What’s the Best Home Loan Option for Me?

As a homebuyer, your mortgage is specific to your situation and lifestyle. There are many different factors to consider when thinking about which home loan option is best for you. While one buyer may be comfortable paying a 20% down payment, another buyer may need down payment assistance. How long you plan on living in your home can also play a role in which type of home loan to choose. We will give a brief overview below of some options, but it is best to reach out to one of our loan officers for the full breakdown.

One loan option to consider is a fixed-rate mortgage. A fixed-rate mortgage has an interest rate that stays the same for the entire life of your loan. This offers a predictable monthly payment for a term of 10-30 years. This type of loan is best suited for a buyer than intends to stay in their home for a long period time. Highlights of a fixed-rate mortgage are

  • Interest rate security
  • Monthly payment stability

Another option to consider is an adjustable-rate mortgage (ARM). An ARM is a mortgage in which the interest rate is adjusted periodically based on an index. An ARM is a good option for buyers who are planning to move into a different house within the next few years. Depending on the type of ARM, the interest rate and monthly payment will fluctuate every adjustment period. An adjustment period is the period between each rate change, such as 5/1 – meaning the first rate reset takes place after five years and continues to reset each year for the life of the loan. Highlights of an adjustable-rate mortgage are:

  • Low starting interest rate
  • Lower monthly payments during the initial term

Buyers who need assistance with up-front fees may consider Down Payment Assistance (DPA) Loans. State Housing Finance Agencies offer state specific programs to residents who need help purchasing a home. These programs can be in the form of a loan or grant, and assist with closing costs, down payment, and even student debt relief. Highlights of DPA loans are:

  • Lower amount of money required up-front
  • State specific programs to assist most buyers

First Home Mortgage offers a variety of loans that can meet your needs. While reading about different loan types online is a great way to get started, to know exactly what option is best for you, it is wise to talk to a mortgage professional. Get in touch with a First Home Loan Officer near you to fully outline your situation and goals and tailor a plan.

5 Home Loan Milestones

Buying a home may seem a bit complicated, and sometimes it can be. It is important to understand what to expect when preparing to buy a home, and what to expect during the home buying process. Below we’ve provided a short outline of the five main milestones of the home buying process.

Pre-Qualification

You’re ready to buy a home, congratulations! The very first step to take if you are ready to start your new home search is to get pre-qualified. This is a no-cost, no-commitment, 10-20 minute analysis that will give you a great starting point for your new home loan. You can do this in-person or on the phone with a loan officer, or in most cases complete an online form. Your lender will be able to determine an estimate of your maximum monthly mortgage payment and how much you can borrow. Pre-qualifying for a loan before you go home shopping helps you set a budget and strengthen your negotiating position when making an offer.

Application

Once you have found a home, you will make an offer to buy it from the seller. A real estate professional will conduct negotiations and a contract will be submitted to purchase, accompanied by the pre-qualification letter. Once your offer is accepted, you will receive your initial disclosure package and you will begin the application process. You will most likely need to provide your loan officer and processor with updated income and asset documentation, such as pay stubs and bank statements. To ensure your loan stays on track, you’ll want to have your docs completed quickly and thoroughly.

Processing

In this step of the process, your appraisal and title work will be ordered. Once all necessary documentation is present, the processor will review everything for completion and accuracy. He/she will verify information on the title work, appraisal, credit report and any additional docs needed. Once the processor has completely reviewed the full application package, he/she will pass it on to the underwriter. Your loan officer will keep you informed, answer any questions and navigate you through the loan processing stage.

Underwriting

Once your loan gets to this milestone, the underwriter will review the entire loan package to determine if your loan meets the guidelines for approval. