There is a considerable difference in the experience and relationship you build with a home you are renting and one you actually own. For example, if you have a problem with your rental home, you simply complain to the landlord and like magic, the situation is resolved. No worries about homeowners insurance, saving for a roof replacement or considering the longevity of the HVAC.
But, when it comes to homeownership everything changes. Suddenly all those repairs, payments and upgrades fall on your regular expense account. You may even ask yourself if you actually want the responsibility of the landlord.
But, here is my longer answer on why you will find the homeownership experience to be most rewarding.
When you own your own home and make amortized payments (not interest only), you are not simply shelling out cash to your landlord and you are building the equity of your home. As the property values in the surrounding area also increase, the value of the property of your home also climbs higher. Through keeping your home and property well-maintained and keeping up with your regular payments, your home’s total equity will increase. Knowing that your hard-earned housing payments are improving your total worth and not just filling your landlord’s coffers is an especially satisfying notion.
Your Payments Are Predictable
When you rent a house, you have a very unstable agreement on how much your payments will be each month. When the costs of housing go p, the difference in your rent is only more riches for your landlord. But when you own a home the only thing that can change the costs of your regular payments are tax hikes and increased charges for homeowners insurance. Although, certain neighborhoods may include special assessments and homeowner’s associations that also include increased prices on a yearly or monthly basis.
Your Home Is Your Castle…A Place Of Your Own
Generation to generation teaches the value of being industrious and frugal as the optimal path to gaining the things we desire. Children and adolescents learn to save allowance and take on additional responsibilities to accumulate the resources to purchase toys, vehicles and the capacity to increase their life experience.
Home ownership is yet another step in this grand scheme of finance as you are engaged financially, mentally and very personally to your home and its ownership. If something is amiss, there is no one to complain to. You alone are responsible for maintaining and upgrading your home as well as enjoying the benefits thereof.
A home is the largest investment many people will make in their lifetime and it is important to protect this investment at all costs. In many ways, your home will be a reflection of yourself and your capacity as a responsible homeowner. It is not uncommon for homeowners to feel their home as an extension of themselves; feeling anxious when it is not well-maintained and especially proud when everything is just right.
If you are interested in taking this considerably large step into the joys of homeownership, we would love to tell you more about your options and what to expect from this new stage in your life.
We hope to create lasting relationships with our clients and continue our plans for excellent service through your future as a homeowner. Unlike some of the larger nationwide services, we value our clients far too much to ever share their information or data with anyone. This is what makes us a trusted name in the mortgage community.
To speak directly with one of our representatives, call us up at the number listed below or visit our website and use any of the interactive tools provided. We look forward to being a part of your bright future as a homeowner.
Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you. Feel free to contact us or call us today!
Knowing The Role Of Mortgage Brokers, Mortgage Lenders & Banks For Owning A Home In Texas
If you have been looking for a mortgage company then you will have noticed that there are large mortgage companies and banks, and also mortgage brokers. So is there actually a significant difference between them?
What are the pros and cons involved in using a mortgage broker versus going through a bank?
In this article, we will be explaining all of the major differences between Mortgage Brokers and Banks, along with the pros and cons of each so that you can make an informed decision on which is the best option for you and your situation.
What Is A Mortgage Broker?
This professional is an individual who acts as the middle man between the mortgage lender and the homeowner. A broker is able to prepare your financial documents, loan applications and provide you with mortgage pre-approvals just like lenders are able to do.
A mortgage broker will work with several different banks and mortgage lenders and submit your loan files to these financial institutions for them to issue you a loan. The broker’s commission is paid by the lenders for completing your documents and mortgage application.
How Do Direct Lenders & Banks Work?
A direct mortgage lender or Bank is the company that is funding the loan. The loan officer is the person you will be working with and they work for the Bank. Banks are usually licensed in all or most of the 50 states.
Who Can Provide You With A Better Deal, A Mortgage Broker Or A Mortgage Company?
There are important things to take into consideration when choosing whether you want to work with a Bank/Lender or a mortgage broker. Although it might seem like working with a mortgage broker will save you money due to the fact that they have access to numerous lenders and programs, that is actually not always true.
The mortgage company pays the broker’s commission and some lenders pay higher commissions than others. In some cases that can generate a conflict of interest.
One lender might pay a small commission but offer the best deal. Another loan company might pay brokers a higher commission but be more expensive for borrowers.
Which Lender Is The Broker More Likely To Choose?
When you work with a Bank, your loan officer will only have access to the mortgage rates and mortgage programs that their Bank offers. You could potentially get a better deal from a different Bank.
Just be sure to shop around at all times, whether you are working with a Bank or a mortgage broker. You always should speak to at least two lenders or brokers and compare their loan offers. That way you can ensure that you really are receiving the best deal on a home loan.
That is how you save money on your mortgage.
How To Shop For A Mortgage
When you are shopping around for a mortgage loan it is a good idea to talk to both direct lenders and brokers. Mortgage brokers do have access to many different loan programs and hundreds of lenders.
They can shop for interest rates on your behalf and help you with comparing different terms like 15-year and 30-year terms, adjustable-rate mortgages vs. fixed-rate mortgages, and provide you with advice on other things so that a loan can be tailored that is ideal for you.
Using a broker instead of a direct lender can be advantageous if you have imperfect credit since there will be more programs available that you might qualify for.
