The Home Buying Process Explained

The home buying process is a considerably stressful one, especially if you are a first-time homebuyer. Whether you are a first-time homebuyer or you have been through the process before and are in need of a refresher, have a look at this comprehensive guide to the home buying process and make sure you make an informed decision.

How To Start The Homebuying Process

Buying a house requires a lot of time and effort, but the process begins with a few simple The Home Buying Process Explainedsteps. First, you should consider reaching out to a mortgage consultant who can determine what options are available to you and help you select the best loan for your unique set of circumstances.

Next, it’s time to determine how much you can afford to pay for your new home. As a rule of thumb, lenders generally recommend that you look for homes that cost approximately three to five times greater than your annual household income.

This may vary from one person to another, but it’s generally true for buyers who have at least a 20% down payment and only a moderate amount of other debt.

Getting Pre Approved For A Mortgage

After having a look at your options for properties in the area you are interested in, it’s time to get pre-approved for a mortgage. You will need to know how much you can actually spend before deciding which property you would like to call home.

To get preapproved for a mortgage, you need to provide some financial information to your mortgage providers, such as your annual income and the amount of savings and investments you might have.

After reviewing this information, your mortgage banker will be able to tell you how much you can borrow. When you have this information, you can start looking for homes in the price range you were pre-approved for.

Processing Paperwork In The Homebuying Process

In order to be preapproved for a mortgage, you will need to provide your mortgage banker with some paperwork. This is necessary because they need to assess your financial situation, particularly your income, assets, and debts to be able to determine what loan would suit your needs.

There are no hard and fast rules when it comes to the type of paperwork you will need to provide to buy a home, but generally, you will have to show bank statements, pay stubs, or

  • Pay Stubs (from the last 30 days)
  • W2 or 1099 (from the last 2 years)
  • Tax Returns (from the last 2 years)
  • Bank Statements (from the last 2 months)
  • Any statements (from the last 60 days) of other assets such as stocks or a 401K

It’s also important to provide proof of how you gathered your down payment, especially if this wasn’t done by putting money aside from one month to another. Before receiving pre-approval, your lender might also check your credit reports and scores. Lastly, you will be asked to provide your employer’s human resource office phone number to verify your employment status and a copy of your valid State ID or Driver’s License.

What If Someone Gifts Me Funds To Buy My Home?

More and more first-time buyers are relying on gifted deposits to use as a down payment for their new home. Whether it’s money your grandparents saved in a shoebox or a generous gift from your parents or loved ones, monetary gifts can go a long way towards helping you purchase a home.

Nevertheless, the source of all the funds being used as a down payment will need to be verified by your mortgage lender. Many lenders require a gift funds letter from the donor that proves the money is a gift that will not have to be repaid.

To avoid any issues, you have to confirm the relationship between you and the donor and get a letter that confirms that the money is indeed a gift and not expected to be repaid. Here’s what the letter should include:

  1. The donor’s name, address and phone number
  2. Explanation of the relationship to the borrower.
  3. The dollar amount that was gifted.
  4. The date the funds were transferred.
  5. A clear and precise statement from the donor that no repayment is expected.
  6. Donor signature.
  7. The address of the property being purchased.

The gift funds letter needs to be signed by both parties. In some cases, the lender might require further evidence of this gift, such as the bank statements of both the receiver and the donor which show the transaction.

If the monetary gift has to be repaid it is considered a loan. Your mortgage lender may have to incorporate the repayments to your monthly outgoings, which can have a severe impact on your affordability. This is why it is so crucial that you communicate with your mortgage lender throughout the loan process.

Why Do I Need To Pay Earnest Money?

Earnest money is a deposit that you make as a buyer so the seller knows you’re committed to purchasing the property. It’s a representation of your good faith, and it gives you some extra time to complete all the inspections, property appraisal, conduct the title search, and get financing before closing on the house.

In most cases, earnest money can be considered an escrow deposit. It is generally delivered when you sign the purchase agreement or sales contract, but other times it can be attached to the offer.

The funds are typically kept in an escrow account until you close on the house, and then applied to your down payment and closing costs. The value of the earnest money deposit can be anywhere from 1 to 10% of the sales price, depending on the agreement between seller and buyer and market interest.

As a buyer, you may be able to recover the earnest money deposit if something goes wrong before closing on the house. This may be anything from inspections revealing a serious defect to the house not appraising for the sale price.

Nevertheless, you should keep in mind that earnest money is not refundable just because you decide to change your mind as a buyer. You may also lose the deposit if you fail to meet the timeline outlined in the contract or if you decide not to go through with the purchase for contingencies that are not listed in the contract.

Remember that the earnest money is always refunded to the buyer if the seller decides not to go through with the sale.

Do I Need Homeowner’s Insurance and Who Should I Use?

After signing a purchase contract for your new house, you need to start thinking about getting homeowner’s insurance.

A good place to start is your loan officer, who may refer you to companies they trust and recommend. Reach out to several insurance companies to get some quotes and choose the one that suits you best.

In most cases, you’ll need to purchase homeowner’s insurance before closing. Failing to do so may mean that the loan can’t be finalized. Procuring mortgage insurance is for your own good, as it protects the property financially against fires, natural disasters and other events such as theft.

Having homeowner’s insurance also protects the interests of the mortgage provider, and it’s the reason they require proof of coverage before closing on a house.

Avoid Big Financial Transactions

While going through the home buying process, it’s important to avoid making financial mistakes that may cost you in the long run. When it comes to the process of closing on your home, transparency is key, so you should avoid making any big financial transactions that might raise suspicions. Here are some of the common mistakes that you should avoid.

1. Do not make any large deposits.

Large deposits could indicate that you have recently borrowed money. This kind of information could spur a reevaluation of your DTI ratio. The rule of thumb for making deposits is that no deposits, apart from direct deposits from payroll, should exceed 25% of your gross total monthly income. You should also avoid moving money between accounts or making frequent smaller deposits.

2.Pay your credit card and loan payments on time.

Since your ability to make timely payments is one of the most important factors that determine your credit score, it’s extremely important to maintain a clean record of payment history.

3.Avoid large purchases.

Large unplanned purchases could drastically change your savings plan. Don’t accumulate more debt by applying for more loans. Negative effects to your credit rating could mean negative consequences for your mortgage application.

4. Do not open a new bank account.

Once you’ve started the mortgage application process, it’s highly recommended that you do not open a new bank account.

Be open and transparent with your mortgage banker about your finances and they can help you avoid these common pitfalls.

Getting a Credit for Repairs Before Closing

During the homebuying process, you may notice items around the property that require repair. If you want to take care of this before closing, you have two options.

First, you can ask the seller to repair them, but there is no guarantee that they will agree to do it. Your realtor can give you advice when deciding what repairs to ask for from the seller.

Your second option is to apply for credit for repairs before closing. But you need to be careful when applying for this because it cannot be called a “repairs credit”, as this name may indicate to the bank that the property is uninhabitable.

Try to get help from your attorney or realtor to make sure you are able to obtain a credit called a “closing cost credit” that you can use for repairs after closing.

Why Do I Need to Provide My Federal Tax Transcripts?

Your loan officer may ask you for your federal tax transcripts for the current year and the previous two years as well.

The mortgage company that provides you with the loan for buying a property needs to confirm that you have filed your tax returns with the IRS. This is a necessary step to prevent fraudulent loan applications from going through the mortgage process.

To obtain the transcripts, you can go to the IRS website and follow the instructions provided. Alternatively, you can call and talk to a representative to obtain the transcripts. You can ask for the transcripts to be faxed directly to your loan officer. This should generally not take more than half an hour.

This process is essential if you’re self-employed because it’s the best way for the bank to verify your income.

Should I Pay Points when Buying a Home?

Mortgage points are a common way for prospective homeowners to lower their interest rate when buying a home. Paying for points on a mortgage means that you are actually paying interest for the loan right now.

You may wonder what’s the benefit of doing this. In return for paying for points, you can lock in a discounted rate, which depends on the number of points you decide to purchase. The more points you buy, the more likely it is that your mortgage rate will drop.

As a rule of thumb, one point translates into a 0.25 percent deducted from the mortgage rate. The cost of a point is 1 percent of the total mortgage amount. For example, if you obtain a $300,000 mortgage, one point would cost $3,000. Depending on your financial situation, you may purchase more than one point to reduce the interest rate as much as possible.

Most lenders allow you to purchase points, but it’s not mandatory to go down this route. Borrowers can also consider refinancing. Some lenders allow you to negotiate mortgage points, but you should always talk to your loan officer in order to be able to determine whether buying points is a good option for your particular financial situation.

How Can a Loan Officer Help with the Loan Application Process?

