4 Things You Should Know About Conventional Mortgage Rates

4 Things You Should Know About Conventional Mortgage RatesSecuring the best conventional mortgage rate possible can pose a challenge for even veteran property buyers.

Your mortgage rate will be determined by a variety of factors that pertain to your unique financial portfolio as well as economic forces. While no one has full control over all of the things that influence the process, understanding the manageable aspects can improve your negotiation position when securing a conventional mortgage.

Consider these four things that impact how conventional mortgage rates are determined.

1: Credit Is King

A borrower’s credit score has a tremendous impact on the final mortgage rate. The general rule is that the higher the score, the lower the rate. The opposite generally holds true as well.

Lenders usually require a minimum credit score of at least 620. Some will dip as low as 580. If yours falls lower, qualifying for a conventional loan may not be an option. But the good news about credit scores is that this is an element you have control over.

A credit report details your repayment history, previous loans, credit card and financial bandwidth, so to speak. Before mortgage shopping, get a copy of your credit report, clean up any blemishes and amp it up as high as possible.

2: Economic Growth Matters

The average home buyer has zero control over the economic forces that impact mortgage rates. But you do have choice about when to buy.

It’s no secret that the country is in the midst of tremendous GDP growth, historically low unemployment, improved consumer confidence and rising wages. This may seem like a good time to buy. Not necessarily when it comes to conventional mortgage rates.

Prosperity tends to create an uptick in consumers vying for home loans. That demand seems like a good thing. But the Fed often responds to high levels of consumer confidence by raising rates across the board. The theory behind this unfortunate environment stems from the idea lenders have limited resources.

It may seem counterintuitive, but weak economies often enjoy lower rates. For practical buying purposes, the U.S. economy looks like a juggernaut right now. You may want to buy sooner rather than later. Rates could go up again.

3: Price And Down Payment

Another set of facts that you have control over are the down payment amount and price of the home.

Conventional mortgages require a minimum down payment of 20 percent or higher. Like credit scores, the higher the down payment to better positioned you will be to secure the lowest possible rate. The basic concept trails back to the level of risk the lender takes by writing the loan.

For example, borrower defaults often force banks to take losses upwards of 30-60 percent of the loan. That 20 percent shows that you have real skin in the game and are less likely to stop paying the monthly premiums. Big down payments often correlate to lower mortgage rates.

Although 20 percent remains the industry standard, borrowers can secure a loan with less down. If you qualify for a conventional loan with less than 20 percent down, expect a less than desirable rate and the additional cost of private mortgage insurance. It’s kind of a double whammy.

4: Loan Types Differ

There are several variables in the loan-writing process that directly impact rates.

Most loans have terms of 15-30 years and lenders are more apt to offer lower rates on shorter term mortgages. Fixed- or adjustable-rate types are also profoundly different. Adjustable mortgages tend to enjoy lower rates in weak economies. But when the country ramps up, so does your interest rate and monthly premium.

Fixed-rate conventional mortgages are static throughout the life of the loan. The rate may be slightly higher at the closing. However, you won’t be betting against the economy.

Lastly, borrowers have the ability to buy points. This practice allows borrowers to pay more upfront costs and enjoy lower mortgage rates for the life of the loan. It’s one method some people use to overcome less-than-perfect credit scores.

As always, contact your trusted mortgage finance professional to discuss the best plan for your individual circumstances.

Surprising Things That Can Derail A Closing

Surprising Things That Can Derail A ClosingOnce you and the seller have negotiated an offer and you’ve been pre-approved for a mortgage, you might think that you are in the clear as far as your closing goes. However, that is not always the case. Many surprising things can put a halt to closing. Some may ultimately stop the closing altogether while others could simply cause a delay.

Here are a few unexpected things that can derail a real estate closing:

A Job Promotion 

While you might know that changing employers is one way to interfere with the closing, another deal-breaker can be switching positions with your current employer. If you are a salaried employee and switch to a non-salary commission job, for instance, you could be looking at a problem when it comes to closing on a house.

Whenever you have any change in employment, even if it is with the same employer, most lenders will require a two-year history. A new job title could be a problem at closing — even if the new position pays more money. In some cases, the lender might not be able to include the income from your new job. If so, you could quickly end up not being qualified for the loan.

Therefore, it’s best to avoid any change in employment until after closing even if it is with the same company. Talk with your mortgage finance professional regarding your personal circumstances before making any employment changes.

Last-Minute Requests for Documents

It is easy to assume that lenders will already have all the documents that they need by closing, but that is not necessarily the case. Lenders can become overwhelmed with work, especially during a hot real estate market. Lenders will sometimes realize that they need more information last-minute.

