Is A Multifamily Home And Mortgage Right For You?

The number of loan origination for multifamily units has continued to increase in recent years and it’s easy to see why. This growth trend is due in part to low interest rates as well as the strong demand for rental properties by millenials.  The Mortgage Bankers Association expects 2019 to be another record-breaking year with similar expectations projected for 2020.

Multifamily Home

Given this favorable environment, it makes sense to better understand if investing in a multifamily property is a smart move for you.  There could be significant financial benefits from this type of investment, especially if you decide to live in the property while renting out the other units.  The arrangement could be a real win/win all around! 

Is it Easy to get Mortgage for Multifamily Home?

In cities such as Chicago, a number of large condo buildings are being converted to apartment complexes that are then rented by those looking for this type of housing.   Multifamily properties with five or more units are considered commercial real estate. For lending purposes, commercial financing is more difficult to get and often requires larger down payments and shorter repayment schedules than residential mortgages. Developers, brokers and investors tend to participate in these types of projects.  

Multifamily properties with 2-4 units are considered to be a residential building. Sometimes known as duplexes, triplexes, and fourplexes, 2-4 unit properties are essentially mini apartment buildings. With separate dwellings contained within one property, a 2-4 unit can be occupied by different tenants.  Although they may resemble mini apartment complexes, they are still considered residential properties. This is extremely important when it comes to financing options. 

Long-term loans, such as mortgages, typically have different rates and regulations depending on whether you want to buy a commercial or residential property. Buying a residential property usually means the mortgage will have a lower interest rate than what is offered for  a commercial loan This means that taking out a multifamily mortgage on a 2-4 unit allows you to take advantage of the lower rate that a residential mortgage offers and still make a rental income if you decide to lease out the extra space to tenants. 

Furthermore, the projected rental income from the additional units can often be taken into account when applying to a mortgage lender. Although you’ll need a deposit to qualify for a loan, the rental income from the 2-4 unit property can form part or all of your income in relation to the terms of the mortgage. 

This makes purchasing a 2-4 unit building a more realistic option, particularly for millennials who may be in the early stages of their careers. If you choose to live in your new building, you may even find that the rental income the property produces covers the cost of your own mortgage repayments, essentially minimizing your monthly costs. 

How To Finance A Duplex Or Multi-Unit Home?

There are numerous ways to finance a duplex or multi-unit home and the right option for you will depend on your personal circumstances. Before you make any decisions regarding property purchases or investments, it’s important to seek advice from a mortgage expert. By consulting an experienced mortgage advisor, for example, you can determine which options are available to you and what type of multi-unit mortgage would suit you best.

When buying a multi-unit property, you may decide to opt for a conventional mortgage. This is the same type of mortgage you would obtain if you were buying a single-family residence. If you want to buy a multifamily dwelling and live in one of the units, you may want to consider an FHA or VA loan.  Investors are limited to conventional mortgage loans.  

FHA loans are ideal for first-time homebuyers, individuals who don’t have a perfect credit score and/or buyers who may not have a large down payment. While the terms of FHA loans are relatively generous, you’ll need to ensure you meet the criteria to determine whether you’ll qualify for an FHA loan. 

When assessing the suitability of an FHA or conventional mortgage for a multi-unit property, you’ll need to consider three main factors; your credit score, loan limits and down payment requirements.

What Credit Score Is Required To Get An FHA Loan?

FHA loans typically have lower credit score requirements than other conventional mortgage programs. Furthermore, there is some flexibility in relation to the minimum credit score required to qualify for a loan, depending on the down payment you have. 

If you have a down payment of 10% of the property price, you can obtain an FHA loan with a credit score of 500-579. If you have a credit score of 580 or higher, however, you could be eligible for an FHA loan with a down payment of just 3.5% of the property price. 

What Are The Loan Limits For A Multi-unit Home?

When evaluating whether or not a multifamily mortgage is right for you, it’s important to look at the loan limits. These essentially state how much funding you can borrow from a mortgage lender. 

Generally, a conventional mortgage loan is capped at $484,350 throughout the U.S. in 2019. However, if you buy a multifamily property, the conforming loan limits increase. For a two-unit home, the limit in 2019 was $620,200 for two-unit homes, while the limits for three- and four-unit properties were $749,650 and $931,600 respectively. In addition to this, some areas with high housing costs increase these limits even further.

For FHA loans, the standard loan limits are as follows:

  • 1-unit home : $314,827
  • 2-unit home : $403,125
  • 3-unit home : $487,250
  • 4-unit home : $605,525

In high cost areas, the FHA loan limits are:

  • 1-unit home : $726,525
  • 2-unit home : $930,300
  • 3-unit home : $1,124,475
  • 4-unit home : $1,397,400

High-cost FHA loan limits are the maximum insurable FHA loan size although there are special exceptions for certain parts of areas in Hawaii, Alaska and other locations.

Your Chicago mortgage banker or broker can help clarify the loan limits for multifamily mortgages in the city and surrounding areas.

How Much Down Payment Is Required for An FHA Multi -Unit Mortgage?

Conventional mortgages usually require a down payment of 5 to 20% of the property price, with private mortgage insurance being required if under 20%. Investors may be expected to put down a deposit of 25 to 30%. As conventional mortgages require such a high down payment, it can take years for first-time buyers to save enough to qualify for this type of lending. 

With an FHA multi-unit mortgage, however, you can put down a much smaller down payment and still obtain the funding you need. If you have a credit score of 500-579, for example, you’ll need a down payment of at least 10%. 

Other Factors To Consider When Obtaining A Multifamily Home Mortgage

When you’re buying any type of property, it’s important to consider all of the relevant factors. This is why it’s important to consult a professional, mortgage advisor before you make any decisions. 

Although FHA loans can be a fantastic way to get on the property ladder, own your own home and invest in your future, they aren’t necessarily the right option for everyone. Furthermore, there are other long-term loans and providers which may be more suited to your needs. 

The United States Department of Veterans’ Affairs (VA) offers government-based home loans to military service members, veterans and their families. Similarly, Fannie Mae and Freddie Mac offer home loan programs designed for people with low to moderate incomes. 

One of the major advantages of obtaining an FHA loan is the ability to generate rental income from your property. In most cases, the rental income the property can be taken into account when your eligibility is assessed. However, the full rental amount is not usually considered for these calculations. Instead, 75% of the rental income the property generates may be counted as income when you apply to qualify for a loan. 

If your monthly mortgage repayments are estimated to be $5,000, for example, and the property is expected to generate $3,000 in rent, only 75% of this $3,000 will be taken into account when assessing your repayments. Essentially, the calculation would use the figure of $2,250, rather than $3,000. In this example, you would need to show that you could comfortably afford the remaining repayment of $2,750 per month in order to qualify for the loan. 

Despite this, many people still find that FHA loans offer a unique opportunity to enter the property market and invest in their future. 

Conclusion

In cities like Chicago, where property prices are high, purchasing a multi-unit home and taking out a government-backed FHA loan can be a wise financial decision. Currently, many people are being priced out of the property market in the area but obtaining a multifamily unit loan Chicago could enable you to purchase your own property. 

Furthermore, Chicago is a thriving city and has a high number of people looking for rental opportunities. If you plan on renting out your units to tenants, they’re unlikely to be empty for long. This gives you the scope to make a significant rental income from a 2-4 unit property and maximize the return from your investment. 

With extensive experience in the industry and in-depth local knowledge, we’re well-placed to help you find the right mortgage. If you’re interested in taking out a multifamily home mortgage, talk to our team today. Simply contact A and N Mortgage at 773-305-LOAN and we’ll be happy to help.

To learn more, read how one of our mortgage lenders successfully renovated his multifamily unit, paid for his rent, covered expenses and made a large profit along the way.  

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

 

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Do Biweekly Mortgage Payments Make Sense For You?

As anyone on the housing market knows, mortgages come in all different shapes and sizes. There are fixed and variable choices, differing mortgage rates, and a whole lot for homeowners to consider. And, just when you thought you had gotten your head around the options, payments rear their ugly heads.

biweekly mortgage

Repayments, of course, are at the heart of any mortgage. Higher repayments generally mean a shorter-term loan and less paid in interest. That’s something most borrowers understand, however, few homeowners realize that there’s more than one way to pay a mortgage.

