g., bankruptcy or foreclosure). If bankruptcy or foreclosure are present on your credit report, you might have to wait a number of years before you’ll become eligible for a mortgage.

Proof of Assets & Liabilities 

It’s possible that a lender might request some of the following documents to verify your assets: 

  • Up to 60 days’ worth of account statements that confirm the assets in your checking and savings accounts
  • The most recent statement from your retirement or investment account
  • Documents highlighting the sale of any assets you released before you applied (e.g., a copy of title transfer for a sold car)
How To Get A Mortgage With MortgageRight
Step 4: Preapproval

Preapproval is the process of learning how much a lender is willing to lend you to purchase your home, and there are some big advantages of getting preapproved before starting the mortgage application process. 

For one, it shows sellers that you can make a solid offer up to a specific price. Preapproval also gives you a better understanding of your mortgage costs because lenders will determine—and provide details on— your interest rate, APR, fees, and other closing costs.

During the preapproval process, MortgageRight will seek to provide the mortgage option(s) we think best fit your needs. We will show you different mortgage solutions and how much you can qualify for.

Step 5: Submit your Application

Even if you have already been preapproved, you still need to formally submit your most recent financial documents when you apply for a mortgage. Outside of the previously mentioned Proof of Income documents, you may also need to submit the following:

  • Proof of other sources of income
  • Recent bank statements
  • Details on long-term debts (e.g., car or student loans)
  • ID and Social Security number
  • Documentation of recent deposits in your bank accounts
  • Documentation of any funds or gifts used for a down payment

*Depending on the type of mortgage you’re getting, other documentation may be required. 

Within three business days, MortgageRight will give you an initial loan estimate. It consists of the following information:

  • The cost of the loan
  • Associated fees and closing costs
  • Interest rate and APR
Step 6: Enter the Underwriting Process

During this process, an underwriter will verify your assets and finances with the documentation you have provided during your application submittal.

MortgageRight will also take steps to verify details about the property you want to purchase:

  • Order an appraisal 
  • Verify the home’s title
  • Schedule any state-required inspections. 

When underwriting is finalized, you’ll receive a Closing Disclosure document.

A Closing Disclosure will tell you important information about your mortgage, including your monthly payment, down payment, interest rate, and closing costs. If you have any questions regarding the Closing Disclosure, you may discuss them with your Loan Originator prior to the scheduled closing date. 

Step 7: Close on Your Home

When your loan gets approved, you will be scheduled to attend closing at the closing agent’s office. This closing session is the perfect time to ask any last-minute questions you may have about your loan. Remember to bring your Closing Disclosure, a valid photo ID, and your down payment. Once you sign on that dotted line, you will officially become a homeowner!

Are You Ready To Secure A Mortgage?

A lot of organization, documentation, and time goes into getting a mortgage, but if you prepare as much as you can beforehand, things should go smoothly for you. Think you’re ready to take that first step toward getting a mortgage? We’ll walk beside you! Click here to get started!

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Budgeting Down Payment First-time Homebuyer Homebuying Homebuying Tips Mortgages Pre-approval Purchase

Cease Your Lease: Advantages of Buying a Home

Owning a home has been a rite of passage for generations, but in recent years, one obstacle has kept people from their home-buying goals—rent. While many have broken free from the leash of a lease, one group still clings to the world of renting.

Millennials: Stuck in The Rent Ring

For the millennial generation (those born between 1981 – 1996), rent is an ever-present—and often welcome—expense. According to data from the Pew Research Center, more millennials choose to rent over buying a home compared to generations prior. Several factors play into many millennials’ decision to continue renting. Past economic decline, postponement of marriage, the housing bubble, and freedom to apartment hop have all lead millennials to stick with their landlords. But as the housing market continues to improve, millennials need to know that the American Dream of owning their own home is still within reach. 

Top 3 Reasons to Buy vs. Rent 

1). Owning a home will benefit you in the long run

Renting your home (or apartment) means shelling out income to a landlord and putting nothing toward an investment you own. Buying a home trumps renting because it can result in financial gain in the future. When you buy a home with a 30-year mortgage and make the required payments, you will come out owning your home, and money will stop coming out of your pockets. However, if you rent a property, you will have nothing to show for all the time and money you put toward paying your rent. 

2). Boosted equity as property values rise

Rising home values are the name of the game (and are expected to be on the ups for the foreseeable future), which makes homeownership a profitable long-term investment. According to Zillow, the average U.S. home price has increased 13.2% from May 2020 to 2021—a record rise since the company began aggregating housing data in 1996. 

This increase in property values is critical when deciding to buy versus rent because owning a home can result in a significant return if your home is sold at a higher value than it is purchased. And, with each monthly mortgage payment, you boost the amount of equity—a tangible growth in your home value that you can borrow against—you have in your home. 

3). Avoid constant rent increases

Though the amount may be unpredictable, one thing is for sure, your rent is going to rise (likely every year). With steadily rising rent comes constant budget changes and potential overpayment for a property that does not live up to its price tag in living conditions. Sound like a nightmare? Well, with a fixed-rate mortgage, you will always pay the same amount each month on a home you own, and you can’t be kicked out by a landlord!

*The Principal and Interest payment remains the same on a fixed-rate mortgage. Typically, only the escrow portion of the payment (insurance and property tax amount) increases. 

Breaking the Cycle: Letting Go of Beliefs That Keep You with a Lease

Bright lights can bog you down

We get it—the lure of living in the big city is strong for millennials, but a large metropolitan area could only offer you sky-high rent prices (as opposed to a fixed-rate home with a backyard). If those city lights are beginning to blind you, consider moving to a more rural area just outside and landing a home that suits you with a USDA loan. 

Don’t let debt stop you from getting a house with a deck

Student loan debt is a massive concern for many who want to leave renter life behind, but being debt-free isn’t a requirement when buying a home or qualifying for a mortgage. Lenders do consider your current debt, including any associated with student loans, but only to determine your DTI (Debt-to-Income Ratio). Your DTI is simply a measurement of your income against recurring debts, and lenders look to it to decide whether you will be in a financial position to make payments on a possible mortgage. The more debt you have, the more likely you are to fall behind on your payments. But don’t lose hope—lenders have varying options when it comes to DTI ratios. 

*Most lenders prefer a potential borrower’s DTI to be about 35% or lower during the approval process. 

Tie the knot after finding your way home

In a report about millennial home-buying trends, Bank of America states, “Life events such as getting married or having children are typical triggers to buying a home. The longer this age group lives with parents or independently, the more homeownership will be delayed,” However, this does not have to be the route you take. Even if your social media status says single, you should still be seeking to own a home to build wealth for your future—and an FHA loan (or a VA loan if you are military-affiliated and eligible) can help a new home be your plus one.

Ready To Leave Your Lease Behind? 

Buying a home is a huge step for up-and-coming generations, but it doesn’t have to be stressful. If you’re ready to let go of the leasing life and start living life, we can help! Getting a quote or pre-approval letter is easy. To get started, click here.