They might ask for a canceled check, copies of your rental agreement, current pay stubs or other items. If you don’t have the documentation handy, it could cause your closing to be delayed or even completely canceled if you can’t produce the requested information.

To avoid this situation, make sure that you consistently communicate with your lender throughout the loan process. 

A Delayed Transfer 

You will most likely need cash at closing. If you are relying on your bank to transfer funds right before closing, then you might be shocked if the transfer falls through at the last minute. Bugs in the bank’s system or other issues could affect the transmission.

Therefore, make sure you time your transfer to reach you or your closing agent a couple of days before closing. 

Closing on a mortgage is something that you don’t want to derail. Avoiding the above mistakes will help ensure a hassle-free closing transaction. 

From pre-approval to closing, remember that you can count on your trusted mortgage professional to remain committed to your success throughout the entire home buying process. 

3 Programs That Allow You To Buy A Home With No Money Down In 2018

3 Programs That Allow You To Buy A Home With No Money Down In 2018Home buyers are typically advised to put at least 20% down for a mortgage. Coming up with that amount can seem almost impossible if you have little to no money left over after paying bills each month.

Fortunately, if you want to buy a house but are worried about coming up with the 20 percent down needed for a downpayment, you still have plenty of options. There are still plenty of programs that allow you to buy a home with a low down payment or even no money down in 2018. 

Here are some of the best programs that designed for homebuyers who don’t have a massive chunk of cash to put down at closing. Maybe one of these options will be the perfect solution to make your dreams come true. 

#1 VA Home Loans 

If you are a veteran, in the National Guard and Reserves or an active-duty service member, then you may qualify for a VA home loan. The VA offers 100 percent financing. So, you don’t need any money down. The VA does not require mortgage insurance. There is a funding fee, which must be paid by the borrower. However, the lender can roll the fee into the loan amount. The funding fee is typically 2.15 percent of the loan amount. 

#2 USDA Loans

The U.S.Department of Agriculture (USDA) offers a zero-down mortgage for low to moderate-income families. This program was created to help rural development. The loans are only available in towns that have populations of 10,000 or less. However, this is quite a large area. In fact, the USDA program covers more than 97 percent of the United States. Many eligible smaller towns are located right outside major cities.

The USDA program was designed for first-time home buyers although there are some exceptions to this rule. USDA loans do not require mortgage insurance. There is an upfront guarantee fee of one percent. The lender can roll this fee into the loan amount. 

#3 FHA Home Loans

The Federal Housing Administration (FHA) provides one of the most popular low down payment mortgage options in the country.  Normally this loan product requires a minimum 3.5% down payment.  However, 100 percent of the down payment money can be a financial gift from a relative or a non-profit organization.  This allows a borrower to get into their home with no money down.

Contact your trusted mortgage professional to find out about these programs or others that might be right for you.

How To Qualify For An FHA Loan

How To Qualify For An FHA LoanBorrowers who cannot qualify for a conventional mortgage are often able to obtain an FHA loan. However, to secure this type of loan, you must still meet certain requirements.

What Is an FHA Loan?

FHA loans are mortgage loans that are backed by the Federal Housing Administration. It is designed to help borrowers who are unable to meet the requirements for a conventional mortgage or other types of financing. These loans can be used to purchase single-family and multi-family homes.

What Are the Requirements for an FHA Loan?

When you apply for an FHA loan, the underwriter will consider many of the same characteristics considered when you apply for a convention loan, including:

  • Your credit rating
  • Your income
  • Your outstanding debts
  • Your down payment
  • The value of the home you intend to purchase

In order to qualify for an FHA loan, you must have at least a minimum credit score. However, the minimum credit score for FHA loans is much lower than the minimum imposed on conventional mortgage applicants. This allows more borrowers to qualify for financing.

Before approving your application, the underwriter will compare your revolving debts to your gross income to calculate your debt-to-income ratio. Your debt-to-income ratio must be below a certain threshold to qualify. However, this threshold is higher than the threshold typically imposed for conventional loans.

The underwriter will also want to see proof of your income, as well as evidence that your income is reliable and likely to continue. In addition, the underwriter will review an appraisal of the property to ensure that your loan amount is appropriate.

In general, FHA loans allow a much lower down payment than a conventional mortgage. Many borrowers will be able to obtain an FHA mortgage with only a 3.5 percent down payment. However, if your credit score is below a certain threshold, you may need a larger down payment.

Things to Consider

Although an FHA loan has less stringent qualification requirements than a conventional mortgage, there are also drawbacks. For example, you will be required to pay an upfront mortgage insurance premium and a monthly mortgage premium.

Like other mortgages, FHA loans offer a variety of loan terms, including 10, 15, 20 and 30 years. Both fixed rate and variable rate options are available as well.