The process of applying for a mortgage can be indeed an overwhelming one, especially if you are a first-time buyer. By working with the right loan officer, you can get help with everything from the pre-approval process to the mortgage application, loan processing, underwriting and closing.

The loan officer will help you prepare your application, and they will generally have to deal with a lot of paperwork because of the various mortgage regulations at the local, state, and federal levels.

When choosing a loan officer, you should make sure they have an excellent reputation and that they are always maintaining industry standards. They should be able to bring expertise to the loan process.

At A and N Mortgage, you can choose from loan officers who specialize in different loan programs. You can get pre-approved fast and explore multiple loan options and interest rates. You can get the help you need whether you are a first-time homebuyer, you’re relocating to a new job, or buying an investment property.

A and N Mortgage can help you every step of the way thanks to the team of experienced mortgage professionals who will do their best to help you find the ideal loan product for your situation and secure funding with the best terms.

Contact A and N Mortgage today with all your mortgage-related questions!

 

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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Everything You Need to Know About Mortgage Insurance

What it is, Why it’s Important, and How to Lower It

Most homebuyers try to avoid PMI because it must be paid in addition to your monthly mortgage payment. But there are plenty of situations where taking on mortgage insurance payments might put you ahead of the game.

Private Mortgage Insurance, also called PMI, is an extra cost incurred when you take out Mortgage Insurancemortgages and put down less than 20% of the sale price. Homeowners are required to keep PMI coverage in place for varying terms depending on the type of loan. Usually, they need to achieve at least 22% equity in their home before they’re allowed to drop PMI. The PMI premium varies by the type of mortgage loan that buyers select as well as their creditworthiness.

By purchasing a house using a smaller down payment, you save money and build equity more quickly. PMI gives you a chance to move on from renting and start the path to homeownership sooner than you may think, and it often quickly pays for itself several times over.

Especially as home values continue to rise, and interest rates are at historically low rates, rapidly getting into your new home as soon as possible may make sense. Considering the cost of PMI coverage may be what it takes to make that a reality.

What is Mortgage Insurance?

Private Mortgage Insurance (PMI) is insurance required by the lender when you finance the purchase of a property with a down payment of less than 20% of the sales price. Buyers pay the PMI premium as part of the mortgage agreement to protect lenders from default. Some loans require PMI coverage upfront while others require it for certain portions of the life of the loan, and some require a mixture of both.

In a typical market, lenders expect that if buyers default on a mortgage, they’ll lose about 20% of the money they’ve loaned through the foreclosure process. PMI shields lenders from potential losses. If you bring less than 20% of the loan to value to the table PMI will make lenders feel more comfortable taking the risk.

How does Mortgage Insurance Work?

Mortgage insurance works differently for different types of loans. Conventional, FHA, USDA, and VA loans all have unique ways of addressing PMI coverage. Your lender will usually arbitrarily select a mortgage insurance provider approved for your type of loan unless you specify otherwise.

Conventional Loans

For conventional loans, lenders usually require that you maintain PMI coverage until you’ve reached 20% equity in your home. You can avoid paying for PMI by putting the full 20% down. Alternatively, it’s usually included in your monthly mortgage payment.

After you have 20% equity in your home, you can ask to cancel PMI. At 22% equity, lenders are required to remove it. PMI coverage usually costs between 0.19-1.86% of the loan amount and is often included in your monthly mortgage payment.

FHA Loans

The Federal Housing Administration (FHA) is tasked with facilitating the path to homeownership, so it often accepts as little as 3.5% down and offers loans with less stringent qualification requirements. To secure an FHA loan, you must cover an upfront mortgage insurance premium of 1.75% of the loan amount and pay an annual premium of 0.45-1.05% of the average outstanding balance of the loan each year. You pay the annual premium (MIP) in monthly instalments for the loan duration if you put down less than 10%. If you put down more than 10% of the property value, you’ll only need to pay the MIP for 11 years.

USDA Loans

USDA loans offer financing that doesn’t require a down payment for rural and suburban homebuyers. To ensure these mortgage loans, you’ll pay an upfront guarantee (in 2019 that was 1% of the loan amount) and an annual fee of 0.35% of the average outstanding loan balance. The fees change from year to year but are fixed for the duration of the loan.

VA Loans

Veterans must pay an upfront funding fee of 1.25% to 3.3% of the loan amount instead of PMI. The rate depends on your down payment and whether you’re using the program for the first time. This fee helps fund the program and allows the Department of Veterans Affairs to guarantee the lender that you won’t default on a significant portion of your loan.

When Do You Need Mortgage Insurance?

There are a few situations where opting to pay for PMI makes financial sense. While no one likes to pay more each month, taking advantage of PMI can enable you to buy a home with less money down. If you have less than ideal credit history, taking on PMI secures the lender to take out a mortgage, enabling you to derive these benefits of homeownership.

Opting to buy a house using a lower down payment saves you time. You don’t have to rent while you save for a down payment. Additionally, instead of paying rent to your landlord (a payment that often rises each year), you begin building equity towards owning your home outright.

Mortgage Insurance Rates

Suppose you were to provide PMI coverage for each loan type—conventional, FHA, USDA, and VA—for a $300,000 home with a 3.5% down payment on a 30-year mortgage with a 3.75% fixed rate. Here’s what you would expect to pay each month, accounting for the fact that annual mortgage costs decrease as the loan value shrinks as payments are made. Keep in mind that mortgage insurance is calculated as a percentage of the loan amount.

Conventional Loans

Pay nothing upfront and split an annual cost of about $3,500 into $280 each month. Cancel your premium after you’ve paid up 20% in equity. The actual rate for PMI on conventional loans varies based on factors like creditworthiness. Higher credit score candidates, for example, pose less risk of default for lenders and receive lower rates.

FHA Loans

Initial mortgage insurance would set you back $5,000. Each year, you would pay $2,500 for mortgage insurance, a little more than $200 per month.

USDA loans

A $2,900 initial mortgage insurance payment would be required upfront. Each year, pay a $1,00 annual mortgage insurance premium—about $84 per month.

VA Loans

To secure a VA loan, you’ll have to pay a one-time funding fee to cover initial mortgage insurance costs. In this case, that would be a single payment of about $6,700.

Reducing Your Mortgage Insurance Payment

There are a few things that you can do to reduce your mortgage insurance payment. You want to do whatever you can to reduce the lender’s risk to lower your PMI. Here are some ways that you can do that:

1. Have a high credit score.

Mortgage insurance, when you have a 740 or 760 credit score and have a loan to value ratio below 85%, results in a meager premium because you represent a lower risk to the lender. If refinancing, don’t take cash out to ensure that you get the lowest rates.

2. Choose your loan type wisely.

FHA and other government loans often require that you pay more for mortgage insurance than conventional loans since the government is shouldering more risk.

3. Provide proof of lower risk.

Conduct an appraisal to get a lower loan-to-value or increase your down payment to lower your PMI.

Deciding If Mortgage Insurance is Right for You

Based on current rates of inflation and increasing housing prices for the average homeowner, paying for PMI can yield a 530% return on investment by the end of year five. The home appreciates while you own it, outpacing inflation, and relying on PMI coverage to move-in with less money used for a down payment.

In that way, opting to take on a PMI can ultimately position you for a more secure future. It can be a tool for allowing you to begin to build wealth by facilitating your real estate investment so that you quit paying rent and start accruing equity. Though the cost of PMI varies significantly based on your circumstances like loan type and creditworthiness, it can often make sound financial sense.

In best-case scenarios, adding a PMI that costs a couple of hundred dollars each month will quickly provide a return. The simple fact that it allows you to build equity may be enough to merit considering whether to take on PMI.

Mortgage insurance coverage looks different for each type of loan and each buyer, so investigate what PMI costs and what the potential returns may look like in your particular situation. If it makes sense to move forward with a mortgage and less money down, PMI will allow you to do just that. For additional information on financing your new home, contact the mortgage experts at A and N mortgage for your mortgage insurance needs.

 

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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How Do FHA Loans Work?

The Federal Housing Authority (FHA) was created by Congress in 1934 to help stem a rising tide of foreclosures and make homeownership more affordable. 

While the FHA does not originate loans, it is one of the largest mortgage insurers in the world; insuring almost 47 million mortgages since its inception.

What are FHA Loans? 

FHA loans are mortgages issued by private lenders and insured by the Federal Housing Administration. Lenders can be banks, credit unions, or non-bank entities, but they must be approved by the FHA to issue FHA-insured loans. By working with approved lenders the FHA helps by lowering the risk for the residential loan issuer, which gives more buyers access to loans they need. Because the FHA insurance protects lenders from borrower default, FHA lenders are more willing to offer favorable terms to borrowers who do not meet stricter Fannie Mae or Freddie Mac criteria.

