Category: Mortgage (Page 35 of 61)

Can I Purchase a House with No Closing Costs?

July 13, 2019 / Tom Bonetto

Let’s get this straight and right up front: every real estate transaction will have closing costs – title fees, origination fees for a loan (if you need to finance the property), and recording fees, just to name a few.

So, how can a buyer purchase a house without actually paying those closing costs? Well, read on for more!

What this really means is that the closing charges are folded into the loan balance — if the house can appraise for the selling price plus the closing costs.

And there are pros and cons to doing this, as will be highlight later.

It’s also likely that not every single closing cost can be rolled into your loan. The buyer will most likely still be required to pay some fees at the settlement table. Those specifics will vary by lender.

I’m linking to a fantastic article by Hal Bundrick at Nerdwallet – he’s a personal finance writer as well as a certified financial planner. You can find the entire article here…but I’ve highlighted a few excerpts:

What Are Closing Costs?

“Closing costs” is a collective term for the various fees and charges you’ll encounter when buying a home. Some of these fees come from the lender and others come from third parties that are involved in the transaction, like home appraisers, homeowner associations (HOAs), and title companies.

How much are closing costs usually?

On average, homebuyers pay closing costs ranging from 2% to 5% of the purchase price. Unfortunately, this is only a ballpark figure, as there are many variables in each individual transaction. You can find out more specifics on closing costs here…

Many lenders will require that you apply for a loan prior to receiving a more precise estimate of closing costs; however, some lenders are more transparent with their available options and will do the necessary legwork to provide you a better idea of those costs.

Can you buy a house with no closing costs?

The reality is that closing costs have to be paid one way or the other – and by some or all parties in the transaction. Your decision will be whether you pay them with cash when you sign your loan, or as an added expense in each monthly mortgage payment.

How a no closing cost purchase works – it’s all in the financing

Per Bundrick in his article: “lenders can structure no closing cost loans in two ways. The differences between them are subtle, yet the result is the same.”

You finance the closing costs. In this case, the lender will add your closing costs to your total loan balance. Your monthly payments will be slightly higher, and you’ll be paying these closing costs, with interest, for the full term of your loan — so, for example, over a period of 15 or 30 years.

The lender will absorb the closing costs in exchange for a higher interest rate. Again, you’ll pay a bit more each month, and your total interest cost will be greater over the life of the loan.

Either way, your monthly payment rises slightly. You’ll pay less at the closing table, but more over the long term.

Is a no closing cost mortgage a good idea?

The answer is….it depends!

If you are a little low on cash and have found your dream home, then yes – rolling $4,000 to $8,000 into your mortgage is a good idea. It won’t increase your monthly payment by much and generally doesn’t impact qualification.

Also, if you plan on moving, selling, or refinancing in the short term, wrapping your closing costs into the balance can be a good strategy.

However, if you’re going to live in your new home for the long-term, you will pay more over the life of the loan by financing your closing costs or accepting a higher interest rate.

So if this is your forever home and you plan on keeping the mortgage for 7+ years, it’s probably best to pay the closing costs up front.

The Top 10 Mortgage Questions a Borrower Should Ask

June 29, 2019 / Tom Bonetto

It’s a good idea to put together a list of questions to ask potential lenders in order find out which one will be best for you. These and other questions should help you choose the right lender and the best home loan.

How do I obtain pre-approval?

One of the best ways to ensure a smooth home buying process is what you do before you begin your home search.

Mortgage pre-approval, without the pressure of a closing date, is easier than trying to engineer a full approval from the ground up. And having a pre-approved mortgage means you can close faster when you’re ready to buy.

Ask the lender what documentation they need and what processes they have in place to secure and automated underwriting approval. If they can’t provide that information, find another lender! You can find out more about the pre-approval process here….

Which type of mortgage is best for me?

This question will help you know if you’re talking to someone who wants to sell you a loan quickly — or a trusted loan advisor who will be looking out for your best interest.

When you ask, “What are my options?” for a particular type of loan, the mortgage lender should dive deeper into your situation and ask YOU questions about your financial goals. You can really gauge the professionalism of the lender by the questions he/she asks.

What’s your communication style?

Mortgage lenders can communicate with you in multiple ways – including by phone, email and text. Some are tech savvy and others prefer traditional methods.

The point is to be clear about what you prefer.

If you respond more quickly to text messages versus voicemail – tell your loan officer. Often times, there are time sensitive issues that arise during the loan process, so it will make everyone happy if your loan officer knows how to get questions answered, additional documentation etc. in a timely manner.

How often will I be updated on the loan’s progress?

You should be introduced to all parties that will be involved with your loan – from the originator, to the processor, and any other assistants. Have their contact information handy during the loan process.

And how will you be updated on the progress: by email, phone or an online portal? How often?

I recommend that you share your service expectations upfront, and check to see if the lender you are working with has these types of processes in place that meet your requirements. If not, move on!

How much down payment will I need?

A 20% down payment may be nice, but borrowers have multiple choices. Qualified buyers can find mortgages with as little as 3% down, or even no down payment, depending on the property location.

Again, there are considerations for every down payment option and the best lenders will take the time to walk you through the choices, based on your stated goals. You can find out more about down payment requirements here….

Will I have to pay mortgage insurance?

If you put down less than 20%, the answer will probably be “Yes.” Even if the mortgage insurance is “lender paid,” it’s likely passed on as a cost built into your mortgage payment, which increases your rate and monthly payment.

You’ll want to know just how much mortgage insurance will cost and if it’s an upfront or ongoing charge, or both. You can find out more about mortgage insurance here….

Are You Equipped to Approve Loans In-House?

Underwriters review loans and issue conditions before approving or rejecting a loan. Ask if the lender handles its own underwriting and does their own approvals. This can be a make or break proposition if you need to close the loan in a timely fashion.

What other costs will I pay at closing?

Fees that are charged by third parties, such as for an appraisal, a title search, property taxes and other closing costs, will be paid at the loan signing. These costs will be detailed in your official Loan Estimate document and your almost-time-to-sign Closing Disclosure.

Your lender should be absolutely upfront regarding this. You can find out more about closing costs here….

How long until my loan closes?

Of course, you want to know what your target closing and move-in dates are so you can make preparations. And just as important: Ask what you should avoid doing in the meantime — like buying new furniture on credit and other loan-busting behavior.

Is there anything that can delay my closing?

Well, buying a home is a complex process with many stages and requirements. While delays are normal, the best way to avoid them is to stay in touch with your lender and provide the most up-to-date documentation as quickly as you can. If you have any past credit issues or job related changes, let your lender know immediately to avoid any last minute delays.

5 Things Real Estate Agents Should Know About Mortgages

June 22, 2019 / Tom Bonetto

Unless all of your clients are cash buyers, mortgages are an integral part of any real estate agent’s business. Knowing some basics about mortgages will make you a better adviser to your clients and a more effective agent.

With that in mind, here’s a brief list of topics that real estate agents should understand in order to best help and advise their clients.

Although it is by no means necessary to become a mortgage expert, the following five mortgage insights will increase your value as a real estate professional.

The minimum down payment is not 20%

Most agents already know this, but a 20% down payment is the amount necessary for a buyer to avoid paying private mortgage insurance (referred to as PMI) on the loan. There are many conventional loan programs require as little as 5% down.

For first-time homebuyers, recent conventional loan programs introduced to the market allow buyers to get a loan with only 3% down. If you work primarily with first-time homebuyers, you should also be aware of down payment assistance programs offered by local governments and municipalities.

You can find more about down payment options here….and here

Even move-up buyers should get a mortgage pre-approval

Many of the first-time buyers I work with get pre-approved so they know how much they can afford to spend on their new home. But not all realtors encourage move-up buyers to seek pre-approval, and I think they should.

The situation may have changed from the time their clients originally took out a mortgage. Even if they’ve built up a lot of equity, it may not help the buyer if their income or credit is not aligned with the price of the property they hope to buy.

Oftentimes, people who have qualified for a mortgage at one time are surprised by new and current restrictions and underwriting standards. For this reason, real estate agents should encourage their clients to speak with a mortgage broker even if the client thinks they already know the ropes.

This can help avoid surprises or disappointment further down the line and save time for agents and their clients.

Shopping around for a mortgage will not hurt your credit score

Shopping around for a mortgage with multiple lenders is highly recommended, and even though credit inquiries do impact a borrower’s credit score, there is an exception when it comes to credit inquiries from mortgage lenders.

All such inquiries made in the 30-day period prior to scoring your credit are usually ignored. Furthermore, inquiries outside of that 30-day period that fall within a typical shopping period are counted as only one inquiry.

You can find out more on multiple credit pulls here….

Condos have special underwriting requirements

If you’re working on a condo deal, it is in your and your client’s best interest to work closely with the mortgage loan officer to make sure the property meets the lender’s underwriting criteria. This is typically done through a condo questionnaire.

If you are the seller and state on your listing that the property can be conventionally financed, I highly recommend that you have the HOA documentation ready for the prospective buyer.

Among other things, they will be looking out for things such as pending litigation against the condo association, the percentage of units that are owner-occupied and whether any part of the building is used for commercial activity.

Many condo transactions are either seriously delayed or completely derailed by last-minute surprises that should have been discovered early in the process.

You can find out the specifics about condo warrantability here…

Advertised rates aren’t always available

Some realtors encourage their clients to shop around for rates at the last minute or promise mortgage interest rates to clients that they have seen online. This can often lead to frustration because not everyone will qualify for those advertised, ultra-low promo rates and there may be additional stipulations such as a quick closing or mortgage insurance.

That’s why I personally don’t promise rates until I have a completed application and all supporting documents. No two files are the same, so it’s best not to promise something over which we have no control.

There is a lot more to know when it comes to mortgages – and like I stated early, there’s no reason to become a mortgage guru! With that said, these five tips will help you look like a more that capable advisor in the eyes of your clients.

If you have other questions or would like to dive deeper into any of these topics, don’t hesitate to reach out to me!