Simple monthly mortgage payments are the most commonplace.  Another alternative is to pay more than the minimum monthly payment necessary. However, the extra money will go toward your next monthly payment instead of the mortgage principal unless specified. For this reason, it’s worth considering biweekly mortgage payments. This type of payment structure can be extremely beneficial for many borrowers, and it’s something that surprisingly few of us realize is an option.

What Are Biweekly Payments?

Biweekly mortgage payments are repayments that homeowners make every two weeks. A biweekly mortgage is in itself no different from a standard mortgage agreement. The main difference is that homeowners will make one extra monthly mortgage payment a year. 

Even better, this payment arrangement is a pretty painless repayment option, allowing families to shorten the repayment of their loan by four to six years, and reduce their interest costs in accordance. 

How Do Biweekly Payments Work?

To understand precisely how biweekly payments work, it’s essential to make sense of the function of a standard mortgage repayment schedule. 

When homeowners make twelve yearly repayments, a portion of that payment will go towards the mortgage interest and the rest will go towards the principal. As your mortgage progresses and your debt decreases, you pay less interest, and thus more money towards principal repayment. This process is referred to as amortization, and mortgages typically take around thirty years to clear this way.

With biweekly payments, homeowners can shorten the amortization cycle by making 26 payments in a year. In other words, biweekly mortgages mean paying thirteen months off your mortgage in twelve. This extra payment goes solely towards lowering overall mortgage amounts and thus reducing interest further without pushing homeowners towards higher monthly payments they may not be able to afford. 

Does Paying Your Mortgage Every Two Weeks Help?

In large part, the benefits of payments every two weeks depends on your circumstances.  By reducing total interest costs by around 25 to 30%, biweekly mortgage payments can undoubtedly help some homeowners.  As an example, a homeowner who owes a total value of $300,000 with an interest rate of 4.0% could save a borrower nearly $30,000 in interest charges and result in the loan being paid off 5 years earlier.

With a biweekly mortgage payment, homeowners will also need to consider setup fees and potential late payment costs before deciding for sure whether a mortgage like this makes sense. Even so, some homeowners are able to shave thousands off their mortgages this way. 

A biweekly mortgage calculator is the best way to arrive at exact amounts or ask your mortgage lender to help determine the savings. 

Making Biweekly Payments Through Your Lender

If biweekly payments have caught your eye, then you may be wondering how you can arrange these with your lender. Most lenders will be able to transfer to the biweekly payments with minimal effort. Make sure to check with your mortgage servicer to see if they charge a fee for biweekly payments as some do and some don’t. It’s important to read the fine print whether you are making payment changes to an existing mortgage or taking out a new mortgage.  

The main thing to bear in mind is timing when setting the biweekly payment up. If you’ve already paid your mortgage for the month, you may end up having to pay a month and a half, thereby stretching your budget more than you can manage. As such, always make this switch before your mortgage date so that you don’t land yourself in financial trouble.

Be sure to ask your lender crucial information regarding value, including: 

  1. How your payments will be credited
  2. Whether your extra payment will be applied directly
  3. How much you stand to save over your mortgage term

By answering each of these, you can guarantee that a biweekly plan really is your best option.

The Benefits Of Scheduling Payments This Way

The main advantage is the option to save money on total interest rates over your mortgage term. Given that most homeowners pay substantial amounts of interest on even small mortgages, reductions here are always worth making. In turn, these savings result in shorter mortgage terms, which can lead to further benefits that include:

  • A faster way to build equity
  • Budgeting that’s easier to manage
  • Less stress when it comes to your mortgage

When A Biweekly Mortgage Plan May Not Make Sense

As much as biweekly plans can be beneficial, there are also times when homeowners would be better off avoiding them. After all, a higher number of yearly repayments isn’t going to suit everyone, and it may not mathematically calculate as the best way to save. 

Some mortgage lenders charge a fee from $400 to $1,000 for biweekly switch overs, so homeowners should weigh their options before committing. Also, remember that a biweekly mortgage payment is a permanent agreement and with the risk of added late fees, homeowners need to consider every potential pitfall beforehand.

Would A Shorter Term Loan Be A Better Way To Go?

Homeowners who can afford to cover the costs of shorter term, higher monthly payment loan will see more benefits from this type of mortgage than they would a biweekly option. While biweekly payments can drastically reduce interest rates, shorter term rates will typically be lower in the first place if you agree to a term of 15 to 20 years instead of a 30-year biweekly option. In fact, you could save substantial amounts of money if this is an option you could feasibly afford when you originally take out the mortgage.

Let Your Mortgage Lender Help You Decide Your Best Financial Option

Whether or not you should consider a biweekly plan comes down to the advice of your mortgage banker. Trained mortgage lenders in Illinois and the rest of the U.S. know precisely what mortgage solutions are available, and which would best suit each person who comes to them. With access to mortgage calculators and the best tools on the market, they’ll be able to guide you on whether a biweekly payment option is worth your while.

Remember that a mortgage lender has no incentive to trick you into payments you can’t afford. If they’re directing you away from a biweekly mortgage, then you would do best to listen. Equally, if they’re encouraging you towards this plan, then it’s well worth your consideration.

Setting Up A Biweekly Mortgage Plan

If you do decide that a biweekly mortgage is the way to go, you’ll want to know how you can set up your biweekly mortgage plan. In reality, the best option here again depends upon your financial requirements.

As mentioned, most mortgage lenders will be able to provide a biweekly option, but some now include fairly expensive start-up fees to go along with it. So you will want to check first to see if your lender charges low or no fees.  Also, be wary of scams where they claim to set up a biweekly payment for you. That said, a professional touch can take a great deal of effort and concern out of this payment set-up. 

If you’re feeling brave, you could always embark on what is commonly termed as the ‘do it yourself biweekly mortgage.’ To achieve this goal, you simply need to take your routine monthly mortgage amount and divide it by twelve, then make one principal-only extra mortgage payment for the resulting amount each month. You should also check to make sure that you don’t get penalized for paying off your mortgage early.  Most do not carry a penalty anymore, but it is worth checking. 

Conclusion

There is no one-size-fits-all mortgage solution for every homeowner in the country, but knowing your choices is important for finding the ideal mortgage.  A biweekly mortgage might not be for everyone, but it could be a smart move for you. 

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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Understanding The Different Types Of Mortgages

Buying a home is arguably the most important purchase that you’ll ever make, which is why it’s important to make the right decision. Given the high costs of a housing purchase, the odds are that you will need to take out a home mortgage loan.

mortgage

While the basic premise of all mortgages is the same (you’ll be using your new property as collateral for a loan that enables you to purchase the property), there are many different options at your disposal. Here’s all you need to know about the different types of mortgages.

The Importance Of Understanding The Types Of Mortgages

No two people are the same, especially when it comes to buying a home. As such, banks and lenders offer various mortgage products in order to serve the different needs of a diverse market. Understanding the finer details of the contrasting mortgage types ultimately enables you to select the most suitable route for buying your property.

Some of the variables that could influence your decision include:

  • Down payment size – Some mortgages provide a 0% down payment option while others are better suited to a 10% or 20% down payment.
  • Property price – The right mortgage for a $100,000 loan might not be the best choice for a $1,000,000 home loan.
  • Loan-to-Value ratio – When the down payment is a significant percentage (over 50%) of the property price, a specific mortgage type may be better.
  • Debt-to-Income ratio – Banks factor in your other debts against your earnings to ensure that you are capable of making repayments and your situation can influence which option is best.
  • Solo or joint application – Depending on whether you’re buying the property alone or with your spouse, different home loans may be more suitable.
  • Credit historyCredit scores are another influential factor that can impact the overall repayment structure.

Other factors, such as the duration of the mortgage loan, will also influence the situation. By understanding the different mortgage loans, it’s possible to find a solution that suits your budget and situation to produce the lowest overall repayment.

Types Of Mortgages Explained

When analyzing mortgage options, there will be a number of additional factors to consider in your bid to find the best mortgage. After all, the contrasts between one lender and the next can be huge. Nevertheless, the mortgage type will always provide the foundation for making the right decision.