FHA loans are known for their flexibility. This famed flexibility also applies when homeowners encounter circumstances that impair their ability to pay their mortgage, such as loss of employment or reduction in income. The FHA can provide options to distressed homeowners to help them prevent foreclosure. Although the insurance cost associated with FHA loans passes down to the homeowner, the borrower can phase out the insurance as the loan is paid off. The equity built up over time secures the loan. Working with a mortgage broker for this type of loan offers the borrower protection because the lender has to follow the FHA’s servicing guidelines. 

FHA Loan Requirements

Although FHA loans have looser qualifications than conventional loans, they still have minimum requirements. Moreover, certain lenders may add additional stipulations. To ensure that you get the best FHA mortgage rate and loan terms, borrowers should shop more than one FHA-approved lender and compare offers. 

Additional Read: Your Guide To FHA Loan Requirements

Here are the minimum requirements for FHA loans:

Credit Score:

Prospective homeowners with credit scores of 580 and above qualify for the lowest down payments. Borrowers with credit scores of 500-579 can still qualify for FHA loans, but they will need to come up with a larger down payment. 

If your credit score has dipped below 500, it’s beneficial to raise your score before considering buying a home. However, you may also consider that a family member may apply to be a non-applicant co-borrower or co-signer, which will help reduce the loan risk. Any family member with a responsible credit history can serve as the co-borrower or co-signer.

Down Payment:

If you have a credit score of 580 and the minimum down payment requirement for an FHA loan is only 3.5%. A credit score of 500-579 would require a down payment of 10% of the home’s purchase price.

Debt-to-Income Ratio (DTI):

The FHA loan requires a specific debt-to-income ratio (DTI). The front-end DTI ratio is 46.99% and the back-end DTI ratio is 56.99%.  In other words, monthly debt payments cannot exceed the set DTI ratios of a borrower’s gross income. DTI includes debts that are in deferment. For instance, for student loans in deferment, FHA loan underwriters will include 1% of the loan’s total as the monthly payment amount.

Applicants who rent will typically include rental payments in DTI calculations. However, if projected monthly housing expenses will be lower with a mortgage than with rent, the lender will use the lower mortgage payment for calculations.

Documented Steady Employment/Income:

FHA home loan borrowers must have a steady employment history or have worked for the same employer for the past two years. 

No History of Foreclosure:

The FHA requires that all borrowers be free from foreclosure for at least the last three years. 

In addition to borrower qualifications, all properties insured by the FHA must also meet the agency’s minimum standards. Here are general guidelines for property requirements:

  • The loan must be for a principal residence. Within 60 days of closing, at least one borrower must occupy the property.
  • The property cannot be purchased for investment.
  • The property must undergo an FHA appraisal. An FHA appraisal includes an inspection—which is separate from a home inspection—that assesses a home on whether it is worth the purchase price and meets minimum safety and habitability standards.
  • The property cannot be a flip. In other words, the borrower cannot buy a property using an FHA-backed mortgage within 90 days of a prior sale.
  • Borrowers must take title to the property in their names or the name of a living trust at settlement.

Do FHA Loans Have Income Requirements?

There are no minimum or maximum income limits associated with FHA loans. However, borrowers must have:

  • Two or more established credit accounts, such as a credit card and a car loan.
  • No delinquent federal debt or judgments (tax-related or otherwise) or debt from previous FHA-insured mortgages.
  • Signed, dated documentation for cash gifts that help with the down payment.

Although the FHA insures the loan, individual lenders make the final decision as to whether or not to finance a property. It is also the lenders’ prerogative to determine their specific qualifications, such as a higher credit score or a better debt-to-income ratio. It’s advisable to speak directly with your lender to review their preferred requirements. 

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 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.

Applying For An FHA Loan

Applying for FHA loans requires several personal and financial documents, including:

  1. A valid Social Security number.
  2. Proof of US citizenship, legal permanent residency, or authorization to work in the US.
  3. Bank statements for the past 30 days, and usually longer.
  4. Documentation for any deposits made into your bank accounts, such as pay stubs.
  5. Credit reports.
  6. Tax returns.
  7. Employment records. 

The lender may be able to automatically retrieve some required documentation, like credit reports, tax returns, and employment records.

Exceptional circumstances, such as student status or insufficient credit history, may require extra documentation. 

FHA Loan Limits

The FHA will only insure properties up to a published maximum price. The loan limits are updated annually and are influenced by conventional loan limits set by Freddie Mac and Fannie Mae. The type of home—such as a single-family or duplex—also impacts these limits.

In 2020, FHA loan limits range from $369,000 to $707,700. 

Here are the FHA loan limits in Cook County:

  • 1-unit: $368,000
  • 2-unit: $471,100
  • 3-unit: $569,450
  • 4-unit: $707, 700

Counties with mid-range housing prices also have mid-range FHA loan limits. HUD’s website lists the FHA loan limits for every county in the nation.

Who are FHA Loans Best Suited For?

True to its original mission, the FHA helps lower-income borrowers and those that may not qualify for a conventional loan (Fannie Mae criteria) from a mortgage company. Allowing a minimum down payment of 3.5% with a 580 FICO score, FHA loans assist buyers with lower credit scores and savings.

Contrary to popular belief, FHA loans are not limited to first-time homebuyers. Many people refinance with FHA-insured loans or are repeat FHA buyers. However, FHA loans are indeed the most popular option for first-time homebuyers.

For borrowers with good credit and a medium down payment of 10-15%, FHA loans are often more expensive than conventional loans. On the other hand, FHA loans are usually the least costly option for those with lower credit scores and down payments. However, there are no hard-and-fast rules, as much depends on the current market. 

FHA loans can be easier for individuals with lower credit scores and down payments to qualify for than conventional loans. They also give the borrower refinancing options and offer more protection from foreclosure.

What About Borrowers Who Do Not Meet FHA Requirements? 

FHA’s standard underwriting criteria considers many income and debt-related factors. If a borrower’s situation deviates somewhat from the established criteria, manual underwriting can be used. Lenders will carefully review the applications from such non-standard borrowers before determining whether to approve or deny a loan.

FHA Loans at A and N Mortgage

As an FHA-approved lender, A and N Mortgage 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 home buying  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. 

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How Do VA Loans Work

VA loans, or Veteran Loans, are a benefit offered to Veterans of the U.S. Armed Forces on behalf of a grateful nation to facilitate the process of homeownership. The VA loan program was established in 1944, providing opportunities to millions of service members. VA loans offer an attractive $0-down payment and favorable terms that aren’t available to the general public.

VA loans are offered through private lenders, much like a traditional mortgage, but are guaranteed by the U.S. Department of Veterans Affairs. Since the VA backs VA loans, these loans typically offer more flexibility than is available to the average homeowner, such as looser credit requirements and no firm loan limits.

How Do VA Loans Work?

VA loans are provided by private lenders like banks and mortgage companies for veterans looking to build or buy a home that will serve as their primary residence. These loans differ from traditional loans in that the Department of Veterans Affairs guarantees a portion of the loan amount if the borrower defaults. This security allows lenders to be generous with their terms and makes them willing to work with veterans when possible.

Who Qualifies For A VA Loan?

First, you’ll need to verify that you or your spouse qualifies for the VA loan program. Verification is accomplished by obtaining a VA loan Certificate of Eligibility (a COE). A COE is granted to:

  • Active duty military members who have served 90 continuous days.
  • Veterans who meet ‘length-of-service’ requirements (at least 90 consecutive days or during peacetime for 181 consecutive days). 
  • National Guard or Selective Reserve members who have completed 90 days of active duty or six credit years of service. 
  • The surviving spouse of active duty service members who died in the line of duty or from a service-related disability and have yet to remarry (or surviving spouse who remarried after the age of 57 or Dec. 16, 2003). 
  • The spouse of service members who are prisoners of war or missing in action are also eligible.

It’s possible that you may still be eligible for a VA loan if you don’t meet the ‘length-of-service’ requirements under certain circumstances, such as an honorable discharge for a service-related disability. 

Dishonorable discharge or ‘other than honorable’ discharge may prevent you from qualifying for eligibility. In some cases, you may apply with the VA to upgrade your discharge status. 

How Are VA Loan Entitlements Determined?

Your VA entitlement is basically how much the VA is willing to guarantee to the lender on your behalf if you default on your VA loan. The concept of the VA entitlement can be a rather confusing one, but it generally consists of two types: basic and secondary entitlement. 

Basic Entitlement: Your basic entitlement is usually 25% of your total mortgage or $36,000. This is the VA’s maximum guarantee for loans up to $144,000. 

Secondary Entitlement: The secondary entitlement, sometimes referred to as a bonus entitlement, is up to 25% of the current FHFA (Federal Housing Finance Agency) conforming loan limit (which varies by county and depends on where the house to be purchased is located), less the amount of the basic entitlement.