Pros & Cons Of Both
Advantages of Working with A Mortgage Broker:
Working with an independent mortgage broker does have several advantages associated with it compared to going through a mortgage banker or bank. Brokers have the ability to submit your loan application to several different lenders. That can make them a very attractive option, particularly for borrowers who have a hard time getting a loan due to issues having to do with their income or low credit scores.
In these situations, there are several lenders that the broker has access to that might have programs with lower requirements. That can save you money and time in having to apply with multiple lenders in order to find one that will provide you with a loan.
Access to multiple lenders for finding the lowest fees and rates
Usually more knowledgeable
More options available for individuals with bad credit
A majority of brokers work for or own a small company which can make it easier to get in touch with them than a loan officer who works for a large bank or lender.
If the mortgage broker is located nearby, then you can meet with them in person
Disadvantages of Working With a Mortgage Broker:
There are some drawbacks as well to working with a mortgage broker instead of with a direct lender. The broker, in some cases, might charge a higher origination fee. They are not actual lenders, so it might take longer to get your loan processed sometimes when you go through a mortgage broker.
Independent mortgage brokers often do not have an in-house underwriter that they have direct communication with, so they will need to submit your loan application to the lending institution’s underwriter. That can delay closing since it causes additional overlays.
They charge higher fees sometimes.
You might not get the best deal (they could have a preference for lenders that pay the highest commissions)
Delays In Closing
Advantages of working with Direct Lenders and Banks:
When you work with an actual lender instead of a middleman you will be able to avoid some of the fees you would need to pay to a mortgage broker. Your loan officer will get paid a commission when they close your loan.
On the other hand, mortgage brokers might not be that interested in finding the best deal for you, and instead, choose to work with the lenders that pay the highest commissions.
Loans might not have as many overlays since it is a completely internal process
If you use a Local Bank you might know the banker already who is processing your loan, which allows you to speak to the lender directly without having a middle man.
A conflict of interest is not created by the commission that is paid
You can save on fees that are charged by a broker
Disadvantages of Working with a Direct Lender or Bank:
Directly working with a lender does have some disadvantages. The loan programs with a Bank tend to be more rigid and come with higher requirements. If your credit score is low many local lenders and banks might not be able to assist you unless you have a 620 credit score at least.
Since the loan agent will not have multiple companies that can be compared, you cannot be sure you are receiving the best interest rate on your mortgage.
Fewer mortgage options
Sometimes the loan officer might be inexperienced
You might not get the lowest rate
Requirements are less flexible
To speak with one of our experienced mortgage professionals directly, just call us anytime or use any of the interactive tools that we provide throughout our website. We look forward to meeting and working with you.
If you have any questions, please feel free to contact us today!
With interest rates on the rise, you might want to seriously consider purchasing a house sooner instead of later. The next thing that you might be thinking about is whether you can qualify to get a mortgage or not given where interest rates are currently.
Although lenders have somewhat relaxed their standards since the height of the financial crisis that started ten years ago, there are certain minimum standards that you will need to meet in order to qualify for certain mortgages.
Specific financial documents, a decent debt-to-income ratio, and good credit scores are a few things that you will need for applying and qualifying for a home loan.
The specific requirements will mainly depend on the kind of loan you apply for. Therefore, in this guide, we have broken the lending requirements down for several different kinds of loans.
Requirements of FHA Loans
One of the easiest types of home loans to obtain is a mortgage from the Federal Housing Administration. Because insurance is provided on the mortgage by the FHA, quite often FHA-approved lenders can offer terms and rates that are more favorable.
Also, lenders are more comfortable with borrowers who are potentially more riskier given that 90 of the mortgage is backed up by the FHA. FHA mortgages have lower downpayment requirements which make them good for first-time homebuyers who might not have enough money in saving to make the regular 20% downpayment is when buying a house.
For FHA-approved mortgages, the following are the current minimum requirements:
A minimum 3.5% downpayment and credit score of 500 at least. A 10% downpayment may come from your personal bank account, a local downpayment assistance program, or gift from one of your relatives.
The debt-to-income ratio on FHA mortgages is set by the Department of Housing and Urban Development (HUD). The front-end ratio currently is 31% with a 43% back-end. The front-end ratio only considers housing-related costs, like the monthly mortgage payment, insurance, and property taxes. The back-end ratio considers all monthly debt, which includes housing costs, credit card payments, car loans, and any other forms of recurring debt.
The house must be your primary residence for the first year at least. That includes whether you are purchasing a single-family house or a four- or two-unit property.
You are required to have proof of employment and steady income for the past two years, along with explanations if you have frequent employment changes.
On an FHA loan, you are required to have mortgage insurance no matter how much your downpayment is. On FHA loans you need to pay two different mortgage insurance premiums – an upfront mortgage insurance premium payment and your monthly mortgage insurance payments that are paid each month for the entire life of your loan. The upfront mortgage insurance premium that must be paid is 1.75% of the balance of your loan. It is due at closing and normally financed as part of your loan. Once you make your 3.5% minimum downpayment, then you will need to pay a yearly 0.85% fee of the total amount of your loan. That amount is divided by 12 and then is part of your monthly payments for the life of your FHA loan.
Requirements On Conventional Loans
A conventional 15-year or 30-year mortgage as requirements that are slightly stricter compared to an FHA loan. However, it does come with some longer-term benefits and flexibility.