While there are other mortgage types available, especially if you’re looking to become an investor or landlord, home loans are broken into seven main categories.

types of mortgage

 Fixed-Rate Mortgages

A fixed-rate mortgage is the most common mortgage option by far. It is an agreement in which your payments and interest rates are set at a guaranteed level throughout the duration of the loan. This makes the financial management aspects of the mortgage loan far easier to control.

The term of the agreement can be personalized to suit individual requirements based on financial status and personal preference. Most applicants will apply for a mortgage length of 15 or 30 years. Older applicants should know that most lenders will only offer a term up to the month that you reach retirement age.

Interest rates are lower on a shorter agreement because it poses less of a risk to the bank or lender. So, even though a 15-year mortgage means that you have half the time of a 30-year one, the monthly premiums will not be double the price.

Adjustable-Rate Mortgages (ARM): Fluctuating Interest Rate

ARMs are also a popular mortgage option, even if they are a little less common. Several mortgage products fall under the category of ARMs, but they all focus on the idea of using a fluctuating interest rate that moves up and down to reflect the economic environment.

So homeowners with an ARM get the added benefit of knowing that an economy that results in lower interest rates will bring savings.  The most common ARM is the Variable Rate Mortgage, which has fluctuating interest rates that run alongside a third-party index. Rates may change every 6 or 12 months, as set out by the agreement. 

Another option is the hybrid ARM, which starts the agreement on a fixed rate for a set period of time (often set as 3 or 5 years) before switching to the variable rate. Option ARMs can get complicated but are a good option for people wanting to borrow more than traditional lending would offer.

Home Equity Loans

Otherwise known as a second mortgage, home equity loans allow you to take out a secondary loan based upon the equity you’ve built up. While you can only borrow against the equity you’ve already built, they can be a good option for financing home upgrades or accessing money in emergency situations.

Home equity loans tend to have a larger interest rate, although the smaller sums involved open the door to shorter-term agreements. It runs alongside the standard home loan agreement, though, meaning the payments throughout the duration will feel higher than normal.

Equity lines of credit are also available. They work in a very similar manner to other lines of credit agreements but are made against the equity of the property.

What is a Reverse Mortgage?

A reverse mortgage is a concept built exclusively for senior citizens and serves to offer access to equity in the home via a loan. This can be facilitated as a set lump payment or monthly repayments, as well as via a line of credit.

Reverse mortgages do not normally require the homeowner to make payments while still living in the property.  The loan does not have to be paid back until the last borrower passes away or moves from the home for one whole year.

Interest Only Loans for Hybrid Type of Mortgage

An interest-only loan can be thought of as a type of hybrid mortgage. It works on the principle of simply paying off the interest for the opening period of the mortgage (often 1-3 years) before then switching to your traditional fixed-rate or variable repayments.

This is a good option if you are worried about meeting repayments through the transitional phase due to home repair costs as well as the fact you’ll have recently made a down payment. However, the short-term cushion will mean that the future repayments are larger because you’ll have to make up for the lost time. 

After all, a 20-year mortgage on a 3-year interest only plan is practically a 17-year mortgage as you won’t have knocked anything off the loan agreement until the start of the fourth year. Weighing up the pros and cons is largely a matter of personal preference for individual circumstances.

What Is a Balloon Loan?

If you are familiar with balloon car loans, the payment structure works in a very similar manner when dealing with balloon mortgages. Essentially, you pay a low fee (perhaps even an interest-only repayment) for the duration of the mortgage agreement before clearing the full balance on the final payment.

This type of mortgage is usually a lot shorter, with 10 years being the most common duration. As such, the fact that you’ll have to clear a substantial balance at the end of the agreement makes it an unsuitable solution for many. However, those that are set to quickly reach and sustain a position of greater revenue may opt for this route. 

How Does Refinancing a Loan Work?

Refinance loans are another option that is open to homeowners that are already several years into their mortgage. They can be used to reduce interest payments and change the duration of the agreement. This is because it is an entirely new home loan agreement that is used to replace the existing one.

The new loan is used to pay off the original mortgage, essentially closing that deal before opening the new term agreement. This can be used to update your homeownership status to reflect changing life situations, or to change the lender.

Refinancing can be very useful in times of economic hardship, but homeowners need to do their research to see the full picture as it can be damaging in many situations. If it was always the right option, every homeowner would choose it.

Conclusion

Finding the right mortgage is one of the most important financial challenges that you’ll face, and it’s a process that starts with selecting the right type of mortgage for your situation. While you may think that the variances between different mortgage products are small, the impact that they can have on your future is huge. If you find that the home loan process is intimidating and complicated, seek out advice from a lender like A and N Mortgage. The team of professionals at A and N Mortgage, one of the best mortgage lenders in Chicago, will help you apply for a home loan and find an arrangement that works best for you. 

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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Why Mortgage Applications Get Rejected And What To Do Next

mortgage application rejected

 

Finding out that your mortgage application has been rejected is one of those heart-sinking moments. You may feel frustrated and upset. You may assume that your property dreams are over for now. You may also be feeling completely perplexed. These feelings are natural. 

Understanding why your mortgage application was denied is important.  By doing so, you can then make the required changes to make sure it does not get rejected the second time around.  Below, we are going to take a look at some of the reasons why your mortgage application may have been denied as well as provide some tips on how to make sure this does not happen.  

Possible Reasons Why Mortgage Applications Are Denied

Here are some of the main reasons why mortgage applications are denied.

Poor Credit History

There are a number of different reasons why you may have a poor credit rating and this can often be the most worrying reason why your application was denied. A low credit score could be the result of:

  1.  History of late payments – Late payments usually show on your account for seven years. Some mortgage lenders will be willing to lend if you can explain the late payments and prove that you won’t be late on your mortgage repayments. 
  2. Too much debt – Paying this off before you submit your next mortgage application comes highly recommended. 
  3. New credit account – This could be from opening a new credit card account to buy new furniture, clothing or some other reason. This new credit account will show up on your credit report for six months, so it’s a good idea to wait for six months before applying again. 
  4. Too many credit applications – Repeatedly applying for credit indicates that you are relying on credit and that you are desperate to open credit accounts. It is preferable to do soft searches for credit. Hard searches, which show on your credit report, have a negative impact and stay on your credit report for six months.

Debt-To-Income Ratio

Another reason why your mortgage application may have been denied is if you have too much debt. Ensuring your debt is at a manageable level is necessary when it comes to building the foundations of good financial health. To assess your debt level, you should consider your debt-to-income (DTI) ratio. What is this? Well, this compares your monthly gross income and your monthly debt expenses. 

To work this out, you should add up all of the debt payments you make per month. This includes housing expenses, car loans, credit card payments, and any other debts, for example, loan payments. You also need to add up any homeowner association fees, property taxes and insurance, and interest. This then needs to be divided by your monthly gross income. Your monthly gross income relates to your income before you have deducted your tax. This will give you your debt to income ratio. Most people will then multiply this by 100 so that it is shown as a percentage. debtFor example, let’s say you make debt payments of $3,000 per month, and your gross income is $5,000, your debt-to-income ratio is 60%. The maximum debt-to-income ratio a lender is willing to accept will, of course, differ from lender-to-lender. However, in most cases, it tends to be around 36%.

How To Avoid Mortgage Application Errors?

You may have also received notification that your mortgage application has been denied due to the fact that there were errors on your application. Whether the errors were intentional or not, they can really hinder your chances of securing a loan. Leaving information out or failing to complete your mortgage application in full will result in your application being denied. 

One thing you should never do is lie on your application. Some people do this because they think that a little white lie will not matter. However, lenders will check the information that you provided and they will often require evidence.  If they find out you have lied, your application will be declined.

Depending on the nature of the misstatement, you could even find yourself being prosecuted for fraud. Some of the common lies people make include stating you will live in the house yourself but really you intend to rent it out, saying you have a full-time job when you do not, saying you earn more than you really do or claiming to have a larger deposit than you actually have. 

 

How To Avoid Mortgage Application Errors_

 

You also need to be very careful in terms of your mortgage application and the number of expenses you have per month. For example, looking after children can be expensive, and so lenders will also consider the cost of this, as well as how much you earn and your other expenses. Make sure your mortgage application is filled in carefully. This is especially important if you complete an application online. Some people have had their applications rejected because of the auto-complete feature on their browser, which led to the wrong information being inputted. 