If the house you are looking to purchase costs more than four times your basic entitlement (above $144,000), you can tap into your secondary or bonus entitlement. The secondary entitlement is 25% of the FHFA conforming limit. For 2020, that is $510,400 in most areas, resulting in a secondary entitlement of $127,600 less than the basic entitlement, which equals $91,600 as a secondary entitlement.

If you’re looking at a house that costs less than $144,000, the basic entitlement guarantee may help. Lenders are often willing to provide loans that are up to four times the value of the entitlement. Knowing your entitlement determines the amount of the loan that you can choose to obtain.

How Do You Apply for a VA Loan?

Applying for VA loans can look much different from the standard mortgage process.

First, gather the necessary information you’ll need to apply for your COE in order to verify your eligibility. Once your eligibility has been confirmed, you will be given an ‘entitlement,’ which is the amount of your loan that the VA will back. 

 

Next, you’ll need to qualify for the loan by applying through a VA lender. It’s helpful to contact a VA home loan lender to begin the preapproval process. A preapproval letter from a qualified and trusted VA lender will benefit you when it’s time to place an offer on a home. As with other mortgages, you’ll need to prove that you can make the mortgage payments by showing sufficient income and carrying a minimal debt load. While there is no minimum credit score for a VA loan, private lenders may have their own minimum credit score requirements. 

Then your lender will request a VA appraisal of the house that you plan to buy. The appraisal isn’t a home inspection, but it will make sure that your new home is worth what you plan to pay and that it meets the VA’s minimum property requirements. The appraisal process ensures that undertaking the loan is a sound investment for you and the lender, offering you both an extra layer of security.

Last, you need to sign all of the necessary paperwork at closing to make everything official.

What Are The Advantages of VA loans? 

No Down Payment

A $0-down payment is a welcome departure from the typical down payment, which can typically vary up to 20% of your new home’s cost, thereby reducing upfront costs. However, you’ll be responsible for paying a VA funding fee that goes to support the program. When you pay no down payment, the VA funding fee for the first time that you use the program amounts to 2.30% of the amount financed. This fee drops to 1.65% of the amount financed if you put down 5-10%, and down to 1.40% if you put more than 10% down on your purchase.

VA Loans Are Reusable

If you pay off one loan, you can obtain another full VA entitlement again and again, as long as you continue to pay it off. You may also qualify for another VA loan if you have an existing VA loan or lost one of them to foreclosure in some cases. 

VA Loans Don’t Require PMI

Since the VA guarantees that a substantial part of your loan will be covered in the event of default, you aren’t required to carry PMI (private mortgage insurance). Eliminating the need for PMI can save your household hundreds, even thousands, of dollars, depending on your property’s value.

Faster Acceptance Process

Due to the reduced risk to lenders since the VA is backing all or part of the loan, VA loans tend to move faster from start to finish. It can often be a quicker and easier process to secure a VA loan than to obtain a standard home loan.

Competitive Rates

Individuals who qualify for VA loans are deemed safe borrowers by banks and credit agencies, casting a more favourable light on these applicants. Consequently, as a VA loan borrower, you receive preferential treatment in the form of more lenient requirements and highly competitive rates. If you have poorer than average credit, you may still qualify for a VA loan, since the VA guarantees what you borrow. Veterans with a history of foreclosure or bankruptcy can apply if enough time has passed.

VA Loan Financing Flexibility

You can lower your interest rate by refinancing your VA loan. There are also other types of VA loans, including cash-out financing or home construction. You can also use VA financing with the Native American Direct Loan program if eligible.

No Loan Limits

As of January 1, 2020, there are no loan limits on VA loans for veterans and service members with full entitlement to VA loans.

VA loans are designed as a way to thank active-duty military personnel and veterans. If you qualify for the VA lending program, you may be able to enjoy an almost pleasant mortgage application process thanks to the U.S. Department of Veterans Affairs’ backing. 

Even though private mortgage lenders offer the loans provided through the program, they usually go the extra mile to lend to veterans because the VA will back a portion of the loan in the case of default. The part of the loan that the VA will guarantee is called your entitlement, which is at least partly determined by the FHFA loan limits for the location of your future home.

The fact that you begin the loan application process with this entitlement goes a long way in securing the lender’s position, predisposing veterans to streamlined processes, fast answers, competitive rates, and the chance to purchase a primary residence without a down payment. While applicants are still subject to traditional financial review, lenders are willing to work with veterans applying through the program. Many find that VA loans have a welcome degree of flexibility compared to their conventional counterparts.

A and N Mortgage is Here to Help

You can apply for a VA loan with us here at A and N Mortgage, as we are one of the top VA-approved mortgage brokers Chicago has to offer. Please don’t hesitate to get in touch with us today to find out more or apply for a mortgage – our friendly, skilled team is waiting here for you and will help you get the information you need.

 

A and N Mortgage Services Inc, a mortgage broker 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.
Clear Dot

 

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Ten Reasons Why You Need a Mortgage Broker

Now is a great time to consider buying a home. Interest rates have reached unprecedented lows in recent months, making the costs of undertaking a mortgage incredibly attractive. 

With all of the information available to seasoned and first-time home buyers, it almost seems like all mortgage providers will give you a great rate, making it virtually impossible to secure a bad deal on a home loan right now. Popular thinking would have you believe that you could just reach into a hat, choose the name of any bank or lender, and end up with a great deal.

Unfortunately, that’s not usually how it goes. Taking that kind of risky approach to something that will impact you and your family for years to come borders on irresponsibility. 

Tapping into the skills and experience of a qualified, independent mortgage broker can be one of the greatest resources you can use during the homebuying process. And great mortgage brokers won’t cost you money—they’ll save you money!

Read on for ten reasons you should consider working with a mortgage broker.

  1. Working with a mortgage broker is easy.

You already have enough to do throughout the process of buying a home. A mortgage broker will help to take the home loan search process off of your hands. As an independent, certified professional, they’ll make sure that your application process goes smoothly.

They will do much of the tedious, difficult groundwork for you. With that taken care of, you can quickly determine what options are available to you and select the best loan for you and your unique set of circumstances. 

  1. Mortgage brokers have lots of experience.

They work with home and investment loans all day, every day, so they know them thoroughly. You can expect that a typical mortgage broker helps hundreds of clients secure loans each year, so they know what they’re doing and how to find the best deal for you.

Because they know what to look for, mortgage brokers can quickly start to understand your particular situation and help you find the right home loan for your circumstances. By working with a mortgage broker, you have the advantage of access to years of knowledge of mortgage loans and terms. It’s great to have an expert in your corner.

  1. Mortgage brokers offer tremendous convenience.

Thanks to a certain level of independence, mortgage brokers can usually accommodate your schedule. Whether you work long hours or need to meet at a specific location on your way from your last appointment, they can generally make it work. This flexibility can save you a bunch of time and hassle on top of the time that they can already save you by streamlining the selection process.

  1. Mortgage brokers offer access to the most options.

It can be tempting to limit your search options to familiar lenders, like the bank that you deal with regularly. But in today’s highly competitive climate, there’s no reason to do that.

With the tools and relationships at their disposal, mortgage brokers are positioned to expand your search options. They have the ability to quickly comb through hundreds of home loan options from dozens of different lenders. 

This access means that you can get the benefit of sifting through hundreds of opportunities from so many sources without doing any of the added legwork yourself. You can easily capitalize on the market offerings in their entirety so that you’re assured of securing the best mortgage. 

  1. Mortgage brokers can be great teachers.

Of course, a good mortgage broker will walk you through what needs to be done to get you the best loan, but a great mortgage broker will take you under their wing throughout the process. They will happily teach you about what to expect every step of the way and explain the financing process to you in terms that you can understand. They’ll help you learn to identify marketing trends and explain the process of legally transferring property, too. 

A great mortgage broker will give you tips for dealing with real estate agents based on their experience that you can carry on into your house hunt. They can set clear and realistic expectations that will help your agent find the home that’s right for you. Thanks to their expertise, they are well-equipped to educate and inform you about this process. Teaching you lends added comfort throughout the process and gives you a great resource of information if you ever find yourself looking for another mortgage in the future. 

  1. Mortgage brokers can help you speed up the process.

Consider mortgage brokers like your keys to the fast track. Current real estate markets are relatively flat, with a large number of buyers clamoring for few homes on the market over the past several months. 

They are well-suited to manage this situation because of their excellent working relationships and established reputations. Generally, working with a mortgage broker will shave a few days off of the application process compared to having you attempt to get things done on your own. 

  1. Mortgage brokers are there for you for the long haul.

One of the crucial traits of a great mortgage broker is their relationship-building abilities. While it’s important to build and maintain relationships with banks and lenders, your mortgage broker will also work to build a relationship with you. 

