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How You Can Put Down Less Than 20% and Avoid PMI

How You Can Put Down Less Than 20% and Avoid PMI

How can you make a down payment of 20% or less and avoid PMI?

To start, you must have really good credit. In other words, your credit score must be in the high 700s. There’s a strong correlation between your credit score and how much mortgage insurance you pay—stronger than the correlation between your credit score and your interest rate. 

For example, let’s say you purchase a house for $230,000, you put down less than 5% for a conventional loan, and you have a credit score in the 700s. In this scenario, your PMI will be a little over $2,600. Lenders have different programs for all types of buyers, and if you have good credit, there are plenty of options available to you, but in this case, you have three choices in terms of what you can do with that PMI. 

First, you can take that entire $2,600 sum and add it into your loan. In effect, you would finance it, but you wouldn’t pay it on a monthly basis, which would leave your regular monthly payment at about $1,056. Second, you can just pay it monthly, which would increase your monthly payment to $1,105. Lastly, you can pay the $2,600 sum up front with your 5% down payment, which would decrease your monthly payment to $1,044. 

This was an actual scenario one of my clients faced recently, and she chose option No. 1. Keep in mind, though, that this is a simplified scenario because with each option there will be different interest rates and cash-to-close amounts, depending on which programs your lender offers. 

Whether you have good or bad credit, there are all types of programs available to you, so the best thing you can do is talk to a good lender and find out which one best suits you. To find a good lender, reach out to your Realtor and have them help you. Odds are, they work with plenty that they’d be happy to recommend to you. 

Here at Real Estate Experts, we work with an excellent selection of lenders that we can put you in touch with, so if you’d like to know more about this topic or you have any other real estate questions, feel free to give us a call or send us an email. We look forward to speaking with you. 

Expert Advice on Real Estate Investors and Loans

Expert Advice on Real Estate Investors and Loans

The Real Estate Experts work with a lot of investors, and Teresa Parker from Union Home Mortgage always does such a great job with them, so we thought it would be beneficial to bring her in to answer some loan-related questions for our investor clients.

So, is it better for a real estate investor to purchase a property with cash or with a loan?

Teresa typically recommends that clients review their options. A lender should be able to put something together that will show them the benefits of either utilizing a loan so they’re not depleting all of their liquidity, or buying with cash.

She uses a program that allows investors to clearly see the benefits of purchasing investment properties by using leveraging with a loan versus depleting all of their liquidity to buy a property. This tool can also show people their projected liquid net worth and total net worth over certain periods of time. It can look forward five, 10, or 15 years, and allows you to view a comprehensive analysis of how much better off you would have been if you’d purchased with a loan or with cash. It can also show you whether, if you leave your funds invested as they are, you’ll grow using that vehicle.

A house is going to appreciate at the same rate, regardless of whether it’s fully leveraged or whether it’s fully owned outright. Homes don’t appreciate any faster than what the market dictates. When an investor makes a cash-only purchase, they’re missing out on the opportunity to place those funds in an interest-bearing account, where they’ll grow.

So what are the biggest challenges Teresa faces when working with investors?

One of the issues Teresa has frequently seen, especially with newer investors, is their tendency to convince themselves that they can’t qualify to buy an investment property. While they make a very good income, have sufficient funds to support the down payment, and have the desire to become an investor, they just feel like they can’t qualify.

However, the lender should be able to show the investors ways that they can qualify for buying an investment property, as well as how to utilize and leverage some of the potential rents on the particular property they’re buying. That also helps them with their debt-to-income ratio. Is it better for an investor to purchase a property as an individual, an LLC, or a corporation?

Clients that Teresa works with are buying homes in their own names, whether that be a single-family, duplex, triplex, or quadruplex. Clients that buy using their own name will get regular preferred loan interest rates. If you buy an investment property in the name of an LLC, the loan will be in the name of the LLC. In that case, you’ll be looking for a commercial loan, which have different terms and rates associated with them. In a future video, we’ll address what happens when you buy a property individually and then want to assign it to a corporation.

If you’d like to contact Teresa for questions or information, she can be reached at (919) 697-2598 or at [email protected].  

For my team’s part, we would love to know what kinds of questions you have for us. Reach out and let us know, and we’ll be sure to address them in future videos. We hope to hear from you soon!