You also need to make sure you do not miss anything from your application, as this could mean your application is rejected, or at best, it could delay your house purchase. Things you should not forget to include are:

  • Where your deposit came from, for example, if it was a gift or you saved it yourself
  • If you need to make regular childcare payments
  • If you moved within the last three years, the lender will need your old address
  • If you have a second job, as extra income can help your likelihood of securing the loan

Change In Job Status Affect Mortgage Application

Last but not least, stability is important when it comes to mortgage applications. If you have recently changed your job or lost your job, this could make your lender nervous. This is especially the case if you change your job on a regular basis. Instead, working for the same employer for the past two years or longer can assist with your loan application. 

If you have just started a new job, you may boost your chances of being accepted for a mortgage if you submit a number of pay stubs or you ask your current employer to submit your offer letter. If you work as a freelancer or contract worker, you may find it harder to find a mortgage. This does not mean it is impossible. It is all about proving that you have a stable income, so you need to show that you have a consistent amount of money coming in on a monthly basis. 

What Are The Next Steps?

  •  Find out why your application was denied – Get in touch with your lender and find out exactly why your mortgage application was denied. You won’t be able to rectify the issue if you do not know what it was, to begin with. 
  • Improve your DTI ratio – By now, you should have figured out what your debt-to-income ratio is. You should work on improving this so that you can improve your odds of qualification. There are two ways to reduce your DTI ratio. The first is to improve the income you have coming in every month. The second is to lower the expenses you have going out every month. Some options include paying off loans and credit cards, getting student loans deferred, asking for lower rates from your credit card companies, and refinancing high-interest debt.
  • Speak to other lenders – There are many different mortgage lenders. Just because this lender refused your application does not mean another lender is going to do the same. This does not mean you should dive right in and make applications everywhere, though. Speak to lenders to evaluate your choices before taking any steps forward.
  • Consult a Mortgage Banker or Mortgage Broker –Finally, a mortgage broker can assist because they will be able to point you in the direction of loans that are right for you. For example, if you are a freelancer, they may know lenders who are more accepting of freelancers and contractors. 

Most Trusted Mortgage Bank In Chicago: A and N Mortgage

A and N Mortgage has a reputation as being one of the most trusted mortgage banks in Chicago. If you would like to discuss your options if your first mortgage application is denied, please do not hesitate to get in touch with us today for more information. You can even apply online here and browse the helpful mortgage tools on our website. 

 

A and N Mortgage Services Inc provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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Answering The Age-Old Riddle: “The news says rates are going down, should I wait to purchase my home?”

A and N Mortgage Senior Mortgage Consultant

I have been a mortgage originator for just shy of two decades and have been asked this question thousands of times by my clients, probably more actually. It’s a smart question and one I would ask myself.

mortgage rates going up and down

If you’ve turned on the television, glanced at any social media, or have had conversations with your friends or coworkers recently there’s no doubt you’ve heard that interest rates have been on the decline. This is true and based on the state of the world economy there is a good chance that this trend will continue.

The 10-year Treasury yield is down 30% in the last 6 months. This is typically the product most correlated with mortgage interest rates. Mortgage rates are also significantly down during this time, although not to the extent of the 10-year treasury.

You might be asking yourself:

  • Will mortgage rates continue to go down thereby “catching up” to the decline in the 10-year treasury?  
  • Are we at a time in history where money will soon be close to “interest-free” to borrow? 
  • Would it be a huge mistake for me to buy now?

These are all very important questions to ask and keeping an eye on this is what a smart, financially responsible person should do.

My answer is that I don’t know if mortgage rates will go down. I hope they do, but it shouldn’t affect what you decide; whether it’s purchasing or refinancing your home.

Your response is undoubtedly something like, “Of course you would say that you make money  selling loans.” Yes, it’s true. I do make a living originating loans, but let me explain and I think you’ll agree.

Real-Life Example Of A Client

Just under a year ago, my client Steve was deciding whether or not to purchase his first home. Steve was being told by his father that interest rates were about to go down. Steve’s father didn’t work in the home finance industry in any way so how he would have known anything about interest rates is beyond me.

The 30-year fixed mortgage rate was around 4.75% at the time. Currently, the prevailing interest rates on 30-year fixed-rate mortgage are right around 3.75%. Steve’s father took a guess on a 50/50 scenario and guessed right. Based on this presumption, it would appear that it would have been in Steve’s best interest to rent another year at $1,900 a month, and then buy when interest rates went down. 

Is This Correct? Yes, It Is! Here Is Why

Steve was looking for a single-family home in Chicago with a $325,000 price point. He found one he liked and suited his needs nicely.  At 4.75% interest rate his overall monthly housing expense would be $1975. Typically, real estate appreciates at around 3% based on historical averages.  Despite his father’s recommendations, he went ahead with buying a home. He’s very thankful he did and here’s why:

  • Steve’s home went up in the value of 5% in the last year. 
  • He has an additional $16,000 in equity which translates into $16,000 of wealth he would not have had.
  • Steve paid down the balance on the mortgage of an additional $8,000 and now he is $24,000 wealthier.  

Additionally, there were huge tax benefits because his mortgage interest and some other housing expenses were tax-deductible. This put him another $4,000 ahead so now he has created $28,000 of wealth in that year period which he wouldn’t have had otherwise.  This doesn’t factor in that the home he bought was much nicer than his rental so his quality of living improved, nor does it factor in that by buying real estate he diversified his assets and is very proud to be a homeowner.

Perhaps your thought is “Great, but if he would have waited a year to buy the same thing would have happened.  It would have taken an additional year, but because he would be in a lower interest rate overall, he would still be better off in the end.” Keep in mind that we are making a huge assumption he knew rates were going down a full percentage point in the next year (which no one could possibly know).

What Made All This Possible?

Last month I helped Steve refinance, with no costs, and his payments went down $165. Yes! NO COSTS, meaning that no equity was depleted because lender and title fees were covered by the lender (i.e. me). 

You might be thinking something sceptical to the effect of, “No one does anything for free!” and you’d be right.

The title, appraisal, and lender fees for Steve’s refinance loan totalled around $2,000. In a “typical refinance” the closing fees would be added into the new loan amount, but with a NO COST mortgage, the lender covers these fees.

The reason this is possible is that Steve decided to take an interest rate of .125% higher (3.875% instead of 3.75%). Because of his decision, there is more profit on the loan when it is bought on the secondary market. This extra profit was passed on directly to Steve for $2,000. Yes, payments were $14 higher because he took the 3.875% interest rate. But when all is said and done, Steve didn’t have to spend a penny out of pocket nor did his mortgage balance increase. Plus, he is saving $1,980 a year! 

Seek Expert Advice From Mortgage Officers

If Steve would have waited to purchase the same home a year later (assuming the home was still for sale), the purchase price would have gone up 5% to $341,250. He would have paid rent for the entire year and not paid down any principal nor acquired $12,000 in tax benefits. Steve would be $30,000 poorer than he would have been by purchasing the home a year earlier and here’s the kicker: He would be in the same interest rate either way.

This may seem a bit counter-intuitive at first glance, but the numbers speak for themselves.  

Now imagine if rates would have gone up 1% point and he bought a house. He would have lost $30,000 and his mortgage payments would be a few hundred dollars higher for the life of the loan. That’s 30 years! Interesting how things turn out, right?

 

If you have any questions, please contact me today. A and N Mortgage Services Inc provides you with high-quality home loan programs tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, we will help you use your new mortgage as a smart financial tool.

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Things To Consider Before Applying For A Home Loan

So, you’ve finally found the home of your dreams. But if you’re not careful, buying and owning that home can quickly turn into a complicated ordeal. When applying for home loans, it’s all too tempting to accept the first mortgage product you’re offered as long as it gets you the keys to the home you’ve fallen in love with.

This is why, even if you’re racing to put in an offer on the home of your dreams before someone else snaps it up, it’s recommended that you do your research to be sure that you’re choosing the right home loan for your needs and circumstances. Otherwise, you could find that your choice of mortgage product has far-reaching and long-lasting implications for your future financial well-being. Your home loan will continue to affect you for years and even decades to come. So it’s important that you get this right.

But don’t worry. If you keep all of the following home loan tips and key considerations in mind, you’ll be able to find the perfect home loan for your property and enjoy years of happy and financially stable living in your dream home!