There are some lenders that might let you make as low as a 3% downpayment in order to qualify to get a conventional mortgage, but you will be required to have mortgage insurance. Some low downpayment programs might have income limits, so make sure you check the address on the properties along with your loan officer to find out if there are any restrictions or not.
On a conventional mortgage, you are not required to carry private mortgage insurance (PMI) and pay for it every month if you can make at least a 20% downpayment on the property. However, if you pay a lower downpayment, then you will need to pay 0.15 to 1.95% of the balance on your loan in FMI fees every year.
Another benefit that conventional loans offer is that after you have the principle down to 78% of the original property value, the lender is required to stop charging mortgage insurance if you make your payments on time. On an FHA loan, when you make a minimum downpayment, the only thing that you can do to eliminate monthly mortgage insurance is refinancing your loan.
On a conventional mortgage, the minimum score that you need to have is 620. However, there are some lenders that might require a 640 minimum score. Remember that having a better (higher) credit score will allow you to receive a better interest rate along with a lower mortgage insurance monthly payment.
Proof of regular income is required by lenders and they will look more closely at your earnings and employment history from the last two years.
Conventional lenders, as of 2018, allow for up to 50% DTIs in certain cases. For any with a debt ratio more than 45, there is one caveat: For people with higher debt ratios, Numerous mortgage companies now require a 700 minimum credit score.
Requirements For VA Loans
The Veteran Affairs Department offers a mortgage for active-duty military personnel, veterans, reservists, and their families. Part of the loan is guaranteed by the VA, which allows lenders to offer military personnel more favorable terms.
Certificate Of Eligibility
In order to qualify to receive a VA mortgage, you also are going to need to get a VA loan certificate of eligibility. It verifies that the military service requirements are met by the applicant in order to be eligible to get a VA mortgage. Certain identification and documents. Veterans and military personnel may apply, by mail, or via a lender after the form is completed.
There is no downpayment that is required.
There are no PMI fees that come with VA loans. However, a funding fee is charged. It is charged at closing and normally is financed with the loan amount. The funding fee amount will depend on whether or not it is the first time that the veteran is using their eligibility. If an applicant has a disability that relates to her or his military service, then the funding fee might be waived.
There is no minimum credit score requirement on VA loans. However, a majority of lenders funding VA loans do have a minimum 620 credit score requirement. The VA loan program just requires the lender to review the whole loan profile in order to ensure that the veteran applying for the loan has the ability to repay it.
No minimum income threshold must be met, although applicants do need to provide steady income proof.
It is recommended that your debt-to-income ratio be no higher than 41% to qualify for VA loans. A higher debt ratio might be approved since a VA lender will also look a the residual income of the veteran, which is calculated based on the borrower’s after-tax income, less expense along with a monthly maintenance calculation that is based on the number of members in the veteran’s family and size of the home.
Requirements for USDA Guaranteed Loans
A mortgage program is offered by the U.S. Department of Agriculture to give low to moderate-income families the opportunity to own their own house in designated rural areas. Applicants may relocate, improve, rehabilitate, or build a dwelling that is located in an eligible rural area. 2010 U.S census data on population is used to determine the rural designated areas.
On USDA-guarantee loans, the program backs 90% of the amount of the loan, and that enables USDA-approved lenders to take borrowers into consideration that might not qualify to get a conventional home loan. A 640 minimum credit score is required on UDA mortgage loans to be automatically approved – as long as the other requirements are met as well. However, homebuyers that have lower credit scores still might be considered for a loan that is underwritten manually.
Special eligibility requirements for your state must be met in order to qualify for a USDA mortgage. The USDA online tool can be used to determine whether or not the property is in a designated rural area. You will have to enter the address, city, and state of the house into the tool. That will confirm whether or not the house you are interested in buying is in one of the USDA designated rural areas or not.
The USDA map can be used to choose your state and then determine whether you meet the income eligibility requirements. The income limits vary based on family size, county, and city.
The homebuyer must meet the following basic requirements as well in order to qualify to get a USDA mortgage:
Agree to personally occupy the house as their primary residence. The home cannot be rented out or used as a second house.
Must be either a qualified alien, noncitizen national or U.S. citizen.
Can incur a loan obligation legally. That just means the homebuyer hasn’t been declared to be incompetent and has the ability to enter into legally binding contracts and understand what the debt obligations are.
Has not been banned or suspended from participation in federal programs.
Indicate a willingness to meet their loan obligations on time.
Buys a property that satisfies all of the criteria of the USDA program, including being located in a rural designated area.
For UDA home loans, the standard DTI ratio is 29%/41% of the gross monthly income of the applicant. On a UDA loan, the maximum allowable DTI is 32%/44% of the person’s gross monthly income, when all of the applications of a loan have credit scores of 680 at least. Under some circumstances, higher ratios are allowed by the USDA on a case-by-case basis. In order to get a waiver for a higher ratio, the borrower must request it from a USDA-approved lender and have it documented by them.
Requirements For HomePossible & HomeReady Loans
The HomeReady mortgage program is offered by Fannie Mae, which is a government-sponsored agency.
The programs are designed to assist prospective homebuyers with low and moderate incomes and limited funds for a downpayment on a house.
A 3% downpayment is required from a gift or the borrower’s own funds.
A minimum 620 credit score is required.