2018 FHA Loan Limits and Conventional Loan Limits Increase in The Raleigh-Durham-Chapel Hill Metro Area

2018 FHA Loan Limits and Conventional Loan Limits Increase in The Raleigh-Durham-Chapel Hill Metro Area

FHA Loan Limits

FHA Loan Limits

FHA loan limits  and conventional loan limits have increased for 2018. The new loan limits take effect on January 1, 2018.  FHA loan limits vary by county. These limits are determined by the Department of Housing and Urban Development (HUD).

In the Raleigh-Durham-Chapel Hill metro area, the 2018 loan limits increased significantly.  In 2017 the limits increased by 2.6% in Durham, Orange and Chatham Counties and 4.4% in Wake County.

The FHA loan limits for 2018 increased 8.2% in Durham, Orange and Chatham Counties and 3.12% in Wake County. 

These caps increase based on the size of the property, or specifically the number of units.  For instance, higher limits are usually allowed for two-family duplex homes as compared with single-family properties.

The FHA program can be used for single-family or multi-family properties with up to four units. Anything more than four units is generally considered to be commercial real estate.

2017 vs 2018 FHA Loan Limits

 

County

2017

1 Unit

2017

2 Units

2017

3 units

2017

4 Units

Orange

$350,750 $449,000 $542,750

$674,500

Durham

$350,750 $449,000 $542,750

$674,500

Chatham

$350,750 $449,000 $542,750

$674,500

Wake $300,150 $384,250 $464,450

$557,200

 

County

2018

1 Unit

2018

2 Units

2018

3 Units

2018

4 Units

Orange

$379,500 $485,800 $587,250

$729,800

Durham

$379,500 $485,800 $587,250

$729,800

Chatham $379,500 $485,800 $587,250

$729,800

Wake $318,550 $407,800 $$92,950 $612,600

Source: Housing Wire, December 2017

The National Mortgage Limit for FHA-insured Home Equity Conversion Mortgages, or Reverse Mortgages, will also increase from $636,150 to $679,650.

If you are looking to buy a single-family home or a multi-unit property, it is important to know that the FHA and conventional loan limits have increased.  This gives you – the buyer – more buying power!

As a quick reminder, the benefits of getting an FHA loan over a conventional loan is that an FHA loan has lower down payment requirements and less stringent credit score requirements.

Conventional loans have advantages. If you make at least a 20 percent down payment for your home, you will not have to pay private mortgage insurance (PMI). An FHA loan-– no matter the amount of down payment — requires an upfront premium and also a monthly premium for the life of the loan.

Don’t forget that the upfront premium can be paid for by the seller!  All you need is a great buyer’s agent who will negotiate this for you in the contract.  This is exactly what we at Real Estate Experts are here for.

Remember, FHA mortgage insurance is not cancelable.  Conventional mortgage insurance is cancelable once the home has 20% equity.

Conventional Loan Limits

For those of you that want a conventional loan, the 2018 limits are 6.8% higher than the 2017 limits.

2017 vs 2018 Conventional Loan Limits

Units

2017 2018

Single Family

$424,100

$453,100

2 Units

$543,000

$580,150

3 Units $656,350

$701,250

4 Units

$815,650

$871,450

Source: Academy Mortgage

The higher conventional loan limits mean that the loan can be higher, e.g., up to $453,100 for a single-family home, and not require a jumbo rate.  This is very significant because jumbo loan rates are higher than non-jumbo rates.  The higher loan amounts coupled with the lower rate give you the buyer more buying power at a lower cost.

If you are in the market to buy, we at Real Estate Experts are happy to guide you through the process.  We partner with fantastic, experienced lenders who know how to distill the complexities of getting a loan.

Our skilled buyer agents also know how to guide you through the home buying process so that you understand everything along the way.  We do everything we can to ensure a smooth home buying process.

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How to improve your FICO score

How to improve your FICO score

Many people ask, how do I improve my FICO score and what is a FICO score anyway? Two very important questions for those looking to buy a home or who are at least curious about bettering their credit. Improving your FICO score — otherwise known as a credit score —  takes time and effort, just like anything else in this world. In this post, we will explain a little about FICO scores, tips for improving it, and useful tools to help you keep track of your credit score.

What exactly is a FICO Score?

The FICO score is a credit score.  It includes a combination of all the information found in your credit report. That includes information from the 3 major reporting bureaus.