Rate of Interest: Fixed-Rate or Floating Rate

Your home loan’s interest rate is especially important as it determines how much of your monthly repayments becomes equity in your home and how much of it goes to the bank. It’s slightly more complicated than choosing the home loan with the lowest rate of interest. You also need to consider which kind of interest works best for you.

Simply put, you have two options when choosing an interest rate that meets your home loan requirements; Fixed Rate or Floating Rate (also called Variable or Adjustable-Rate).

home loanA fixed-rate is, as you might expect, fixed. It remains unchanged throughout the mortgage loan length. This is advantageous in some ways. If you see an interest rate that looks appealing to you, you can apply for that home loan and be assured that you won’t get any unpleasant surprises. And because you know how much you’re paying in interest, it’s easier to gauge how much equity you’re gaining on the property. However, you’re unlikely to find a great deal of variation from lender to lender.

The alternative is a floating rate. These have adjustable rates within certain parameters. These parameters are defined by the Cost Of Funds Index (COFI), Monthly Treasury Average (MTA) and the LIBOR (London Inter-Bank Offered Rate). Rates will change based on preset margins tied into these rates and will rise on a margin plus index basis.

This is why many floating rate interests start out with such attractive low rates. While rates may remain low, floating rates always carry a slight element of risk.

Interest Rate Negotiation

Whether you opt for a fixed or floating rate, the best thing to do is to shop around and try and get as many quotes as possible. You may be surprised by how much you could save. Keep in mind that lenders cannot “price match” one another’s rates (to do so would be to discriminate against other buyers of similar circumstances).

However, that’s not to say that there’s no room for negotiation.

You see, mortgage lenders are able to credit closing costs to a borrower under certain conditions. The most common is when lenders need to stay competitive in a climate of falling rates or when delays result in blown credit lock (a lender’s commitment to honor a set interest rate for a set time period). In these circumstances, you may be able to negotiate a more favorable deal.

Check Your Credit Score

It stands to reason that if they intend to offer you a large sum of credit, one of a lender’s key home loan requirements would be the applicant’s credit score. It’s easy to check your credit score online without adversely affecting it by using an online tool like Experian, Equifax or TransUnion.

If you’ve never checked your credit score or are unsure what it means, let us break it down for you.

Your credit score is a 3 digit number that can range from 300 (Poor) to 900 (Excellent). There are 5 determining factors that make up your credit score and these are as follows:

  • Payment History- How well you’ve paid back previous debts (35% of total score)
  • Total Debt- How much you already owe overall (30%)
  • Credit History- How well you’ve paid off previous debts (15%)
  • Credit Types- What kind of debt you’ve had prior e.g. loans or credit cards (10%)
  • New Credit- How much you’re looking to borrow right now. (10%)

Minimum credit scores for most home loans are between 620 and 640.

Home Loan Eligibility Criteria

While every lender’s home loan eligibility criteria may vary, there are still certain criteria which prospective buyers will be expected to meet.

Things To Consider Before Applying For A Home LoanFirst of all, the buyer will be expected to provide a down payment on the property. The bare minimum down payment is usually 3% – 3.5% of the value of the property. For FHA loans, the more you have to offer as a down payment the less of a factor your credit score becomes. For example, with a 10% deposit, a mortgage can be approved with a credit score anywhere between 500 and 580. VA loans, on the other hand, have no minimum credit score.

Debt to income ratio is also important in assuring lenders that you will be able to pay back your home loan and make monthly repayments. For conventional loans, a ratio of up to 50% may be acceptable. For FHA loans, however, the ratios are set by the Department of Housing and Urban Development (HUD). At present, the front-end ratio (housing only related costs like mortgage payments, insurance and property tax) is 31% and the back-end (all monthly debt including car payments, credit cards etc.) is 43%.

You’ll also need to provide your employment history to show that you have a good history of gainful employment, meet certain residency requirements (in most cases the property will need to be your primary residence for at least one year). Regardless of how much of a down payment you have, a lender will expect you to take out mortgage insurance.

These requirements can differ a great deal depending on the type of loan, whether conventional FHA or VA. A mortgage representative can help you understand these requirements as they apply to you.

Employment Stability For The First-Time Buyers

One of the most common pain points among first-time buyers is that they’re just starting out in their careers and don’t have demonstrable employment history or stability. Still, that doesn’t mean that they can’t apply for a home loan. In fact, loans have been approved on the strength of job offers.

Typically, a lender will want to see your past two years’ employment history and payment records. This does not mean that you need to have been conventionally employed. If you have been self-employed and have accurate books this is also acceptable.

It’s worth noting that some lenders may exclude bonuses, overtime or commissions as evidence of income and job stability, especially if you have less than 2 years’ job history.

Affordability: Insurance, Utilities, Maintenance

As tempting as it is to choose a property at the upper limit of what you can afford to borrow, keep in mind that affordability is about much more than your mortgage payments. It’s about insurance, utilities, maintenance and all the other associated costs that come with owning a home. Can you manage these effectively alongside your existing monthly expenses like car payments, loan repayments, credit cards etc. and still have enough disposable income for savings and happy life?

Loan Length: Longer-Term Loans vs Shorter-Term Loans

Few of us find it easy to project our thoughts 25-30 years into the future. Who knows what we’ll be doing and what our lives will be like at that point? Nonetheless, that’s what you’ll need to consider when determining the right mortgage loan length for you.

Longer-term loans have lower monthly payments, but more of that goes on higher rates of interest so it takes longer to gain meaningful equity on the home. Shorter-term loans, on the other hand, have higher monthly repayments but lower interest rates so you have more equity.

There’s a balance to be found there. You want to keep monthly payments affordable, but you certainly don’t want to have to worry about high mortgage payments when you reach retirement age.

Finding A Qualified Mortgage Lender To Help You Through The Process

As you can see, there’s a lot to consider when applying for a home loan and going it alone can be difficult. That’s why it’s advisable to find a qualified mortgage banker or broker in Chicago to fight your corner. Not only can they help demystify mortgage products, home loans and interest rates, but they can also often access better products which aren’t always available to the public.

Conclusion

When you’re ready to make a move on the home of your dreams, take a good look before you leap. There’s a lot to consider and a great many factors can muddy the waters when finding and applying for home loans. Consulting a qualified mortgage lender or broker can make it easier to make an informed decision that’s right for you. After all, this is a decision that’ll stay with you for decades. You wouldn’t want to make it arbitrarily, would you?

 

If you have any questions, please contact me today. A and N Mortgage Services Inc provides you with high-quality home loan programs tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, we will help you use your new mortgage as a smart financial tool.

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Your Guide To FHA Loan Requirements

What Are FHA Loans?

An FHA Loan is a mortgage loan which is insured by the U.S. Federal Housing Administration. Often aimed at first-time buyers and low-income earners, an FHA loan can enable applicants to obtain a mortgage with a relatively small down payment.

When you take out an FHA loan, the typical down payment required is just 3.5% of the property value you want to buy. This is considerably less than the down payment than that is required for a conventional mortgage.  If you were to try and obtain a standard, non-FHA mortgage, for example, you may be expected to pay a deposit of 3.5%-20% of the property’s value. 

Your Guide To FHA Loan RequirementsBy enabling people to obtain a mortgage with a small down payment, FHA Loans are helping people to get on the property ladder and ensuring that people with limited savings can still access mortgage loans.

What Are The Credit Score Requirements?

There are a number of requirements to qualify for an FHA loan, as these types of home loans aren’t available to everyone. To be eligible for an FHA loan, you’ll need to have a credit score of at least 580. 

Your FICO credit score tells lenders how creditworthy you are, how much credit you already have and how well you’ve kept up with repayments. Generally, the higher your credit score, the better. To obtain a standard conventional, non-FHA mortgage, you would need a credit score of at least 580-620, although many commercial lenders will charge high-interest rates if your credit score is at the lower end.

In contrast, FHA loan requirements state that you can be eligible for an FHA loan with a credit score as low as 580. However, to qualify for the lowest down payment advantage, you’ll need a credit score of at least 580. 

If you have a FICO credit score of 580 or higher, FHA home loan requirements state that you could benefit from the low down payment advantage and just put down a 3.5% down payment on the property you want to purchase. 