For homeowners lacking a credit score due to not having a credit history, a HomeReady loan can be a good solution. They can offer financial statements as a substitute such as on-time rental payments for 12 months or other types of monthly payments such as utility bill payments that don’t appear on a credit report.
The HomePossible and HomeReady programs may be approved with up to a 50% debt-to-income ratio with strong credit along with other compensating factors like retirement funds or extra savings for reserves.
This program is managed by Freddie Mac.
The HomePossible mortgage is similar to the HomeReady one, but there is one key difference between them. The HomePossible programs allow a borrower to include a non-borrower’s income into the financial calculations – which is income from another individual or individuals who are living in the house to count towards the total monthly income, even when those people are not on the mortgage loan. That can frequently benefit a homeowner who is taking care of a family member who lives in their home who receives Social Security or disability.
A minimum 620 credit score is required.
There is a 3% minimum downpayment required, and additional flexibility in terms of what the source is for the downpayment. The HomePossible guidelines allow the total downpayment now to come from sweat equity, meaning that the borrower can contribute handyman skills rather than money towards their downpayment.
There is a 43% maximum DTI, but there are exceptions up to 50% depending on how strong the borrower’s credit and income are, and whether or not they have any extra money in their bank account (reserves) for making future mortgage payments.
Key Mortgage Documents
Before you apply for a mortgage, the process can flow a lot smoother if you organize all of the paperwork and financial documents that are typically required by lenders on the loan application.
They may include:
Pay stubs for the past 30 days
W-2’s for all jobs that go back two years
A signed purchase agreement with the home’s seller
Tax returns dating back two years
Bank statements for the past 60 days
If you are self-employed, 1099 forms
Homeowners insurance proof
Documented sources of income such as stock earnings and dividends
Proof of any bonus income
If applicable, disability or Social Security income award letters
Securities documents like life insurance policies, bonds, and stocks
Some lender might require written verification of your position and salary, printed on the company letterhead of your employer. The might send a form for verifying employment to the human resource department of your employer to complete.
Before shopping for a house, it is wise to find out the amount you potentially will qualify to borrow. This means you don’t have to waste your time looking at houses that are outside of your price range. When you have a mortgage pre-approval, that means that the lender has examined your current finances, income stability, and credit history, and is prepared tentatively to provide you with a loan on a house.
You will need to provide the following in order to obtain a pre-approval from your lender:
Your social security number and identification.
All of the banks on your bank statements from the two most recent months.
Employment verification, which consists of either W-2’s for two years (or if you are self-employed tax returns) or a month’s worth of pay stubs.
Your credit report will also be pulled by the lender.
Usually, a mortgage pre-approval is good for a maximum of 90 days. Once that time has passed, a creditor will normally want to review your fiance again to see if there have been any changes.
You don’t need to worry about having several inquiries on your credit report if you obtain pre-approval from several different lenders. All of them will count as just one hard inquiry when they are done within a short period of time (typically 15 to 45 days).
Purchasing a house is a major financial commitment and culminates a lifelong dream for many people. Texas Mortgage Pros can assist you with comparing mortgage offers and products. It might be a long road to homeownership, but it doesn’t need to be a rocky one. If you arm yourself with the necessary information ahead of time about various loan programs that are available and what the minimum requirements are for each of them, and the financial documents that you will need to have, then you will have taken the important first steps towards smoother mortgage processing.
The Texas Mortgage Pros
Our team at the Texas Mortgage Pros is comprised of mortgage professionals all across the state of Texas. We are dedicated to providing all of our clients with the best service possible for all of your mortgage needs. When combined with the lowest interest rates and the multiple loan programs that are available in your local area – Houston, Austin, Dallas, the Woodlands, Tomball, San Antonio, and Spring, Texas. Our mortgage professionals have years of experience and will work personally with you to ensure that you receive a home loan that is specifically tailored to meet your expectations and situation. Whether you are consolidating debt, refinancing your existing loan, buying your first house or dream home, our highly experienced loan officers can assist you with finding the best loan programs at the lowest possible rate.
Our ultimate goal is to develop a lasting relationship with all of our clients so that we can continue providing them with outstanding service for many years into the future. Unlike many large nationwide mortgage companies, we will keep all of your information private and secure. Throughout the entire lending community, our name is a highly trustworthy one.
To speak with one of our experienced mortgage professionals directly, just call us anytime or use any of the interactive tools that we provide throughout our website. We look forward to meeting and working with you.
If you have any questions, please feel free to contact us today!
Texas Loan Companies: What You Need To Look Out For
We have all been there. You have an emergency or bills to pay but have no money at all. A personal loan is the first thing that comes in mind when in a tight spot and need cash fast. With dozens of loan companies at your disposal, you are spoilt for choice, or are you? You, however, shouldn’t borrow from the first company you come across.
There are several important factors that one should consider applying for a loan from any company.
Understanding Personal Loans
A personal loan can be defined as money borrowed from a lender to be paid back with interest at a later time. Lenders have to determine a person’s eligibility for a loan before processing or approving a loan application. Lenders will look into an applicant’s:
Credit history and score
After submitting the loan application papers, the lender starts processing the loan immediately, then calculates how much you should pay for the same. You will, however, get these details once the loan has been approved. Should you be unable to repay the loan in full, the lender might choose to use debt collectors or even use legal action against you.
Why Should You Get A Loan?