Expect that they will be with you as you secure a home loan and well into the future. If circumstances change, for example, and they think that you might be able to get a better deal elsewhere, they’ll let you know and help you get it done. 

If you decide to refinance or buy another home somewhere else, they are ready to help with that, too, so you won’t have to start over again. Anticipate that you’ll be able to pick up where you left off.

  1. Mortgage brokers have the right tools for the job.

They have sophisticated systems, including loan rate calculators, to streamline the mortgage application process to save you time and energy. 

You can certainly go to any lender’s website, jump through all of the hoops, and cross your fingers if you’d like. But if you have any unconventional circumstances, like a low salary, single income, current unemployment, or anything outside of fairly ideal circumstances, you may be rejected. If you decide to apply to another lender, your credit report will show that an inquiry has been made, further hindering your chances. 

A mortgage broker knows the ropes and can help you navigate these systems based on what you bring to the table combined with their experience and understanding. Their software will build a profile of you, your financial situation, and what you’re looking for. 

Then they can determine what loan products are available to you and what you should expect as far as lending requirements. If you need to improve certain areas before you have a successful application, they’ll let you know. This way, you’ll have a pretty good idea of what you can borrow and how likely you’ll be to get your home loan before you potentially injure your credit history.

  1. Mortgage brokers can help clear things up for you.

There are plenty of opinions regarding home loans—everyone seems to have their unique perspective and limited experience. You can also seek out your information or save yourself time, effort, and headaches by counting on a mortgage broker to separate fact from fiction and make sense of what you need to know to get the best mortgage for you.

They can help you understand terms like offset or overdraft that can be thrown around through the home loan application process. They can help steer you in the best direction as far as lenders’ mortgage insurance or low-doc issues are concerned, so you don’t waste time in an uncomfortable sort of limbo with inaccurate information.

  1. Using a mortgage broker is free.

Here’s the clincher—you can tap into a mortgage broker’s expertise with no money out of your pocket!

All the other reasons listed above point to the time, money, and effort you’ll save, plus the ease of relying on a mortgage broker’s knowledge and experience. Since all of that is yours for free, there’s no good reason why you shouldn’t use one.  

Lenders pay mortgage brokers a commission at the close of every transaction. Even better, these commissions are highly regulated, so there’s no benefit for them to recommend any product or lender above another. These protections ensure that you receive the best deal.

Find The Right Mortgage Broker For You

Mortgage brokers are the link between buyers and lenders, and can substantially improve your quest for the perfect mortgage. They are skilled at navigating a competitive field, and their involvement can save you precious time and money, all without any additional costs to you. 

Here at A and N Mortgage, we have a team of experienced mortgage professionals who are eager to help you find the right loan product and secure funding with the best terms.

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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Pros and Cons of Refinancing Your Home Mortgage Loan

Interest rates are at historic lows. As a current homeowner, you may be wondering if it’s worth your time to consider refinancing your mortgage. If you bought your home when the Fed’s interest rates were at least 1.5%, or 150 basis points higher than they are right now, you may be thinking about how much money you could save on interest payments by refinancing your original loan at today’s lower rates.

There’s an incredible savings potential for those who are able to successfully refinance their mortgage with more favorable terms. Still, knowing whether or not you should refinance isn’t always a clear choice from the beginning, depending on your unique circumstances.

To facilitate your decision-making process, here are a few of the main pros and cons of refinancing your mortgage in light of current market dynamics. As you consider these points, you’ll get a better idea of how your decision to refinance may impact your finances and future housing security.

Addition Read: Mortgage Refinancing Tips For Self-Employed Borrowers

PROS OF REFINANCING YOUR MORTGAGE LOAN

Save Money Due To Lower Interest Costs

Mortgage costs are made up of two primary components: the principal and interest costs. Refinancing at lower interest rates can reduce your overall borrowing costs over the life of your loan. If it costs less to borrow the money for your mortgage, you can save hundreds of dollars every month in interest payments.

There are several factors to take into account to determine how much you can save, like the type and structure and rate of your current loan. Depending on your existing mortgage, here are a few of the ways that you may be able to reduce your interest costs:

  1. Lower interest rate: If rates have fallen, your credit risk remains the same or improved since you secured your original mortgage, and you may be able to obtain a lower interest rate. When you refinance from higher-interest debt, expect the lender to look at your current credit score, income, and debt-to-income ratio to determine your ability to repay your loan.
  2. Shorter loan term: If you reduce the loan term, you’ll pay less interest because there simply isn’t as much time for interest to accrue. Even though you will ultimately be saving money, you may wind up with a higher monthly payment over a shorter loan duration.
  3. Switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage: Refinancing from an ARM to a fixed-rate mortgage will remove the risk of rising interest rates if they increase in the future, shielding you from potential interest-rate hikes.
  4. Refinancing from Jumbo to conventional loans: Jumbo loans exceed the conventional (conforming) loan limits determined by the Federal Housing Authority (FHA) each year. Once the balance on a jumbo loan drops below that threshold, refinancing to a conventional loan (generally offered at lower interest rates, since they are for smaller loan amounts and carry less risk) can save you money.

Lower Your Monthly Payments

Refinancing to a lower interest rate loan with the same terms will often result in lower monthly payments. Another, less desirable way to reduce your monthly payments is to refinance to a loan with a longer-term. Since you would pay over a longer duration of time, your individual payments may be lower, but you’ll generally have a higher overall borrowing cost as interest costs accrue.

Make Your Loan More Predictable

ARM’s have interest rates that can increase or decrease at each specified interval. A common term for adjustable-rate mortgages is the 5/1 ARM. This loan configuration keeps your introductory (often preferable) rate locked in for the first five years. After that, your interest rate can change every year. Refinancing to a low, fixed-rate mortgage can save you money compared to higher variable rates if interest rates increase.

Eliminate Mortgage Insurance

The FHA mortgage loan program requires that first-time homebuyers maintain expensive annual insurance premiums for at least the first 11 years of the loan (for loans issued after June 2013), sometimes the entire duration of the loan, to protect the lender from default.

Once you achieve 20% equity in your home, you can convert an FHA loan to a conventional loan and eliminate the annual mortgage insurance payment, saving you money each year. You’ll generally accrue that amount of equity before the first 11 years of the loan and well before the full 15 or 30-year loan term.

Affordably Tap Into The Equity In Your Home

Cash-out refinancing can make sense if you need access to low-cost capital. This version of a home equity loan or line of credit gives you cash that you can use on anything, like college tuition, medical bills, student loans, or for funding home improvement projects.

Like a home equity loan, your loan is secured by the value of your home. These funds are often more affordable than credit cards or other personal loans since your lender is at a reduced risk of default with your home as collateral.

CONS OF REFINANCING YOUR MORTGAGE

While there are many potential upsides to refinancing your mortgage, it can be a time and labor-intensive pursuit. You’re essentially going through a slightly streamlined mortgage process again. There are no guarantees you’ll wind up with a lower rate and the process can be complicated.

Applying To Refinance Your Loan Is Difficult

Before you jump the gun to refinance, know that it requires a lot of effort. Though the process is a smidge easier than securing your primary mortgage, since you’ve already been approved for and are in good standing with your current loan, refinancing isn’t for the faint of heart.

Lenders still require tons of paperwork to verify your employment, income, and identity to ensure that you qualify for refinancing. The process often takes weeks and can be stressful, so don’t commit to the idea unless you’re ready to go through with it.

You May Not Be Approved

When you refinance, the lender will reassess your credit risk. If your credit score has fallen, you’ve recently changed jobs, or your debt-to-income ratio has increased, your application may be rejected. If your borrower profile has degraded and your application is approved, the terms may not be as favorable as anticipated.

Refinancing Doesn’t Guarantee That You’ll Break Even

While the ideal scenario is to refinance to a lower interest rate and save money compared to your original loan, there are a handful of situations where that won’t be the case. For example, there are many upfront costs and fees associated with originating a mortgage loan that is usually rolled into the total costs of the loan. If you have to sell your home soon after you refinance, you may never break even on your new loan thanks to those upfront costs.

Higher Monthly Payments

Cashing out with a home equity loan or reducing your loan term can save you money, but it can also result in a higher monthly payment. Higher monthly payments become an issue if the larger amount strains your monthly budget. If you elect to refinance with a higher monthly payment, make sure that you can withstand the increase.

Down Markets Can Deter Your Efforts

Areas with declining home values and high or increasing rates of short sales and foreclosures are a higher risk for lenders. If those circumstances in your area have deteriorated since you bought your home or last had it appraised, this may lead to a lowball appraisal that will hinder your chances of qualifying for a refinance loan. If you’re looking to refinance a property that fits those criteria and can wait, you may want to postpone until the market improves.