Home Buyers and Mortgage Seekers – Beware of Online Credit Reports

June 15, 2019 / Tom Bonetto

U.S. Air Force illustration/Senior Airman Grace Lee

Many consumers are shocked to find out that their Credit Karma or other online scores do not match their true FICO score when it’s finally run by their mortgage lender.

This happens quite often – and it’s important to understand the differences and reach out to your mortgage professional first.

Unfortunately, many would-be buyers have an incorrect view of their actual credit worthiness and begin looking at homes too soon in the process.

To repeat, the key thing to remember here is to reach out to your mortgage professional to get your official FICO score.

Dive Deeper

I’d invite you to find out the particulars here – as the free online credit products and the FICO score used in mortgage qualification process are noticeably different. Essentially, they use different algorithms to come up with their own score.

Most lenders determine a borrower’s creditworthiness based on FICO® scores, a Credit Score developed by Fair Isaac Corporation (FICO™). This score tells the lender what type of credit risk you are and what your interest rate should be to reflect that risk.

FICO scores have different names at each of the three major United States credit reporting companies. And there are different versions of the FICO formula. Here are the specific versions of the FICO formula used by mortgage lenders:

Equifax Beacon 5.0
Experian/Fair Isaac Risk Model v2
TransUnion FICO Risk Score 04

The Key Takeaway

The major takeaway is that your Credit Karma score will be different than your FICO score…and in most cases, the free, online score is better than the FICO score – at least that has been my experience.

Also, you can find out here how your credit score affects your mortgage rate – this is also worth the read!

Delayed Financing – A Great Purchase and Financing Option

June 8, 2019 / Tom Bonetto

Paying cash for a house has its advantages. Purchasing with cash rather than getting a mortgage could help you as the buyer win a bidding war when buying a new home. You may even be able to negotiate a lower price on the home if you’re paying cash.

After all, cash in hand is a sure thing, and a mortgage approval can take some time and isn’t always guaranteed.

Delayed financing is a specific program that allows the buyer to take cash out on a property immediately in order to cover the purchase price and closing costs for a property they had just purchased with cash.

How Delayed Financing Works

Delayed financing is a mortgage that is originated on a property after you already own it, in comparison to a typical mortgage that is used for the acquisition of a property. The delayed financing mortgage option allow buyers to compete with all-cash buyers when purchasing the property.

By financing the property after the initial cash transaction, the borrower/buyer is able to regain their liquidity because the money isn’t tied up in the house after the delayed financing is completed.

Keep in mind that the value of the property might not the same as the purchase price. Borrowers will need an appraisal done by their new lender to determine the value. Moreover, your new loan can’t be more than what you paid for the property plus your closing costs and lender fees.

Why Delayed Financing?

Delayed financing is generally helpful for:

Investors who want to compete with all-cash buyers’ short timelines
Investors who want to have more bargaining power because they’re paying with cash
A property that has multiple offers and the seller doesn’t want to wait on financing
Investment properties, vacation homes, and primary residences
An investor who wants to take their cash out and buy another investment property

The primary reason to utilize delayed financing is that buyers can stay liquid. Investors use delayed financing to recover their cash and be able to purchase another property.

Generally, delayed financing is right for an investor who wants to take advantage of all of the benefits of purchasing a home using all cash. They can often negotiate a lower price, close faster and compete with multiple other buyers. An investor who doesn’t immediately qualify for conventional financing may also opt for delayed financing.

An Investor’s Point of View

In this case, the buyer is an investor and purchases a property using all cash. The buyer then wants to free-up some cash back to buy another property.

The buyer can then delayed financing to recoup the cash and take a loan out on the new property, utilizing the cash back from the initial transaction!

A Primary Occupancy Borrower’s Point of View

The buyer can also use this option to compete with all-cash buyers and negotiate better terms. Delayed financing can be done as quickly as three weeks after purchasing the property, which is different from a standard “cash-out refinance” transaction, where the borrower must wait six or more months.

How Long Do You Have to Wait to Refinance?

If you’re doing a delayed financing transaction on a property you purchased in the last 6 months, you’re allowed to take cash out immediately without any waiting period.

Under normal circumstances, if you bought a home with a mortgage instead of cash, you have to be on the title at least 6 months before you can take cash out and refinance your home, so delayed financing is a notable exception.

Delayed Financing Qualifications

There are certain qualifications that need to be met in order to qualify for a delayed financing transaction. Most specifically, the property must have been originally purchased using all cash.

Lenders generally have the following qualifications for this type of transaction:

Arm’s Length Transaction: You can’t be related to or have a personal relationship with the seller
Closing Documents: Closing statement from the property purchase
Proof of Funds: Showing where you got the funds to purchase the property
New loan amount can be no more than the actual documented amount of the borrower’s initial investment in purchasing the property plus closing costs.
Appraisal: Ordered by the lender and paid for by you, generally $500-plus

There can be more needed and other regulations may apply, but these listed above are most standard.

Although you may have just ordered an appraisal when you originally purchased the property, as mentioned previously, the lender will want to conduct their own appraisal before they approve your loan.

It would be my pleasure to help any borrower with a delayed financing transaction, so don’t hesitate to reach out to me for more information or to get started!