However, if your FICO credit score is between 500-579, you won’t automatically be able to obtain the low down payment option. While you could still be eligible to obtain an FHA home loan, you would need to put down a minimum of a 10% deposit, based on the property’s value.

FHA Loan Requirements To Secure a Mortgage

Although FHA loans can be one of the easiest ways to secure a mortgage, there are requirements you’ll need to meet. To be eligible for an FHA home loan, you’ll need to have:

  • A credit score of 580 or higher
  • Be at least 18 years of age
  • Proof of regular employment, including paychecks, W2s and tax returns
  • Mortgage insurance (MIP)
  • A maximum debt-to-income ratio of 47%, with student loan payments, factored in (This can be extended to 57% in some instances)
  • An appraisal carried out by an FHA-approved appraiser

You also need to occupy the property as your primary residence, although non-occupying co-borrowers may be permitted. If you have declared bankruptcy in the past, at least two years must have passed before between this and applying for an FHA loan. Similarly, if you have owned a property which has been foreclosed on, you’ll need to wait for at least three years before being eligible to obtain an FHA home loan.

FHA Loan Requirements For First-Time Buyers

FHA loans are popular with first-time buyers because they enable you to buy a property with a low down payment. First-time home buyers may have a poor credit rating, which makes an FHA loan the perfect choice. While credit scores between 500-579 will require a 10% property deposit with an FHA loan, many people would find it virtually impossible to obtain a mortgage from any mortgage lender with a credit score in this range.

Unlike with a conventional mortgage loan, you can use a monetary gift as your down payment when applying for an FHA loan. If family members or friends want to help you move up on the property ladder they are legally able to provide the funds for an FHA loan down payment. While some commercial lenders won’t allow this, an FHA loan doesn’t prevent you from using a financial gift to pay part or all of your down payment.

FHA Loan Requirements For Low-Income Buyers

While many first-time homebuyers benefit from acquiring an FHA loan, you don’t have to be a first-time buyer to qualify. For example, if you want to sell your existing home and move to a larger property an FHA loan could be the ideal solution.

If you have a limited amount of savings, an FHA loan can help you to move up on the property ladder because you won’t have to put down a large deposit. If you are a borrower with a low income, it can take years to save a substantial deposit, which can delay your ability to buy your own home for quite some time.

Even if you have a low income, you can still qualify for an FHA home loan. Provided you have steady employment and meet the other requirements (as stated above), there’s no reason a low income should prevent you from securing an FHA loan. 

Down Payment Requirements For FHA Loans

If you have a credit score of 580 or higher, you can obtain an FHA loan with a down payment of 3.5%. If your credit score is 500-579, you will need a down payment of 10% to obtain an FHA loan.

However, these requirements are still far less than most commercial mortgage lenders and ensure you can buy a property even if you have a poor credit rating or limited savings for a down payment.

What Are FHA Closing Costs?

All mortgages have closing costs, and FHA loans are not excluded. However, you may find that your FHA closing costs are less than those enforced by most commercial lenders.

Typically, FHA loan closing costs to amount to approximately 2%-5% of the purchase price of the property. These fees cover the cost of home appraisals, origination fees, titles and other mandatory costs. While 2%-5% may sound like a relatively small amount, this depends on the value of the property you’re buying, so it’s important to factor them in when planning your budget. 

Keep in mind that closing costs vary from one FHA-approved lender to another, so be sure to shop around and compare lenders before making your decision.

What Are FHA Approved Lenders?

Not all banks, mortgage bankers, mortgage brokers and financial institutions can offer FHA loans. Instead, there are FHA-approved lenders who are able to process FHA loan applications and issue the loan. To become an FHA-approved lender, the organization must be approved by the U.S. Federal Housing Administration. 

The Department of Housing and Urban Development makes it easy to find an FHA-approved mortgage lender in Chicago. Simply enter your location into their website, and they’ll provide a list of organizations which offer FHA loans. 

However, fees, such as closing costs, are variable, so one lender may charge more than another. To make sure you’re getting the best deal, take the time to compare lenders. 

FHA Loans At A and N Mortgage

As an FHA-approved lender, A and N is proud to offer FHA loans to first-time buyers, with a low income and poor credit history. We’re committed to helping you buy a property, regardless of your situation. 

Provided you meet the standard criteria and can show that you’re eligible for an FHA loan, A and N Mortgage can help you to take your first steps up the homebuying ladder. With a dedicated team of Mortgage Consultants and Loan Officers, we can help you find the right home loan and even secure your pre-approval so you can start house hunting straight away. 

Conclusion

Buying a property has always been trick, but FHA loans have made the dream a reality for millions of people. Almost half of first-time homebuyers rely on an FHA loan to purchase their first property, which shows just how popular and effective the scheme really is.

By providing additional security to lenders, the government is helping people invest in their own homes, even if they have a limited down payment or poor credit history. If previous financial problems have prevented you from buying your home or if you’ve been unable to save a large deposit, an FHA home loan could give you the opportunity to buy your very own property.

Of course, purchasing a property and obtaining an FHA home loan can seem daunting at first. If you’re unsure how to apply for an FHA loan or you simply want to find out more about how the process works, why not get in touch with us today? 

Our friendly team is always on hand to provide advice and assistance and we can help you to start your application. To find out more about FHA loans in the greater Chicago area, contact A and N Mortgage now at 773-305-LOAN.

 

A and N Mortgage Services Inc, provides you with high-quality home loan programs tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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Your Guide To Reverse Mortgage Loans

Are you interested in increasing your income after you retire? Do you have a home with a fully or mostly paid off mortgage? If so then you might want to consider a reverse mortgage loan. You probably have heard about reverse mortgage loans before but you could be unclear of the details.

Here we’ll provide all the information including reverse mortgage loan requirements and how to make sure you select the reverse mortgage loan services that are right for you.

What Is A Reverse Mortgage Loan?

reverse mortgage

Reverse Mortgage – A & N Mortgage

“A reverse mortgage is a special type of loan that allows older homeowners to withdraw some of the equity in their homes and convert it into cash.”

It’s designed to help retirees meet pressing financial obligations without having to sell their houses or make additional mortgage payments.

With a reverse mortgage, you use a property to guarantee the loan just like with a standard mortgage. Instead of making payments to a lender, a homeowner receives payments from the lender. A reverse mortgage is paid off when you no longer live in the property. The loan will be paid when you die or move into long term care.

Although a homeowner does not have to make monthly payments with a reverse mortgage, you are still financially responsible for the general upkeep of the house. Your property must be kept in good condition and you need to cover everything from insurance to property tax.

You also need to be aware that whereas with a traditional mortgage the amount decreases, a reverse mortgage loan increases due to interest costs and fees. The costs are added each month and the equity in your home will also decrease.

Types of Reverse Mortgage Loans

There are three main types of reverse mortgages available to homeowners:

  • Single-purpose Reverse Mortgage
  • Home Equity Conversion Mortgage (HECM)
  • Proprietary Reverse Mortgage

Home Equity Conversion Mortgage or HECM is the most common type of reverse mortgage loans. The mortgage is backed by the Federal Housing Administration and provides various flexible choices for payments. A borrower’s payment options include:

  • A single, lump-sum
  • Fixed monthly payments over a specified period of time
  • Fixed monthly advances while you reside in your home
  • A line of credit

Alternatively, a single-purpose reverse mortgage allows the homeowner to borrow against their home equity for a lender-approved expense. These expenses typically include property taxes or repairs to a home. The loan is usually provided in a lump sum to cover the specific financial requirement you have.

The next option is a proprietary reverse mortgage. This type of loan is more suitable for those who have homes that are of a higher value because they give the homeowner access to larger monthly advances.

Reverse Mortgage Loan Procedure Explained

With one of these reverse mortgages, a certain level of equity in your home is converted into payments for you. Payments can be a lump sum or multiple payments over a set period. The payment schedule can be completely flexible to your needs.

You’ll need to think about how big of a loan you qualify for a reverse mortgage. The amount is determined by your age, the current rate on the mortgage, the value of your home and the age of a partner. Keep in mind that your partner also has to be a certain age to qualify for a reverse mortgage. Typically, the older you are, the more you will be able to borrow.

Using a reverse mortgage calculator, you can get a rough estimate of how much a reverse mortgage could offer. Be aware the amount may differ between providers. You then need to choose whether to opt for the single lump sum or multiple payments. A potential deciding factor here is that the lump sum provides fixed interest whereas with multiple payments the interest is variable.

