When to Refinance Your Mortgage

Whether you’re a new homeowner or have owned your home for a few years, there’s always much to learn when it comes to understanding mortgages. Depending on your financial status and your long-term plans, it may make sense to either make larger payments or to refinance your home loan.

Today, we’ll tackle some of those difficult “what if?” questions, helping you decide when to refinance, when to keep your payments stable, and when you might want to increase your monthly mortgage payments.

What are the benefits of refinancing?

We’ve all heard about the benefits of refinancing when under financial stress. For things like student loans and credit card debt, refinancing is often a debtor’s only choice. However, with home loans, the allure of refinancing may not always be a good fit for you.

If your plan is to refinance to get lower mortgage payments each month, you should first question if it will be worth it on the long run, which might amount to you paying more in interest. To avoid paying more in interest, refinance after you’ve accomplished important financial milestones, such as increasing your credit score which makes you a lower risk client to banks.  

When does it make sense to pay more?

The benefits of paying off your mortgage in a shorter period of time are obvious. It means less time making payments, and less money spent on interest.  

However, depending on your mortgage, you might be better off investing your savings in something that will give you a larger return. Investments in a retirement fund, for example, are likely to pay off to a larger degree in the long term. To do the math, simply calculate the savings you would earn on by cutting your mortgage interest and weigh that against projected gains in retirement funds.

None of us can predict the future. Stocks rise and fall, people get laid off from their job due to fluctuations in the economy, and so on. These factors make it difficult to determine whether you should invest. So we encourage you to do your homework when it comes to investments so that you have the best chance of succeeding.  

Changing lenders

Your relationship with your lender will likely be a long one, so you want to make sure it’s one you’re comfortable with and that they are giving you reasonable rates. Now that you’re secure and living in your you have time to shop around for the best rates.

Be sure to ask lenders for good faith estimates and compare applicable fees. Ask friends and neighbors about their experience with lenders and read online reviews to get a better idea of what type of customer experience can expect.

Planning To Buy Your First Home? Here’s Where to Start

Buying your first home is a huge financial accomplishment and life milestone. The process is long, and can seem complicated at times. However, if you do your research and manage your money carefully, buying a house can be an excellent financial asset that will serve you for decades to come. 

Many people who hope to own a home in the near future aren’t sure of the best way to start off on their path toward homeownership. This uncertainty leads them to put off their preparations. If you want to stop renting and start building equity, this is time wasted.

In today’s post, I’m going to give you some advice on how to start planning for homeownership, regardless of your current circumstances.

Build credit responsibly

One thing that will help you on nearly all mortgage applications is a good credit score. For those of us who had a difficult time paying off bills or had loans go into default, it can seem like a daunting task to ever raise your credit score into good standing.

However, when your score is low, it is actually easier and faster to raise than if it is already in high standing.

To boost your credit score, make sure your current debt is paid on time each month. If you’re thinking about taking on a new line of credit, consider setting it to auto-pay each month for the full statement balance. This way, you’ll still improve your credit score but can also avoid costly interest payments.

Read up on mortgages and fees

There are many different types of mortgages available to borrowers in the United States. Some, such as USDA and VA loans, are guaranteed by the U.S. government. This means they often have less stringent credit and down payment requirements.

Don’t be afraid to shop around between lenders. You may see different interest rates from similar lenders in your area.

Finally, make sure you’re familiar with the type of closing costs and property taxes you’ll be responsible for. It’s one thing to be able to afford your monthly mortgage payments, but there are other costs to consider when it comes to being a homeowner.

Budget and save

Budgeting and saving are both skills that need to be learned and developed over time. None of us are born with the knowledge of how to best budget their expenses and earnings. However, there are some free tools available in most app stores.

When it comes to saving, remember that the more you save for a down payment, the lower your interest rate can be. The difference may seem small now, but over the lifetime of your mortgage can save you tens of thousands of dollars. Wouldn’t you rather that money end up in your retirement fund than in your lender’s pocket?

Before you apply for a mortgage

If you’ve saved for your down payment and built credit and are ready to take the next step and get preapproved, be aware that opening new lines of credit will temporarily decrease your score.

Home Loans FAQ: FHA Loans

If you’re hoping to buy your first home in the near future, you’re likely wondering about the different types of mortgages that you may qualify for. Since the 1930s, the Federal Housing Administration (FHA) has been insuring home loans for first-time homeowners across America.

This program helps people achieve homeownership who typically wouldn’t be able to afford the down payment or pass the credit score requirements to secure a traditional mortgage.

In today’s post, we’re going to answer some frequently asked questions about FHA loans to help you decide if this is the best option for your first home.

Does the FHA issue loans?