Your FICO score is made up of the following:

Payment History: 35% of your overall FICO

Total Amounts Owed: 30%of your overall FICO

Length of Credit History: 15% of your overall FICO

New Credit: 10% of your overall FICO

Type of Credit in Use: 10% of your overall FICO

To find out what is impacting your FICO score you will want to review your credit reports.

Tips for Improving a FICO Score

There are multiple factors that way on your credit score and some way heavier than others. The tools we are going to share in this post will help you understand what those factors are. Here are a few tips to get you started:

  • Check Your Credit Reports: Fixing errors in your credit report can give you the most immediate score boost.
  • Pay Your Bills on Time: This one has a High Impact and should be taken seriously.
  • Keep Balances Low: They call this your “Utilization Score” and this factor ways heavy as well
  • Build Up Credit History: To create a good credit history, you’ll need to have open lines of credit that you use and pay off responsibly each month.
  • Pay off any Old Debts: If you owe money to the debt collectors, you better believe anyone you try to get a loan from will know about that debt. Take care of these items. 

What tools can help you track your FICO Score?

This information used to be a whole lot harder to get a hold of, but times have changed and the internet has opened the door to so many awesome tools. Many banks and credit cards now offer FICO scores as a Dashboard option within your online account. They run the score every quarter on most bank sites, but this could vary. There is also the universal way of getting your yearly scores, and that is by obtaining a free copy of your credit report from each of the three main credit reporting agencies — Equifax, TransUnion, and Experian — at www.annualcreditreport.com.

Then there are the online sites like Credit Karma which give you free access to your credit scores, reports and monitoring. Once you know where you stand, they help you figure out your next move. Maybe you need to dispute an error on your credit report. They could help with that. Maybe you’re paying too much in interest. They could help with that too. As you can see there are many new options available to monitor your FICO score so that the credit score improvement process can begin.

 

FICO Score Final Thoughts

Now that you know a little more than you did 5 minutes ago, what are you going to do with your newly acquired knowledge? Are you going to use this knowledge to better your odds of getting approved for a credit card? Are you thinking of buying a new car and you need to improve some things first? Maybe you are ready to buy that first home, and you are trying to make sure it’s feasible.  Whatever the case, we hope this information was helpful and ask that you reach out to us with any questions.

If you think you are ready for home ownership, contact Teresa Parker, Loan Officer at Cunningham & Company Mortgage BankersNMLS # 2024 at (919) 697-2598 or [email protected]. She can help you decide if it makes financial sense, and how to get started.

Cunningham Mortgage & Real Estate Experts are partners.  We help you find the home of your dreams and help you navigate through the home buying process and Cunningham Mortgage expertly helps you through the complicated lending process.

To see Real Estate Experts’ newest listings, click here, and feel free to give us a call anytime at 919-813-6449 or send us an email to  [email protected].

You may also want to read the following related posts:  Home Loan Preapproval vs. Home Loan PrequalificationRenting vs Buying – Which Is Better For You?, or Which Home Loans Are The Best?

Which Home Loans Are The Best?

Which Home Loans Are The Best?

Choosing the right home loan can be challenging as there are multiple options to choose from. Most home loans are either 15 year or 30 year terms, but those are not your only options.  Now before you go looking for the lowest rate on your purchase mortgage or refinance, you’ll need to decide on (or at least narrow down) a mortgage term that is right for you. By “mortgage term,” I mean the duration of your mortgage. Why does that matter? Well, your mortgage payments and the amount of interest you pay will be determined, in large part, by the term of your mortgage. In this post, we will show you your options and the pros and cons of each term length.

 

 

The Standard 30 Year Home Loan

The 30-year mortgage is one of the most popular options when it comes to borrowing money to buy a home. I think the most appealing part of a 30-year mortgage is the fact that you can get a lower monthly payment and therefore afford more house than you could with a shorter-term loan. At the same time, not all 30-year mortgages are fixed for 30-years. That’s right, there are a ton of mortgages based on a 30-year payoff schedule that can adjust monthly or annually.

A common example would be the 5/1 adjustable-rate mortgage, which is amortized over 30 years, but adjustable after just five.

It’s fixed for the first five years, and adjustable for the remaining 25, but still a 30-year term loan.

Same goes for a 7/1 or a 10/1 ARM, except their fixed period is seven or 10 years, respectively, before going adjustable.