Most people are eligible for different types of loans. Nonetheless, you should go about applying for loans simply because you can borrow. Financial experts advise against this and only recommend going for one for genuine reasons. Personal loans should, therefore, be treated with the utmost care to avoid building a mountain of debt on yourself. You should also avoid inquiring about a loan too often, as this too can affect your credit score.
Outlined below are some of the good reasons why people get personal loans.
1. To Pay For Medical Expenses
You can never prepare adequately for a medical emergency. Even your medical insurance might not be enough to cover for all expenses. If your savings are running low and unable to settle the medical debt, you can apply for a personal loan. With the personal loan, you should be able to clear the expenses more conveniently. The loan repayment plans are more manageable as compared to having to pay a lump sum at once.
2. For Home Improvement
A home improvement project can help give your home a value boost. That said, some projects can be too costly for the homeowner, forcing him/her to seek financing instead. A personal loan will come in handy in funding some of the expensive projects such as roof replacement or extensions. Some of these improvements tend to pay the loan off in one way or another.
3. Debt Consolidation
There are times when you will have several loans to service. This means some of the loans might end up being forgotten, forcing you to make late payments. Going for a debt consolidation loan can however help you manage these loans at once. The loans are consolidated into one, meaning you only have to think of one loan from that moment on. This reduces the risk of late payments and additional charges that may come with late payments.
4. Significant Purchases
Big purchases may put a huge dent to your savings account. Some investments, such as when you need to replace appliances in the house, or need to buy a car require lots of money. You can take a personal loan to help top up the amount you already have. Many people take loans to pay for their cars and other major purchases in the house. As long as you are confident, you’ll be able to repay the loan on time, then taking a personal loan can be beneficial.
Factors To Consider When Looking For A Loan Company
As mentioned earlier, it wouldn’t be wise of you to apply for a loan from the first company you see. Shopping around can land you a better deal. Here are some of the factors you need to consider when looking for a lender.
1. Interest rates: Check to see how much the company charges in interest. Variable interest rates may seem enticing but are riskier in the end. 2. Reputation: Look for a company reputable enough to stick to the terms of the contract. In addition to this, the company shouldn’t share your information with other companies or advertisers.
Important Things You Should Know About Home Equity Loans
Home equity loans offer a way to borrow money to purchase big-ticket times. It is critical to understand the facts about these loans to ensure that you make the best financial decisions.
If you are thinking about taking a home equity loan out, first you should know about the 13 things below.
1. What Is a Home Equity Loan? (HEL)
This type of loan is where a borrower uses the equity in their home as collateral on the loan. Home equity loans let you borrow a large lump sum of money based on your home’s value, determined by a professional appraiser, and the current equity in your property.
There are both adjustable-rate and fixed-rate home equity loans that are available and they also have different amounts of time for repaying the debt, and typically range from 5 to 30 years. There are also closing costs that must be paid, but they are much less than the ones paid on a full mortgage.
Fixed-rate home equity loans offer the predictability of a fixed interest rate from the very beginning, which is preferred by some borrowers.
2. What Are The Best Uses For A Home Equity Loans?
Usually, home equity loans are best used for individuals who need money to pay for a major expense, such as a home renovation project. One thing that home equity loans are not especially useful for is to borrow small sums of money.
Typically lenders don’t want to deal with making small home equity loans. About the smallest amount that you can get is $10,000. For example, Bank of America has a minimum of $25,000 for its home equity loan amount, while Discover offers $35,000 to $150,000 home equity loans.
3. What Is a Home Equity Line of Credit? (HELOC)
This is a revolving line of credit that is based on your home’s equity. After the limit has been set by the lender, you will be able to draw on the line of credit whenever you want to over the life of your loan by simply writing a check against this line of credit.
A HELOC in some ways is similar to credit cards: you don’t have to borrow the entire amount of the loan, and your available credit gets replenished as you continue to pay it back. You could, in fact, pay the loan back in full over the draw period, then re-borrow the total line of credit amount, and then repay it once again.
Typically the draw period will last around ten years with a repayment period of 10 to 20 years. You only pay interest on the amount you borrow from the total amount that is available, and usually, you are not required to repay the loan until the draw period closes.
Sometimes HELOC loans also have an annual fee. The repayment period for a HELOC has adjustable interest rates, and usually, they are based on the prime rate, although often they can be converted over to a fix-rate loan following a certain time period. Also, there are usually closing costs that need to be repaid on a loan.
4. What Is A Home Equity Line Of Credit The Best For?
A HELOC is usually best for individuals who are expecting to need a varying amount of money over time. For instance, to get a business started. If you do not need as much as is required by a home equity loan, you can choose a HELOC instead, and borrow only what you actually need.
5. What Are the Benefits of Home Equity Lines of Credit and Home Equity Loans?
Beyond having access to large amounts of money, home equity lines of credit and home equity loans also have the advantage is usually the interest that you pay is tax-deductible for people who itemize deductions, since it is same as conventional mortgage interest.
Federal tax law lets you deduct mortgage interest on home equity debt of up to $100,000 ($50,00 each for married people who file separately). However, there are some limitations, so consult with your tax adviser in order to determine what your eligibility is.
Because home equity line of credit and home equity loans are secured by your house, the interest rates tend to be lower as well compared to what you would pay on an unsecured loan or credit card.