Although they’re called “FHA loans,” mortgages are not actually issued by the FHA. Rather, they’re issued by mortgage lenders across the country and insured by the FHA.

Will I have to make a down payment?

With an FHA loan, your down payment can be as low as 3.5%, significantly lower than traditional loans at 20% down payment. However, you will be required to pay private mortgage insurance (PMI) in addition to your monthly mortgage payments until you have paid off 20% of the home. So, the best case scenario would be to save as much as possible for a down payment to reduce the amount of mortgage insurance you have to pay.

What are the benefits of an FHA loan?

The three main reasons to secure an FHA loan are:

  • You can qualify with a low credit score

  • You can make a smaller down payment than traditional mortgages

  • Your closer costs will be less expensive

Where do I apply for an FHA loan?

You can apply for an FHA loan through a mortgage lender. You can also work with a mortgage broker to help choose a lender.

Is an FHA loan the only loan option for low down payments?

There are multiple loan programs offered at the state and federal level to help individuals secure a mortgage with a lower down payment. They can be provided by the Department of Veterans Affairs, the USDA, or state-sponsored programs. Lenders also often sponsor their own programs to attract potential borrowers. However, always make sure you compare these programs to make sure you’re making the best long-term financial decision.

Do all FHA loans offer the same interest rates and costs?

No. Since the loans are only insured by the FHA, it’s up to the lender to determine your interest rate and fees. So, it’s a good idea to shop around for the best lender.

How high does my credit score have to be to qualify for an FHA loan?

You can secure a mortgage with a down payment as low as 3.5% with a credit score of 580 or higher. However, if you can afford to make a larger down payment, you can secure an FHA loan with a credit score as low as 500.

If your score is in the 500-600 range, it’s typically a better idea to spend a few months building credit before applying for a home loan.

What information will I need to apply?

You’ll need to gather all of the same information that you would for a typical mortgage. This includes W2s from your employer(s), two years of submitted tax forms, your current and former addresses from the past two years, and your gross monthly salary.

I’ve owned a house before, can I still qualify for FHA loans?

Even if you’re not a first-time homebuyer you can still qualify for an FHA loan. However, you cannot qualify if you’ve had a foreclosure within the last three years or have filed for bankruptcy within the last two years.

Mortgage Terminology 101

Whether you’re a first time homebuyer or a seasoned homeowner, the terminology of mortgages can be confusing. Since buying a home is such a huge financial decision, you’re also going to want to make sure you understand every step of the process and all of the conditions and fees along the way.

In this article, we’re going to explain some of the common terms you might come across when applying for a home loan, be it online or over the phone. By learning the basic meaning of these terms you’ll feel more confident and prepared going into the application process.

We’ll cover the acronyms, like APRs and ARMs, and the scary sounding terms like “amortization” so that you know everything you need to about the terminology of home loans.

  • ARM and FRM, or adjustable rate vs fixed rate mortgages. Lenders make their money by charging you interest on your home loan that you pay back over the length of your loan period. Adjustable rate mortgages or ARMs are loans that have interest rates which change over the lifespan of your loan. You may start off at a low, “introductory rate” and later start paying higher amounts depending on the predetermined rate index. Fixed rate mortgages, on the other hand, remain at the same rate throughout the life of the loan. However, refinancing on your loan allows you to receive a different interest rate later down the road.

  • Amortization. It sounds like a medieval torture technique, but in reality amortization is the process of making your life easier by setting up a fixed repayment schedule. This schedule includes both the interest and the principal loan balance, allowing you to understand how long and how much money will go toward repaying your mortgage.

  • Equity. Simply state, your equity is the the amount of the home you have paid off. In a sense, it’s the amount of the home that you really own. Your equity increases as you make payments, and having equity can help you buy a new home, or see a return on investment with your current home if the home increases in value.

  • Assumption and assumability. It isn’t the title of a Jane Austen novel. It’s all about the process of a mortgage changing hands. An assumable mortgage can be transferred to a new buyer, and assumption is the actual transfer of the loan. Assuming a loan can be financially beneficial if the home as increased in value since the mortgage was created.

  • Escrow. There are a lot of legal implications that come along with buying a home. An escrow is designed to make sure the loan process runs smoothly. It acts as a holding tank for your documents, payments, as well as property taxes and insurance. An escrow performs an important function in the home buying process, and, as a result, charges you a percentage of the home for its services.

  • Origination fee. Basically a fancy way of saying “processing fee,” the origination covers the cost of processing your mortgage application. It’s one of the many “closing costs” you’ll encounter when buying a home and accounts for all of the legwork your loan officer does to make your mortgage a reality–running credit reports, reviewing income history, and so on.