Reverse Mortgage Requirements

There are several reverse mortgage requirements you should be aware of before you apply for the loan yourself. These include:

  • Age
  • Use of the home
  • Ownership
  • Level of debt
  • Income
  • Understanding

Age is one of the most important factors. You need to be at least 62 years old to qualify for a reverse mortgage loan. The homeowner must also be looking for a loan that will be backed by a primary residence. Vacation homes are not qualified properties for a reverse mortgage loan.

Reverse Mortgage Benefits

Reverse Mortgage Benefits

The property should also be one hundred percent owned by you or only have a small mortgage. If you are still paying off your mortgage when you decide to apply for a reverse mortgage loan, then you will need to pay off the existing mortgage first. For this reason, you should have at least 50% equity in your property before you apply for a reverse mortgage loan.

There are also issues with debt to consider. The homeowner cannot have any federal debt delinquencies including tax debts or student loans. Furthermore, your credit score can be a determining factor. There is no set credit standard but you will have a better chance of securing a reverse mortgage loan if your credit score is healthy. You can guarantee a great credit score by keeping debts paid and balances in check.

You do need to provide that you have a suitable level of income. Proof of a good income will show that you are able to pay for everything including insurance and other expenses linked to your home.

Finally, you will need to meet with a HUD-approved reverse mortgage expert. The counselor will provide you with all the information you need before you decide which reverse mortgage loan is right for you.

Pros And Cons Of  A Reverse Mortgage

Pros Of A Reverse Mortgage

Big benefits of a reverse mortgage loan include:

  • Flexibility
  • Tax-free loan
  • Freedom to leave money for relatives

One of the biggest advantages of reverse mortgage loans is that you will be able to choose a payment option that suits you best. The money that you get from a reverse mortgage is also not considered income. As such, while you will have to pay insurance, you won’t have to worry about paying taxes on a lump sum reverse mortgage payment. You also don’t have to worry about the loan limiting your medical or social security payments. Furthermore, you can continue living in your home which ensures that you have a place to live and you can eliminate monthly mortgage payments.

You might be worried that you will be leaving nothing for your heirs. However, with a reverse mortgage loan, descendants do gain access to the remaining home equity once the mortgage has been paid off. Descendants are also not responsible if the amount exceeds the home value. With a reverse mortgage loan, descendants will not be required to pay the remainder of the loan once you pass on.

Cons Of A Reverse Mortgage

There are a few issues with reverse mortgage loans to be aware of including:

  • Confusion over conditions
  • High fees
  • Impact on income

One of the issues with reverse mortgages is that many people do find them to be confusing. The confusion can lead to unexpected consequences after taking out the reverse mortgage. Lack of information surrounding the loan is also why you are required to sit down with a qualified counselor.

You should also be prepared for fees that are significantly higher than a traditional mortgage. High fees may take you by surprise and the value that you are leaving people behind may decrease over time. On the other hand, you will never leave descendants with debt to be paid out of their own pocket with a reverse mortgage loan.

While social security benefits will not be affected, government based payments like Medicaid could be adjusted after qualifying for a reverse mortgage. As such, this type of loan could still impact your income, albeit in minor ways.

Changes to regulations have also made borrowing more difficult while increasing the payments that you will be expected to pay upfront. That said, there are still good deals on the market for those interested in reverse mortgage loans.

How Can You Shop For A Reverse Mortgage?

benefits of Reverse Mortgage

Applying for a Reverse Mortgage

If you are interested in shopping for reverse mortgage loan services, make sure that you consider a wide range of companies. Make sure that you use their calculator or gain a quote from different providers to find out exactly what each company can offer you.

Consider the type of interest rates you will be expected to pay as well as any fees on top of the initial loan.

It’s important to speak to a mortgage advisor who can recommend the best loan option for your individual needs.

Conclusion

Remember you need to consider reverse mortgage loan requirements and check that you are eligible. If you are, we suggest you explore the reverse mortgage services offered at A&N Mortgage.

We offer highly competitive rates on any reverse mortgage loan provided and can be incredibly nimble as a mortgage banker and broker. Do you think a reverse mortgage loan could be the right choice for you?

 

A and N Mortgage Services Inc, provides you with high-quality home loan programs tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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Low Down Payment Mortgages That Allow You To Buy A Home Much Sooner

If you’re like most first-time home buyers, when it comes to finding a home loan, one obstacle tends to get in your way more than most. We’re talking about down payments. High down payment requirements can serve as the first and biggest roadblock for those who might have trouble saving up enough to get a home loan.

home mortgageFHA and VA loans offer some low-to-no down payment loans but aren’t accessible to all. Here, we’re going to look at the latest option: conventional mortgages with down payments as low as 3%. We’re going to look at what you need to know about them and who they might work best for.

What Is A Conventional Home Loan?

Simply put, a conventional home loan is one that doesn’t have any kind of guarantee or insurance provided by the federal government. They aren’t backed by agencies like the Federal Housing Authority or Veteran Affairs. As such, conventional loans follow the requirements set out by the two larger mortgage loan buyers in the US; Fannie Mae and Freddie Mac.

Conventional loans account for 60% of all home loans issued throughout the country. Often, they come with higher credit score requirements, meaning they can be tougher to apply for, but they can result in lower interest rates than other types of home loans.   

Down Payments For A Conventional Home Loan

There are no set guidelines for what is considered a standard down payment when it comes to conventional home loans. However, they usually require down payments that are in the 5 to 20% range.

There are now some conventional loan programs that offer down payments as low as 3 percent of the overall value. Exceptions that fall into the lower down payment option include the Conventional 97 Loan and the HomeOne programs that offer 97% of the property’s total value, meaning that buyers have to pay only a 3% down payment. 

What Are Conventional 97 Loans And HomeOne Loans?

Here are a few key features and facts you need to know about both types of loans: 

Conventional 97 loan (offered by  Fannie Mae): Up to 97% financing on loans with a $484,350 maximum loan limit, eligible for those with a credit score of 620 and above who have a debt-to-income ratio of 43% or lower. It’s eligible for single family homes, PUD, condos, townhomes, and CO-OP, but to owner-occupied buyers only and not real estate investors. Lastly, at least one of the borrowers taking the loan must not have owned a house in the 36 months prior to applying.

HomeOne loan (offered by Freddie Mac):  Up to 97% financing on 30 year fixed rate loans for a primary residence. There are no income or geographic limits on where you can apply for a HomeOne loan. There are no mortgage reserves required, but at least one of the borrowers must be a first-time homebuyer, and all borrowers must occupy the property. However, borrowers can still own other properties.

Pros And Cons Of A Low Down Payment Conventional Loan

Like all loans, conventional loans with 3% down payments have their own unique advantages and disadvantages to consider:

Pros of Low Downpayment Conventional Loan:

  • 3% down payment makes it much easier to get a loan; that’s even lower than the 3.5% down payment requirement for an FHA loan
  •  Attractive for first-time homeowners
  • High maximum loan amount makes it easy to get the kind of home you want

Cons of Low Downpayment Conventional Loan :

  • Higher credit score requirements (about 620) than an FHA loan
  • Maximum loan amount cap might be restrictive for some who want to buy a more expensive home (jumbo loan amount)
  • Cannot be used for homes that include multiple units
  • Cannot be used for property investments or to buy rental income homes
  • Low down payment homes require private mortgage insurance

Comparison With Federal Housing Authority Loans

Federal Housing Authority (or FHA) loans were designed to help more Americans buy houses rather than rent them. As such, they have previously allowed buyers more flexibility than prior conventional loan standards. These loans are borrowed from traditional lenders, but insured by the FHA. You can read more about them on our in-depth look at FHA loans.

However, now that Conventional 97 loans and HomeOne loans have set standards for conventional home loans with down payments as lose as 3%, how do FHA loans compare? Here, we’re going to look at the unique advantages of both kinds of loans.