6. What Are the Main Disadvantages of Home Equity Lines of Credit and Home Equity Loans?
The debt that you are taking on from a HELOC or HEL is secured by your house, which means that your property is the collateral on the loan and may be at risk if you do not make all of your loan payments. You could potentially be foreclosed on your home and lose if you are delinquent on your home equity loan, and also the same thing is true on your main mortgage.
In the event of a foreclosure, the first to be paid off is the primary mortgage lender, then the home equity lender gets paid with whatever is remaining.
If the value of your home declines, you might go underwater and end up owing more money than your home is worth. Rates on HELOCs and HELs also have a tendency to be higher than what you would pay currently on a mortgage and then fees and closing costs can start to add up.
7. Can I Determine What My Equity Is?
If you have an interest in learning how you can qualify to get a home equity loan, the first thing that needs to be determined is the amount of equity you have in your home.
Equity is the part of your house that you own, while that part that you owe is owned by the bank. If your house has a $250,000 value and you owe $200,000 still on your mortgage, and the equity that you have is $50,000, or 20%.
This information is commonly referred to as the loan-to-value ratio – which is the balance that is remaining on your loan that is compared to the value of your property – and in this case, it is 80% ($200,000 is 80% of $250,000).
8. How Can I Qualify To Get a Home Equity Loan?
In general, lenders will usually require you to have an 80% loan-to-value ratio at least that remains after a home equity loan to be approved. This means you will need to own over 20% of your home before being able to qualify to get a home equity loan.
If you own a $250,000 house, you need 30% equity at least – a mortgage loan balance of a maximum of $175,000 – to qualify to get a home equity line of credit or equity loan of $25,000.
9. If I Have Bad Credit Can I Still Get A Home Equity Loan?
Many lenders require a good or excellent credit rating in order to qualify to get a home equity loan. To get a home equity loan it is recommended to have a credit score of at least 620 and to get a home equity line of credit you might need to have an even higher score than that.
However, there are some situations where someone with bad credit might still be able to get a home equity loan if they have a low debt-to-income ratio and have a high amount of equity in their house.
If you believe you will be shopping for a home equity line of credit or home equity loan fairly soon, you should first consider taking the steps to improve your credit.
10. How Soon Will I Be Able To Get A Home Equity Loan?
You can technically get a home equity loan right after you buy a house. However, home equity usually builds up slowly, and that means it may be a while before you have built up enough equity in order to qualify for a home equity loan.
It may take five to seven years to start to pay down on the principal of your mortgage and start to build equity.
The normal processing time for a home equity loan can be anywhere from two to four weeks.
11. Is It Possible To Have More Than One Home Equity Lines of Credit?
It is possible to have more than one home equity lines of credit, but it is rare, and not many lenders offer multiple ones. You would need to have excellent credit and substantial equity in order to qualify for multiple home equity lines of credit or loan.
If you apply for two HELOCs at once but from two different lenders but do not disclose them it is considered to be mortgage fraud.
12. How Are The Best Banks To Get Home Equity Loans From?
Brokers, mortgage lenders, credit unions, and banks all provide home equity loans. A little shopping around and research will help you determine which of the banks are offering the best interest rates and home equity products for your situation.
Start with the credit unions and banks where you have a relationship already, but also ask for referrals from family and friends who have received loans recently and also make sure that you ask about fees. Insight can also be provided by real estate agents.
If you are not sure of where to get started, the following are a couple of options for you to consider:
-Lending Tree works along with qualified partners in order to the best interest rates and provides an easy way of comparing lending options.
-Discover provides home equity loans range from $35,000 up to $150,000 and they make it very easy to apply for loans online. At closing, there is no cash required or application fees.
-Bank of America on primary homes provides HELOCs of up to $1,000,000, makes it very easy to apply for online, and for existing bank customers offers fee reductions, but does have higher debt-to-income ratio requirements to many other lenders.
– Citibank has options for applying in person, over the phone, or online for both HELOCs and HELs. Citibank will also waive closing costs and application fees – but on HELOCS there is an annual fee that they charge.
– Wells Fargo currently only offers HELOCs with fixed rates, but discounts are offered to Wells Fargo customers, and reduce interest rates if the closing costs are covered.
13. How to Apply for a Home Equity Loan
Before you are able to apply for a home equity loan there are certain requirements that must b met. Follow the five steps below to improve your chances of getting approved for a home equity loan:
– Check your credit score. Having a good credit score makes it easier to qualify for a home equity loan. Before you apply for a loan, review your credit report first. If your credit score is less than 620, and you aren’t desperate to get a loan, you might want to take the necessary step to improve your credit before applying.
– Determine what your available equity is. The amount of your equity will determine how large of a loan you are able to qualify for. You can get a general sense of the amount of equity that your house has by checking websites like Zillow in order to determine what its current value is and then deducting the amount that you owe still. The lending institution’s appraiser will determine what the official value of your house is (and therefore what your equity is) when you apply for the loan, but you can get a pretty good sense of the amount of equity you might have by doing a bit of research first.
– Check your Debt – YOur likelihood of qualifying for a home equity loan will also be determined by your debt-to-income ratio. If you have lots of debt, you might want to work at paying it down first before applying to get a home equity loan.
– Research rates at various lending institutions and banks. NOt every lending institution and bank will require the same qualifications, fees, or rates on their loans. Do your search and before you start the application process, review multiple lenders.