To determine whether an FHA mortgage is right for your needs, contact your trusted mortgage professional.

Financing Your Solar Roof

Financing Your Solar RoofGoing solar can make life sunnier for some homeowners. In addition to reducing energy dependence by “borrowing” energy directly from the sun, purchasers may also enjoy a 30 percent federal Solar Investment Tax Credit and other incentives, according to SEIA.

Solar roofing can boost a home’s equity in some cases, while making it more attractive to future buyers in sun-drenched parts of the country. Best of all, financing that solar roof may be a more attainable goal than homeowners think.

Leasing vs. Owning

Perhaps the first question a green-minded homeowner should consider is whether to own solar roofing or lease it. Leasing solar panels from a third-party provider bypasses the need to take out a traditional loan or purchase a solar roof with cash.

Energy.gov notes that PPAs (Power Purchase Agreements) allow homeowners to pay fixed monthly payments based on the amount of energy the roof will likely generate over the period of the lease. But it’s worth noting that leasing also bypasses the tax credits and other financial benefits and incentives of ownership.

The Traditional Loan Route

Traditional loans can finance solar roofs just as they can other major home renovations or improvements. For homeowners who already own their homes outright, this approach offers a simple, cost-effective way to enhance the property. Other homeowners may want to look into the Department of Energy’s Residential PACE (Property Assessed Clean energy) loans aimed at promoting energy-efficient modifications.

Those who seek to take out a mortgage on a solar-roofed home, however, should watch out for the proverbial fine print. For instance, PACE loans trump mortgage loans, so having a PACE loan in place can make getting that mortgage loan impossible. 

Fannie Mae’s HomeStyle Energy Mortgage

The HomeStyle Energy Mortgage from Fannie Mae offers an attractive alternative to traditional loans, according to the Washington Post. This product includes the solar roof (or other energy-efficient modification) within the overall mortgage loan.

A HomeStyle Energy Mortgage factors in the anticipated energy savings offered by the modification in figuring the loan terms. It also lets borrowers take out larger amounts that they might receive through traditional mortgages — up to 15 percent of the home’s “as-completed” appraisal value.

Some smart financing strategies can turn the objective of owning a solar roof from an out-of-reach dream into a practical reality. A skilled mortgage expert can help homeowners weigh all the available options and come up with a sensible plan that suits their needs.

5 Key Factors That Affect Your Mortgage Rate

5 Key Factors That Affect Your Mortgage RateMany first time home buyers often wonder what factors determine their mortgage rate. Is it their credit score? Is it the type of loan chosen? Is it the size of the loan?

The truth is, there are many factors at play. Mortgage interest rates are not standardized across the board, so they vary from lender to lender and from borrower to borrower.

Here are 5 common factors that determine or affect your mortgage interest rate:

1.    Default Risk

Risk is a key consideration when determining mortgage interest rates. Banks and other lenders are in a risky business because there is always a chance of a borrower defaulting on their loan repayments. This is known as default risk. 

Banks and lenders therefore charge riskier borrowers higher interest rates to discourage them from borrowing, as well as to be able to average their returns between risky and non-risky borrowers. Risk is one of the prime factors that influence your mortgage rate.

2.    Credit Score

Perhaps you are wondering how banks and other lenders determine if you are a risky or non-risky borrower. There are many tools they can use, but your credit score plays a big role. You credit score is based on the borrowing history in your credit report, which summarizes all details about your credit card balances and timely bill repayment. 

If you pay your bills on time and sustain relatively low credit scores, your credit score stays high and lenders view you as a low-risk borrower. Consequently, your mortgage interest rates tend to be lower than a person with a low credit score.

3.    Type of Property You Are Purchasing

Some properties have a higher risk of default compared to others. This is determined by analyzing the historical likelihood of default on different properties; lenders use this analysis as the reason to charge higher mortgage interest rates on riskier ones. 

For example, vacation homes tend to have a higher rate of default compared to single-family homes and lenders charge higher rates for such homes. 

4.    Size of Down Payment

The amount of money you pay upfront on the mortgage also influences its interest rate. A large down payment gives you a lower LTV ratio (loan-to-value), which also decreases the level of risk borne by a lender. A small down payment, on the other hand, gives you a high LTV ratio and thus a higher mortgage interest rate.

5.    Loan Amount

A large loan bears a higher risk than a smaller one simply because there is more money at risk. Most lenders therefore charge higher interest rates on large property loans as compared to smaller ones.

All in all, different lenders offer different rates depending on their style of operation, appetite for risk, or competitiveness in the market. It’s important to search intensively for offers from different lenders for the best mortgage rate. Contact your mortgage professional to help you find out more about mortgage rates and what that means for your next home purchase.