DECIDING WHETHER REFINANCING IS RIGHT FOR YOU

There are many cases where refinancing a home mortgage loan, especially in today’s low-interest-rate climate makes sense. However, there are plenty of pitfalls to consider before you decide to pursue refinancing.

First of all, there are no guarantees. Even if your borrower profile is intact or has improved, there are plenty of other factors, like down markets and lowball appraisals that can foil your refinancing attempt.

If you do successfully refinance your home loan and need to sell your home years before you planned, you may not have reached the point where you’ve broken even after paying all of the upfront costs for this new loan. In that case, refinancing could cost you quite a bit of money. If the housing market sours, you may wind up with less equity than you expected. If you refinance and lose your job, your house and financial stability are on the line, leaving you in a precarious position.

Alternatively, refinancing may be a great option for you. If you’re approved for refinancing your original loan with more favorable terms, you can save thousands of dollars in saved interest costs. Successfully refinancing nonconventional loans can be worth the effort, too.

Historically low-interest mortgage rates in Chicago make home loan refinancing particularly attractive right now. Regardless of the outcome, carefully consider the pros and cons of refinancing in the context of your situation to decide whether it’s worth applying.

Additional Read: Why You Should Consider Refinancing Your Mortgage This Summer

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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COVID-19 Impacts: Guidance on Mortgage Payments, Student Loan Debt, and Banking

COVID-19 has dealt the worldwide economy a severe blow. In the U.S., millions have lost their jobs or source of income. Many more have had their wages slashed or are teetering on the brink of joblessness. 

It will be a while before business returns to normal. Until it does, how can all the people in economic distress keep up with their financial obligations?

There’s no one-size-fits-all answer that question. Everyone’s circumstances vary. Some people rent their houses; some own them. Others need to fund not only mortgages but student loans.

In this article, we’ll talk about Coronavirus-related relief for mortgage payments, student loan debt, and loans, and banking.

☑️  Mortgage Payment Relief

The good news is that federal and state governments are stepping up to protect homeowners. The bad news is that homeowners who miss payments will still have to make them up. Only a few jurisdictions are offering help beyond temporary forbearance.

Forbearance is when your lender temporarily suspends debt payments. In most cases, you’ll still have to make payments, but hopefully, you’ll be in a better position to pay later on.

☑️  Assess your situation

The Consumer Financial Protection Bureau (CFPB) says the first step for COVID-impacted mortgage holders is figuring out what they can afford to pay. If they can cover their entire mortgage, they should do that for as long as possible. In the meantime, they can start investigating other options.

Suppose you can’t make your mortgage loan payment at all, or you can only scrape up enough money for a partial payment. In that case, you’ll need to get in touch with your mortgage provider as soon as possible.

Unfortunately, this is one issue you probably won’t be able to resolve online, so you’ll have to call your mortgage servicer. Set the alarm and place your call as early in the day as possible. If you have to wait until later in the day, be prepared: even under the best of circumstances, the call can take a long time. It’s possible you may be on hold for hours.

Once you’ve reached an agent, document each conversation with your lender. You’ll want to record who you talked to, the time and date of the call, a summary of the discussion, and action items.

When a lender offers mortgage forbearance or payment deferral (another type of repayment option), you need to clarify the terms of repayment. One lender might insist that the missed payment(s) get made up as soon as regular payments start back up. Another lender will tack the amount onto the end of the loan term. Private lenders vary widely in their COVID responses.

For the most up-to-date information about your mortgage, contact your mortgage provider either online or by phone. Hopefully, they will respond in a timely fashion to online inquiries so you can save phone calls if you need relief.

☑️  Federally Backed Mortgages

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, those with federally-backed mortgage loans who are economically impacted by COVID-19 are entitled to forbearance. Borrowers need to request forbearance—a temporary halt to your mortgage payments—by contacting their mortgage provider.

You can start the contact online at www.HUD.gov, where you’ll find certified housing counsellors.

Eligible federal mortgage loans include those backed by the FHA, VA, USDA, Fannie Mae, and Freddie Mac. Fannie Mae and Freddie Mac alone own or back almost half of US mortgages.

Coronavirus-affected borrowers can freeze their mortgage payments for up to six months. If needed, they can get another six-month extension. Penalties and late fees will be waived, and no delinquency will be reported to credit bureaus.

Forbearance is not a get-out-of-debt-free card, though. Regular interest will still accrue, and the payments will have to be made up. The federal loans will usually tack them on at the end, though.

☑️  State Mortgage Relief Programs

All 50 states and the District of Columbia have put homeowner relief measures in place for those who have been impacted economically by Coronavirus. These state-specific relief measures vary widely and are evolving over time. Check with your state to verify what options are available to you.

☑️  Student Loan Repayment

We all know that you should prioritize paying your rent or mortgage so you can keep a roof over your head. But when money’s tight, as if you’ve lost your job in the wake of the pandemic, it can be tempting to skip your student loan payments altogether.

If you don’t have a student loan—either you didn’t go to college or graduated without student loan debt—that’s great. But if you do, it’s important to make student loan payments a priority because defaulting on your loans will come back to haunt you in the future.  

Defaulting on student loans sinks your credit score, so when you want to get a car loan or a mortgage in the future, you’ll have to pay a high-interest rate or not qualify at all. And if you’re trying to get a job that deals with finances, your potential employer will most likely run a credit check before deciding whether to hire you.

Bankruptcy probably won’t erase student loans, either. Student loans are a unique kind of debt.

Now that you’ve realized the importance of keeping up your student loan payments if, at all possible, you can relax for a minute. As you probably know if you’re paying on a student loan, repayment on all federal student loans held by the US Department of Education has been suspended until September 30, 2020. During the same period, interest rates have been reduced to 0%. 

Yes, you’ve got that right—no interest and no payments on student loans through the end of September. You also won’t be subject to involuntary collection on federal student loans, including wage garnishments and offsets, during that time.

 And all the while, credit bureaus will report you as making timely payments.

 All these protections apply only to federal student loans. The good news, though, is that the vast majority of student loans are federal. According to a December 2018 report by academic data firm MeasureOne, 92% of student loans are owned by the US Department of Education.

There are 43 million total federal student loan borrowers. Total outstanding federal student loan debt stands at $1.4 trillion.

To determine if your loan is in that 92%, visit the Department of Education’s National Student Loan Data System at https://studentaid.gov/. In this case, the online solution is your best bet. But if you prefer addressing the situation over the phone, you can call 1-800-433-3243.

Student loan borrowers with any type of financial difficulties should always communicate with their lenders to make payment arrangements. Although the solutions may not be as generous as the temporary pandemic ones, lenders will work with you to defer (although rarely eliminate) payments.

☑️  General Banking Provisions

When the alphabet-soup federal agencies that regulate banks and credit unions realized that the Coronavirus pandemic would cause severe economic repercussions, they responded in several ways. First, they encouraged banks to work with customers whose finances had taken a hit from COVID-19. Next, they made adjustments to bank regulations.

The federal bank regulatory agencies include the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Consumer Financial Protection Bureau (CFPB). The National Credit Union Administration (NCUA) generally follows the lead of bank regulators.

By mid-March, the regulators issued guidance identifying ways banks could assist customers. These included waiving fees, extending payment due dates or offering skipped payments, and increasing credit card and ATM withdrawal limits. However, these actions were not mandated. Many banks have, in particular, not raised but reduced credit card limits.

Banks are subject to “safety and soundness” regulations, which include rules related to banks’ liquidity and capital. Bank regulators also have the authority to supervise banks, which includes examinations and off-site monitoring. In response to COVID-19, regulators relaxed some regulations to avoid setting off alarm bells.

For instance, on March 22, bank and credit union regulators allowed banks to modify certain loans without labeling them as troubled debt restructurings (TDRs). Under accounting principles, a TDR designation could negatively impact a bank’s financial and regulatory reporting requirements.

Regulatory agencies have been encouraging banks to make responsible small-dollar loans since the end of March. They have also urged banks to use their capital and liquidity buffers to support loans. Again, those “encouragements” have produced mixed results. 

Conclusion

The COVID-19 pandemic has caused worldwide financial devastation. In America, relief has been offered on several fronts. These forms of assistance include mortgage forbearance or modification, suspension of student loan payments until September 30, 2020, and various banking regulations.

Mortgage relief mostly applies to the holders of federal loans. On the other hand, student loan relief was extended across the board to the 92% of borrowers who hold federal student loans.

As for banking regulations, customers have not necessarily benefited from them. Banking regulators “encouraged” but did not require banks to work with COVID-19-affected customers. Banks and credit unions themselves were the primary beneficiaries since they were not penalized for loans that ordinarily would negatively affect their ratings.

If you have any questions or concerns about your mortgage during the COVID-19 pandemic please contact your mortgage professional and get the reassurance that you need. 