 

The 15 Year Home Loan Is Also Very Common

The 15-year mortgage is not as popular as the 30-year mortgage, primarily because your monthly payment is significantly higher than on a 30-year mortgage. Also, we live in the age of “how big of a payment can I afford?”

While the payment amount should be affordable, it shouldn’t be the only determining factor of a purchase. What most people fail to realize is that choosing a 15-year mortgage term over a 30-year mortgage term results in a long-term monetary savings benefit that can easily run in the tens of thousands of dollars.

 

What other Home Loans are available?

The most common home loan terms are 30 and 15 year loans, but those aren’t your only options. There are plenty of other options, including 10 year, 20 year, 25 year, 40 year, and even five-year terms.

Yes, you could pay your mortgage off in just 10 years or stretch it out to 40 years if you need a little more time. Just make sure you look in to all your options before jumping into your next home loan.

 

The “Real” Average Home Loan Term

One thing to remember is that most people only hold onto their mortgages for about seven years.  This is a result of either selling the home and moving on, or refinancing the existing mortgage to take advantage of lower mortgage rates, or to get cash out.

What we are trying to say is that you should really think about your personal situation. Is this purchase going to be your last for the next 30 years, or does your life demand movement and therefore change?

Don’t pick a 20-year over a 30-year term if the rate isn’t significantly better.

And don’t go after a 15-year term if you think you’ll have a tough time making the larger payments, or if you think you may move in just a few years.

In Conclusion

The longer the term, the lower the mortgage payment, but the more interest you’ll pay and the longer it will take to build home equity. Take your time, make the right choices, and make sure you can live with those choices, because getting in too deep isn’t hard to do. No matter what kind of loan gets you into a home, do your homework beforehand and make sure there are no details about the mortgage loan you don’t understand.

If you think home ownership is for you, contact Teresa Parker, Loan Officer at Cunningham & Company Mortgage BankersNMLS # 2024 at (919) 697-2598 or [email protected]. She can help you decide if it makes financial sense, and how to get started.

Cunningham Mortgage & Real Estate Experts are partners.  We help you find the home of your dreams and help you navigate through the home buying process and Cunningham Mortgage expertly helps you through the complicated lending process.

To see Real Estate Experts’ newest listings, click here, and feel free to give us a call anytime at 919-813-6449 or send us an email to  [email protected].

You may also want to read the following related posts:  Home Loan Preapproval vs. Home Loan PrequalificationRenting vs Buying – Which Is Better For You?, or Does a 0.5% Rise in Interest Rates Equal a 5% Rise in Price?

Does a 0.5% Rise in Interest Rates Equal a 5% Rise in Price?

Does a 0.5% Rise in Interest Rates Equal a 5% Rise in Price?

SincRising Interest Ratese the election, interest rates are rising and they will have a direct effect on the cost of housing. There is a rule of thumb that a ½% change in an interest rate is approximately equal to a 5% change in price.

As the interest rates go up, it will cost you more to live in the very same home, or to keep the payment the same, you’ll have to buy a lower priced home.

Before rates rise too much, this may be the best time to buy a home whether you’re going to use it for your principal residence or a rental property. Low interest rates and lower prices make housing more affordable.

Affects of interest rates on home prices

The Impact of Rising Interest Rates on Home Ownership

Many home buyers understand that rising home prices can affect their ability to buy.  Many people, however, don’t realize that rising interest rates have an even greater impact.  For the last few years, interest rates have been at historic lows.

According to Erik Martin, a reporter with The Mortgage Reports, “Housing agency Freddie Mac recently predicted that mortgage rates will rise to 4.0% in 2017. That’s more than 50 basis points (0.50%) higher than the current mortgage rate average.”

As illustrated above, as interest rates rise, your buying power decreases.   In this case, to keep your mortgage payment the same, a buyer would need to either put down more money, bring in a co-borrower for help, or look at a different form of financing than a conventional loan, such as an adjustable rate mortgage or an 80/10/10 piggy back loan.

If interest rates rise a full 1%, the typical buyer would need to spend $35,000 less on their home purchase.  This is significant!  In many places, home values are rising too so this amounts to a double whammy for home buyers.

Our recommendation at Real Estate Experts is to watch mortgage rates very closely.  If you are looking to buy, let one of our top realtors help you find the home of your dreams.

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