– Collect the required information. It may be a lengthy process to apply for a home equity line of credit or home equity loan. You can speed up things by collecting the necessary information before you get started. Depending on the lending institution you work with, you might have to provide tax returns, pay stubs, a deed and more.
If you need to have a loan to help with covering your upcoming expense, be sure that you are prepared. Check our Loan Learning Center to review more resources on different kinds of loans that are available.
FAQs on Home Equity Loan
The following are a couple of the more commonly asked questions on home equity lines of credit or home equity loans:
Why is a home equity loan a good option for financing?
Usually, home equity loans come with a lower interest rate compared to another form of credit or traditional loan. Also, it is a secured loan and your house is the collateral. Therefore, the bank views the loan as less risky. Also, as previously mentioned, it is a tax-deductible form of financing.
Variable or Fixed Interest Rate?
Home equity loans have a fixed interest rate since it is considered to be an installment loan. But a home equity line of credit might have an interest rate.
Why does a home equity loan have closing costs?
Closing costs are necessary to set a home equity line of credit or home equity loan. These closing costs may cover the property appraisal fee for finding the value of the house, title and property insurance, mortgage filing and preparation fees, a title search on the property, attorney’s fees, and application fee. Overall, fees might total up to two to five percent of the total amount of your loan.
At a final glance, that total equity on mortgaged properties was approximately $10 trillion with approximately $6 trillion being tappable, according to Black Knight’s recent figures.
Yes, this is a “T and not a “B.” However, just a couple of years ago, you would never have guessed this.
During the early 2000s, everything was all about tapping into your home’s equity line a cash-out refinance or line of credit.
The using your home as an ATM thing for making lavish purchases to just to pay your bills every month.
This resulted in the narrative quickly changing to foreclosures, loan modification programs, underwater mortgages, negative equity, declining equity and so forth.
Funny how this works.
The reversal of fortunes was caused by zero-down mortgages and crashing home prices, many of which were not underwritten properly to start with.
Most of the people who ran into problems buying houses at unsustainable prices at the height of the market, while also relying on 100% financing at the same time to close the deal.
That causes many homeowners to consider walking away or to leave, as housing price depreciation became the leading driver of defaults.
However, for many people who stuck around and were able to ride things out, they are in great shape actually and in a much better position now than they were when they took their mortgages out initially.
However, the housing crisis negative effects are still being felt by others even after double-digit house price gains for many years.
If you happen to be one of these homeowners, or maybe you are not but either way, you might be wondering how some home equity can be built.
This way, when it is time for you to sell your house (or refinance the mortgage), you will be able to do it worry-free.
So let’s check out some of the many ways that equity can be built in your home:
Increasing housing prices – whenever prices of houses go up, your equity will increase simply due to the fact that your property will be worth more money. For example, if the current worth of your house is $100,000, and then in five years it increases to $125,000, you will have an additional $25,000 in equity. Unfortunately, as we are all aware, the opposite may occur as well.
Decreasing mortgage balance – Each month, as you are paying your mortgage off, you are paying a portion of the principle (assuming you don’t have an interest-only home loan) and a part of interest. So you gain some home equity with each mortgage payment that you make.
Larger mortgage payments – If every month you make bigger payments, and the extra part goes towards paying down your principle, you will pay your mortgage of much more quickly and increase your home equity much faster. Effective and simple.
Biweekly mortgage payments – With a biweekly mortgage payment plan, throughout the year you make a total of 26 half payments. That will help to shave your mortgage term down save you lots of interest, and also help with building your home equity much faster as well.
Shorter mortgage term – It is also possible to refinance into a mortgage with a shorter term and lower interest rate, like a 15-year fixed mortgage, which due to the bigger payments will result in equity being built much faster compared to when a traditional 30-year mortgage is used.
Avoid refinancing- On the other hand, if you pull out ash and don’t refinance, all of the equity will be retained in your house. During the boom period, numerous homeowners continued refinancing over and over again until all of their equity has been sucked completely dry.
Home Improvements – Making smart home improvements, when the expected value is more than the cost, it will increase the equity in your home through owning a house that is worth more. Although it appears to be the exact same home, stainless steel appliances and quartz countertops draw buyers in still, so you may able to sell your home for a higher price. If you use sweat equity this can even be done for free.
Maintenance – You can be rewarded for keeping your house in top shape when it is time to sell your house. You will be able to sell it for more, as a result since more equity has been created in your house. Frequently home buyers will put in repair requests with sellers, but it will be harder to ask for concessions if your home has been taken good care of.
Curb appeal – The same thing is true when it comes to home staging. If your home looks good when it is listed, there is a higher chance that it will and for more money. Simple things can really make a huge difference, like lack of clutter, basic cleanliness, flowers, plants, bright lighting, carpet, new paint.
Rent your home out ) When all or part of a property is rented out, you can build equity through using the rent that you get every month from your tenants. It is pretty sweet when someone else is paying your mortgage off, especially when your property is appreciating at the very same time.
Larger down payment – Putting down a bigger downpayment, to begin with, will help you acquire home equity automatically and help to build it more quickly.
Although it may seem as if you are putting money into an illiquid form of investment, having more equity also means having a loan-to-value ratio that is lower, which might result in a lower interest rate, with no mortgage insurance required and make it easier to get financing.
A lower mortgage rate over time will result in you paying less interest and accruing more equity.
Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you. Contact us today Or Call Us @ (866) 772-3802
Investigative reporting done by The Wall Street Journal has shown that nominee Calabria actually has a 30-year fixed loan on his current residence, which was bought back in 2010. At that time the rate range for these types of loans were anywhere from 4.23% to 5.10%. Rates did drop after that, and he may or may not have taken advantage of a re-finance, another reason these loans and their terms are so popular.
In addition to this it is worth noting that Calabria’s public testimony has no mention of these loans in his prepared remarks. He also re-affirmed that he will be serving Congress and not imposing his own view on how things should be done. While some of this should be expected no matter what when it comes to public hearings and testimonies, it does seem like this is a topic that would come up if a major part of his vision was putting these loans on the chopping blog.
All Smoke Or Is There Any Fire?
As always, it’s hard to know for sure how this is going to work until everyone is in place and actually on the job. While it makes sense to have concern, but at the end of the day based on the reporting right now, this is probably more of unnecessary worry than actual legitimate concern for the pro-30 year loan crowd. In today’s economy few want to take the risk of big or wholesale changes unless they really are confident in this being a necessary change to avert disaster as well as having a clear plan in place to defend against public criticism or importance. The idea that a loan program that is involved in 90% of home purchases & 80% of all mortgages will change or disappear overnight. Even if an adjustment is made away from these loans, this is definitely going to be a long-term shift. That makes the “sudden disappearance” of these loans very unlikely. In the end a major point to consider is that most homeowners only stay on a property for 5-10 years before they move to a different property. Paying more for an interest rate they won’t keep for close to 30 years just doesn’t make sense.
The Texas Mortgage Pros team consists of mortgage professionals all over Texas. We are committed to providing our clients with the highest quality service for your mortgage needs. Combined with the lowest rate and multiple loan programs available in your area – Spring, San Antonio, Tomball, The Woodlands, Dallas, Austin and Houston, Texas. Our outstanding mortgage professionals with years of experience will work with you one-on-one to ensure that you get the home loan that is tailored specifically to meet your situation and expectation. Whether you are purchasing your dream home, first home, refinancing an existing loan, or consolidating debt, our highly experienced team of loan officers can help you find the right loan program at the lowest rate possible.
Our ultimate goal is to create a lasting relationship with each of our clients that we may continue to provide excellent service for many years to come. Unlike many of the larger nationwide mortgage companies that are out there, all your information will be kept secure and private. Our name is trusted throughout the lending community.
Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you. Contact us today Or Call Us @ (866) 772-3802 Click here to go to the first article in this series.
Worry or False Flag: Is the Popular 30 Year Fixed Mortgage Loan Going Away?
The 30 year fixed mortgage has been a mainstay of home buyers for decades now, and for most people who don’t follow financial news or the markets it can be easy to believe it will be around forever. But is that true? While it’s not saying anything controversial to suggest this is the most well-known loan as far as terms and long-standing use, that doesn’t mean the model will stay viable forever.
Back in 2014 some fretting about the 30 year fixed mortgage because when Dick Bove made the attention gathering claim that the Fed’s decision to taper off purchasing mortgages would make those loans non-viable going on in the future. In other words, it might actually be curtains for this loan program – and that caught plenty of attention.
So Should We Kiss the 30-Year Fixed Mortgage Good-Bye?
There’s a lot of controversy over this idea. Seeing as how the terms and affordability of the 30 year fixed mortgage allowed home ownership to become so widespread, it’s kind of hard to imagine a modern lending world where this is not an option. Is this something to actually worry about, or is it just fear mongering and paranoia?
While only time will tell, it does seem that every few years speculation fires up about Fannie Mae & Freddie Mac. These agencies are government controlled and have been since the 2008 collapse. They have long been a necessary part of the economic process to back these loans and make them a viable option that banks are willing to embrace because of the backing that comes from those agencies. In other words, they play the “Middle Man” that allows the process to work smoothly.
However, Mark Calabria, the most recent nominee to become FHFA (Federal Housing Finance Agency) director may decide he doesn’t like government purchasing 30-year fixed mortgages. If the order comes to stop buying those loans, the un-doing of Fannie and Freddie could take place. These two organizations back the majority of all 30-year mortgages out there. When the market becomes far less liquid, the prices either shoot up or those type of loans will no longer be favored. This could push them to extinction over time.
This seems like a huge shift, and it would be, but it is very possible.
So If Not 30-Year, Then What?
If this happens then a likely spike in interest rates would make the current 30-year fixed mortgage loans far less competitive and thus far less appealing. Some think these massive shifts in interest rates or changes in interest could result in a shift to ARMs.
Without the stability and backing that Freddie & Fannie bring to the table, these don’t become the easy access good deals that homeowners have enjoyed in the past, and it makes them scarier investments.
If this situation was to play out, there’s a good chance that 5/1 ARM or 7/1 ARM loans would become about as attractive an option (or an even better option) than any new 30 year rate that would be made available. These could get even better if investment interest in 30-year fixed rate loans dried up after the changes. Banks won’t keep putting out loans that there’s no investment interest in.
While this would be a huge change, it is worth noting that the 30-year fixed mortgage is rare or a huge minority of home loans in many advanced economies like the UK, Ireland, the Netherlands, Canada, South Korea, and Spain. So other options are viable, even if the transition appears to be a bit rough at first glance.
Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you. Contact us today Or Call Us @ (866) 772-3802 Click here to go to the next article in this series.