 

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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Mortgage FAQs

Below, we are going to take a look at some of the most frequently asked questions about mortgages and mortgage refinance.

How are mortgage refinancing advisors able to provide no closing costs?

There are a number of different ways that mortgage advisors are able to provide no closing costs. For some, it is because they roll these costs into the cost of the loan, making it technically appear like there are no closing costs when you’re still really paying for them anyway!APR Vs. Interest Rate

However, the best mortgage advisors don’t do this. Instead, they will use their commission to cover the closing costs. So, doesn’t that mean they are losing money? Well, yes; they make less per each mortgage refinance deal. Nevertheless, they prefer to take this approach in the hope that they will satisfy their clients, earn a good reputation, and secure more deals through word-of-mouth referrals. It’s about having those small wins on a regular basis.

A good example of this is Brad Boden. This is the sort of structure he works with. He uses his commission from the loans he sells off in order to pay the closing costs. He prefers to hit those small margins and give more back to his clients, and then he will secure more business in the future because he is able to offer this. It’s always important that a Chicago mortgage broker is honest and transparent about how they work.

Additional Read: How To Score The Best Refinance Rate 

If you’d like to personally work with Brad so he can help you through the complicated loan process please visit BradBoden.com

Will rates stay low or will they increase in the near future?

The current state of the economy indicates that the mortgage rates are going to stay low. Of course, no one has a crystal ball, and so it is impossible to predict the future. Nevertheless, at the moment rates are extremely low, and the last thing the government is going to want is for mortgage rates to increase during a recession period.

Because of this, there really is no better time to purchase a property or to refinance your current mortgage deal than now. Once the dust settles, if you are in a position to do this, it would certainly be a wise decision on your part.

Additional Read: An Update To The Rate Market For You

What is pre-approval?

Before you start looking for your dream property, it is important to make sure you call up and get a pre-approval on a home mortgage. Don’t do things in the reverse order.

A pre-approval will help you to understand the costs, payments, and rates. You will be able to figure out your price range. After all, there is nothing worse than falling in love with a property, only to discover that it’s really not something you’re going to be able to comfortably afford. A lot of people underestimate the costs associated with real estate.

By getting your pre-approval, you will know your price range and you will be able to inform your realtor of this so that you don’t end up looking at properties that simply aren’t right for your monetary situation.

If you’d like to personally work with Brad so he can help you through the complicated loan process please visit BradBoden.com

What is a pre-approval contingency?

You may have heard the term “pre-approval contingency” and you may be wondering what this means and whether or not it is relevant to you. This is a phrase that applies when you already own a property, and you are looking to purchase another one.

In a lot of cases, people cannot afford to buy a second home unless they sell the first one. There are also cases whereby people could afford to carry both mortgages, i.e. the mortgage on their current property and a new mortgage on the property they are going to purchase, however, they don’t want to do that.

Therefore, pre-approval contingency refers to you being offered pre-approval on the basis (contingency) that the other house is sold. Effectively, you will get a mortgage approved for the second property so long as you have sold the first property.

If you have a pre-approval contingency, it is really important to let the seller know. After all, this impacts the buying process because it can slow the chain down. They will want to know when you are selling your home, or if anyone has made an offer yet. Being transparent is critical; there is no point in trying to cover-up the truth.

If you’d like to personally work with Brad so he can help you through the complicated loan process please visit BradBoden.com. He will be more than happy to answer any further questions that you may have regarding mortgages and mortgage refinance deals.

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.

Posted in Brad Boden Author, FAQs, home loan, Tips and Tricks | Comments Off on Mortgage FAQs

Coronavirus-Caused Mortgage Loan Challenges

The worldwide Coronavirus restrictions have created challenges in the mortgage loan industry. Fortunately, recent changes provide some clarity and relief.

Here, we’ll give an overview of dealing with COVID-19 challenges in getting a mortgage. We’ll also answer questions about the mortgage and student loan debt payments for those who have lost income due to the Coronavirus.

🏦 COVID-19 Challenges For Homebuyers

People have continued to buy and sell properties during the COVID-19 pandemic, but the lockdown and social distancing created complications. Mortgage lenders have had to get creative to keep the mortgage pipeline open. Here are a few questions and answers about how to deal with COVID-19 challenges.

🔹 My company’s offices are closed. How can I provide my final verification of employment within the 10 days before loan closing?

The Federal Housing Administration (FHA) and the Rural Housing Service (RHS) are allowing your employer to verify employment by phone. RHS will also let you verify your employment by email.

Fannie Mae and Freddie Mac will also allow verbal verification, and they may allow emails as well. You should feel comfortable to ask if they’ll accept other types of verifications if you need it during these difficult times. 

If you can’t provide an acceptable form of verification, lenders will require higher reserves to cover the risk.

🔹 Have the FHA, Fannie Mae, and Freddie Mac raised rates and fees on borrowers with lower credit scores or smaller down payments?

The short answer to this is no. The Government Sponsored Enterprises (GSEs) of the FHA, Fannie Mae, and Freddie Mac have made no such changes. 

Individual lenders, though, are not necessarily following the GSEs’ guidance. It’s possible they’re increasing the fees on those with lower credit scores and down payments. The rationale behind this choice is that the cost of servicing such loans has soared because of forbearance. 

Under forbearance, the loan servicer must keep paying PITI to the investor. The volume of forbearance in response to COVID-19 is unprecedented. And lower-credit borrowers are more likely to take forbearance.

Ginnie Mae, another GSE, has announced a new program that addresses lenders’ concerns and improves mortgage financing access. The program helps cover lenders by advancing funds to make the mandated pass-through PITI payments to investors during forbearance.

🔹 Do Fannie Mae and Freddie Mac require a “wet signature” on all documents?

Fannie Mae and Freddie Mac require several documents to be signed before they’ll purchase a mortgage from a lender. Both GSEs allow electronic signatures on just about all mortgage-related materials, except for the promissory note.

Meeting face-to-face with lenders to ink a wet signature on a promissory note may be a problem in some areas of the country. It shouldn’t be, though, because real estate, financial services, and government office for documents and recording are “essential services.” The National Association of Realtors (NAR) is working with state and local associations to have local policy reflect this and enable wet signatures.

🔹 Can I use forbearance to buy/sell my home?

No. The purpose of forbearance is to give homeowners a chance to get through a difficult financial patch. It’s not intended as a stimulus or incentive to buy or sell. Payments in forbearance are delayed but not forgiven.

According to the Consumer Financial Protection Bureau’s (CFPB) guidelines, forbearance should be used only by homeowners who are in genuine financial distress. They’ve lost their jobs or income due to COVID-19, and they can’t afford to make house payments.

The massive surge in forbearance is causing lenders to tighten requirements for new homebuyers. When homeowners use forbearance for trivial reasons, lenders will further tighten restrictions and make it even harder to buy and sell real estate.

🏦 Personal Finance Questions

Some people aren’t worried about getting new mortgages—they’re concerned about paying for the ones they already have. These people have lost their jobs or taken painful income cuts due to coronavirus.

Of course, coronavirus-caused financial woes don’t just impact mortgages.  They may ding credit scores and affect repayment of other obligations such as student loans.

For those who have lost jobs or significant income due to COVID-19, here are answers to common questions about mortgages and debt repayment:

🔹 What can I do to avoid falling behind on my mortgage?

Government entities such as Fannie Mae, Freddie Mac, and the FHA are offering forbearance for six months. During this time, lenders are required to waive late charges, fees, and penalties. 

You need to apply for forbearance, which freezes your payments. You’ll have to make up those payments, but the GSEs will modify the loan to tack on those payments to your mortgage. Owner-occupied, single-family homes qualify for forbearance, as do second homes and investor properties. 

Some private banks are offering forbearance on non-federally-backed loans. Get in touch with your loan servicer to see if it can provide you with some relief. For more information, check out the CFPB’s (Consumer Financial Protection Bureau) primer and video about what homeowners should look for in forbearance or other relief options.

When you speak with your lender, document everything. Note the date and time of your call, and write down the name of the person you spoke with. Stay on top of deadlines.

🔹 If I take forbearance or even investigate that option, I’ve heard that I won’t be able to refinance or get a new mortgage or that I’ll have to wait 12-18 months. Is that true?

Not necessarily. It depends on whether you’re current on top of your payments and who is backing your loan.

You can refinance or get a new Fannie Mae or Freddie Mac mortgage immediately if you took forbearance and are current on payments. If you’re on a forbearance repayment plan and made three on-time payments under that plan, you’re eligible for credit to refinance or buy another home.

Private lenders may or not allow a future mortgage credit for a homeowner who took forbearance. As always, touch base with your lender.

🔹 What should I do if I miss a few credit card payments due to COVID-19?