Let’s start by looking at the FHA loan advantages, particularly in comparison to the Conventional 97  loan:

  • Typically lower interest rates
  • Minimum credit score requirement of 580
  • Higher loan insurance premiums as it requires an upfront fee and permanent mortgage insurance
  • Flexible qualification criteria
  • Accessible for those with debt-to-income ratio as high as 51%
  • FHA loans are assumable
  • Student loans in deferment not counted in your debt-to-income ratio

In comparison, here are some of the advantages of Conventional 97 loans:

  • Private mortgage insurance is required initially but cancels as soon as the overall loan-to-value ratio reaches 78%, unlike FHA loans where the mortgage insurance payment (MIP) is permanent and can never be canceled.  (FHA borrowers must pay a one-time up-front mortgage insurance payment plus an ongoing monthly payment to compensate for the increased risk of the low down payment.)
  • House must be owner occupant for at least one year.
  • Minimum down payments of 3% are available, which is .50% lower than what FHA loans  require (3.5%)
  • Higher maximum loan amounts are available. (Up to $484,350 versus $314,827 on single-family properties in high-cost areas.)

While FHA loans are slightly more accessible, due to their more flexible credit and debt-to-income ratio requirements, conventional home loans with lower down payments can end up being the more cost-effective loan choice for new homeowners thanks to their lower down payments and the ability to cancel the mortgage insurance. They typically do have slightly higher interest rates, but at least buyers looking for low-interest rates have more than one option at their disposal now.

FAQs About 97% LTV Home Purchase Loans

If you’re interested in a conventional home loan with 3% down, then you might want to know exactly what that means moving forward. Here are the answers to some of the most frequently asked questions regarding 97% LTV home purchase loans.

  • How much home can I buy with a conventional home loan?: The maximum loan amount of these loans is $484,350, which means that with your 3% down payment added on top, you could buy a home for up to $436,216.
  • What’s the minimum credit score requirement: The minimum credit score requirement is 620, but most lenders will usually ask for a score that’s at least at 680 or higher.
  • What’s the maximum debt-to-income ratio requirement?: While this can change depending on your credit score, the highest DTI requirement for 3% down conventional home loans is 43%. 
  • Are FHA loans cheaper?: While you do pay a higher interest rate on 3% down conventional loans, they can save you money in the long-run as the insurance on the loan will cancel when you reach 78% loan-to-value ratio, which doesn’t happen with FHA loans. Overall, conventional home loans tend to be cheaper.
  • Can I use gifts as a down payment?: Yes, you can have up to 100% of your down payment funded by gifts received from family members and friends.
  • What kind of properties can I use this loan for?: 3% down home loans are only available for owner-occupied borrowers buying for single family homes, PUD, condos, townhomes, and CO-OP properties.
  • Do I have to be a first time home buyer?: Yes, but this doesn’t mean that you can’t have ever owned a home before. Conventional 97 loan program specifications state that a first time home buyer is someone who hasn’t owned a home in three years.
  • If I’ve owned a home, can I apply alongside someone who hasn’t?: Yes, only one of the borrowers has to be a first-time home buyer.
  • Can self-employed individuals apply for one?: Yes, so long as you can provide 2-years’ worth of federal tax returns, you can use a Conventional 97 home loan.

If you want to know how any of the other low down payment loans from A and N Mortgage work, such as the FHA loans we offer, we also provide FAQs on those to help you better understand the options available to you. We will help you understand which low down payment option works best for your circumstances. 

Our 3% Down Services And Other Low Down Payment Loans

At A and N Mortgage, we offer a variety of different low down payment loans, making it much more affordable to begin owning your first home. Whether you’re looking for conventional home loans, FHA or VA loans, we offer the best Chicago rates on mortgages as low as 3% down. Here are a few of the options we offer:

  • Conventional loans with 3% Down
  • Federal Housing Authority (FHA) loans with 3.5% Down
  • Veteran Affairs (VA) loans with 0% Down

All of the loans currently offered from A and N Mortgage are available in Chicago, Illinois, and we are licensed in 9 other states. We are a top mortgage lender in Chicago, Lincoln Park, Logan Square, Wicker Park, and Edgewater. 

A and N Mortgage Services Inc, provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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My FHA 203K Personal Renovation Mortgage

MASTER PENTHOUSE

I can’t think of any mortgage with a worse reputation than the FHA 203K renovation home loan. But because of this mortgage, I lived rent-free for as long as I wanted, and then made a profit of over $600,000. So now I’m making it my mission to tell everyone how great these mortgages can be!

It is a common belief that renovation loans are an absolute nightmare. These loans are thought to have unfathomable amounts of paperwork, hoops to jump through, and other aggravations. Consequently, 203K Renovation loans are the most underutilized and under served mortgage there is.

However, if utilized properly, a renovation loan is one of the most powerful financial vehicles there is. It is not without its challenges, but logistically it is just a regular mortgage with a few more moving parts.

The best thing about the 203k is that with a down payment of only 3.5%, the entire home, and all the improvements can be financed at a low interest, 30 year fixed, government-insured mortgage.
What I saw as the ultimate way to reap the maximum benefit out of this loan was to purchase a multi-unit property. So long as a property is 4 units or less and one intends to live in one of the units for 12 months, this loan can be done, and it is considered an owner-occupied property.

My plan was to find a 4-unit property in an area that I saw as safe to live in with upside to become even nicer. I wanted a property in need of a full rehab, preferably a gut right down to the studs. My goal was to have a large unit where my family could live and three rental units that would cover the cost of the monthly mortgage, taxes, and other expenses. Finding, or more accurately, creating, such a place would give me significant instant equity in the home, no mortgage payment since the rents would cover this in full, and the ability and likelihood for considerable and consistent appreciation.

ATTIC (VALUE ADD!!!….NEW BEDROOM AND DEN)


One thing to note when looking for any property is the potential for “value add”. Because this home had an unfinished basement and attic, both with high ceilings and good structure, this easily allowed for incredible upgrades to the property (Take a look at the before and after pictures)

I searched through many properties and finally found a Fannie Mae owned foreclosed property that had just been listed. I got in to see it and it was exactly what I was looking for. I put down a purchase contract on the spot and my offer was accepted!

The finance took under 30 days, which confirms that if everything is done proactively and with a seasoned mortgage banker, this is a practical and reasonable mortgage product.

The home was purchased for $465,000 with $5,000 in seller’s closing cost credits. We were going to put another $230,000 in improvements. Since this is a one-time close the overall mortgage was for $695,000 (purchase price plus improvements). We put $20,000 for a down payment, and we were ready to roll.

We were gutting the house right down to the studs and when we were finished the three rental units paid for the entire mortgage, taxes, insurance and operating expenses of the building in full.
The work took 6 months, and, in the mortgage, we financed 6 months of mortgage payments so there was no cost of carry during the renovation period.

Three years went by with all the housing expenses covered in full. The area where we bought had become extremely desirable, our place was showing a massive Return on Investment (ROI) and we decided to sell the home.

Before we even put the property on the market, we received an offer of $1,200,000. We took it and closed the following month.

BASEMENT (VALUE ADD!!!…AN ENTIRE NEW UNIT)


In 3 years, on top of living rent free, we made a profit of over $600,000!

This undertaking is something I am very proud of. It shows that with a good plan and the right guidance anyone can do something like this and wisely accumulate wealth through their biggest asset.

It is also very gratifying to create something that wasn’t there before – a beautiful home that makes the community a little nicer.

These renovation loans have become a great passion for me and I have thoroughly enjoyed learning every nuance of them. There is another great government backed renovation loan called a Fannie Mae Homestyle mortgage that my clients have been using to amazing success that is a wonderful option as well. This product allows for the financing of renovations for investment properties, luxury items, and many other incredibly useful things. On a side note, these renovation loans are not just for purchases either. If you currently own a home and are looking to do improvements both relatively minor, or totally massive, this is an avenue well worth checking out.

MASTER BATHROOM


 

 

 

 

 

 

 

 

If anyone has questions, thoughts, comments or would like to speak in person I am always available and love to talk about all types of mortgages for purchases or refinances, especially these renovation loans.

Check out the before and after listings on Redfin:

Purchased September 2014:
https://www.redfin.com/IL/Chicago/1355-W-Walton-St-60642/home/14108710/mred-08636320

Sold September 2017:
https://www.redfin.com/IL/Chicago/1355-W-Walton-St-60642/home/14108710

Scott Steinlauf
773-350-6989
scotts@anmtg.com
NMLS #: 213442

Posted in How To, Scott's Blog | Leave a comment