The Coronavirus Aid, Relief, and Economic Security Act (CARES) protects credit scores from January 30th, 2020, through 120 days after the enactment of the national emergency. Unfortunately, that clock has already run out, but the country is still dealing with its coronavirus-weakened economy. 

Your best bet is to reach out to your creditors. Perhaps you can temporarily pay a smaller amount, skip some payments, or boost your limits. 

A single late payment can sink your credit score. Unfortunately, that blemish stays on your credit score for seven years. Ask for help and pay something.

It may take a long time to get through to lenders on the phone. It’s an unfortunate, but very necessary step.

🔹 What can I do about student loan debt?

The CARES Act provides six months of forbearance on federal student loans.  However, you have to contact your loan servicer to get a forbearance. As always, speak up if you need help and document your interactions.

Conclusion

The effects of the COVID-19 lockdown and social distancing continue to reverberate throughout the US economy, including the mortgage industry. With offices shut down, buyers experienced problems obtaining needed approvals, appraisals, and signatures. In many cases, quasi-governmental agencies came up with workarounds, but private lenders didn’t necessarily follow suit.

People who lost their jobs or a significant portion of their income due to the coronavirus have a few protections under the CARES Act. However, those protections are expiring and provide delays, not forgiveness. Individuals should communicate with their lenders and keep paying something to avoid late payments.

If you have any questions or concerns feel free to reach out to our team of mortgage experts here at A and N Mortgage.

 

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.

Posted in Home Page Blog, mortgage | Comments Off on Coronavirus-Caused Mortgage Loan Challenges

Mortgage Loan Limits Get a Boost in 2021: New Limits for Conventional and VA Loans

Loan limits for each major mortgage type—including conventional and VA—have received a significant boost for 2021 over last year’s limits. In some counties, the new loan limits are much higher than they were last year, giving buyers across the board access to more potential buying power. Although there is a significant degree of variation across individual county limits, the steep jumps are due to the swelling home prices that are tied to historically low-interest rates. 

Mortgage loan

Conforming loan limits for Cook county in 2021 are:

  1. Single units: $548,250
  2. Duplexes: $702,000
  3. Triplexes: $848,500
  4. Four-family: $1,054,500

The Housing and Recovery Act of 2008 (HERA) stipulates that mortgage providers must provide limits that are 115% of the median home value. Consequently, several of the wealthiest zip codes in cities such as San Francisco, New York City, and Washington, D.C. saw large jumps in their limits to keep step with the increased housing costs. On the other hand, less desirable areas with falling demand saw precipitous declines—up to a 49% decrease in county loan limits.

Overall, the new, higher loan limits set by the Federal Housing Finance Agency (FHFA) afford more opportunities to potential buyers in an increasingly competitive market. These loan limits also extend to those who are already homeowners as they can take more cash out of their home’s equity, too, as reverse mortgage limits follow suit. 

Conventional Loan Limit

Conventional loans are traditional mortgages awarded to creditworthy individuals by private lenders. They must adhere to the loan limits set by the FHFA and follow the credit score and down payment guidelines that have been set by the government-sponsored Fannie Mae and Freddie Mac.  

This year, conforming conventional loan limits are capped at $548,250 in low-cost areas, up quite a bit from $510,400 in 2020 in most counties in the U.S. In high-cost areas, this year’s single-unit loan limit soars to $822,375. These properties make up a small number of notable exceptions in the highest-priced neighborhoods, mainly in California and Hawaii. Since limits for conforming mortgages vary considerably based upon location, check your local FHFA county limit to get an idea of what you will be able to borrow in 2021. 

Conforming loan limits for Cook county in 2021 are:

  1. Single units: $548,250
  2. Duplexes: $702,000
  3. Triplexes: $848,500
  4. Four-family: $1,054,500

As private lenders usually have more stringent lender requirements for their borrowers, they are free to set their own limits for nonconforming conventional loans (which do not need to adhere to FHFA loan limits), including jumbo loans. Depending on the buyer’s financial situation, jumbo loans will generally be capped around $1-$2 million dollars, and they are subject to a different set of lending requirements. Often, securing a jumbo loan will require a large down payment (10%) and a hefty amount of reserves to ensure that the buyer will not default on the loan for between 6-18 months.

FHA Loan Limit

The Federal Housing Administration offers mortgages for low-to-moderate-income borrowers who can qualify with lower down payments and credit scores. The FHA’s loan limits vary according to the type of property—whether it’s a single-family unit, duplex, triplex, or four-family dwelling. Also, note that FHA loans can only be used for primary residences. These loans are not available for additional or investment properties. 

As with conventional loans, these limits also vary by county with higher limits assigned to pricier zip codes. Limits in 2021 were increased to keep pace with the housing market. In 2019, for example, the FHA loan limit for a single unit was $314,827. This year’s figures for a comparable property are set nearly $17,000 higher. 

For 2021, the 2021 FHA loan limits for Cook county in low-cost areas are as follows:

  1. 1-unit: $379,500
  2. 2-unit: $485,800
  3. 3-unit: $587,250
  4. 4-unit: $729,800

Still, the FHA’s floor limits only rise to 65% of their equivalent conforming-loan counterparts. FHA maximum limits, however, rise to meet the FHFA conforming loan ceiling in 2021—as high as $822,375 for a single-unit dwelling in higher-cost areas. 

VA Loan Limit

Private lenders issue VA Loans, and a portion is guaranteed by the U.S. Office of Veteran’s affairs. As of January 1, 2020, VA loans are no longer capped by conventional loan limits. 

Conventional conforming loan limits will still apply to veterans with more than one existing VA loan or who have previously defaulted on a loan, allowing veterans to borrow up to $548,250 for single-family homes in Cook County. 

Apart from those scenarios, VA loans are just subject to the private lender’s approval. Even though there is no limit if this is your first VA loan and you have not previously defaulted on a loan, your lender will only approve an amount that can be supported by your income and credit history.

Further, while the loan limit has been removed, the VA funding fee has also increased slightly. Veterans can still anticipate more favorable interest rates as one of the perks of their service. 

Finally, they do not have to provide a down payment.

Credit Score Requirements For All

Conventional Loan: Private lenders require borrowers to have good credit and to be able to afford a reasonable down payment. To qualify for a conventional loan, you’ll need to have a score of at least 620-640. The better your score, the more favorable your interest rates will be. Lower interest rates translate to lower monthly payments. With a conventional loan, expect to provide a down payment of at least 3%, possibly more for buyers who have lower credit scores. 

FHA Loan: Since the FHA is in place to make homeownership more accessible to lower and moderate-income families, the credit score requirements for FHA loans are generally more lenient than those of private lenders offering conventional mortgages. 

Borrowers applying to government-sponsored FHA programs for an FHA loan should expect to have a FICO score of at least 500-579 and be able to provide a 10% minimum down payment. If you plan to put as little as 3.5% down, you’ll need a score of at least 580 in addition to verifiable employment history and income. 

VA Loan: The VA does not set a minimum credit score. As private lenders are responsible for underwriting VA loans, they generally follow conventional mortgage requirements. Expect to have a 620-640 credit score to secure a VA loan, as you would need for a traditional mortgage from the same private lender.  

How Do These Limits Affect Homebuyers?

The FHFA raised loan limits in response to increases in the price of homes for sale. Thanks to historically low interest rates throughout last year, it is a great time to buy a home. Low-interest rates continue to make home-buying attractive, and with the increase in loan limits, buyers have increased purchasing power. This increase gives them access to larger amounts of capital, which affords them even more opportunities to purchase a home. Fundamentally, it now costs even less to finance a larger amount of money. 

Navigating The New Mortgage Loan Limits 

This opportunity and flexibility make it a great time to consider buying a house. The other side of this coin is that competition for the housing market is heating up. While this is great news for sellers as the number of houses on the market will struggle to keep up with the demand, it will cause housing prices to continue to escalate if the trend increases. 

Recent uncertainty within the market will unfold in the coming weeks, so these trends will likely shift. Still, unseasonably low-interest rates meant to stimulate the economy mean low monthly payments, and the 2021 loan limit increases allow you to secure larger, more valuable properties than were previously accessible with lower loan limits.

Instead of the $510,400 loan limit for low-cost areas in 2019, homebuyers can access up to $548,250 through a conforming conventional loan from a private lender. For single-unit dwellings in high-cost markets, that limit increases to $822,375 from $765,600 in 2020. Though the imposed limits are in place for conventional and FHA buyers, recent legislation removed the cap for some VA loans. The ceiling in those cases, then, is subject to the amount the lender approves. Conventional loans above these thresholds, like jumbo loans, adhere to a different set of standards entirely. 

For help with navigating conventional, FHA, or VA loans, feel free to reach out to A & N Mortgage. We’re happy to help you answer any more questions about the mortgage selection process to help you determine your best options for home buying in the Chicago area.

 

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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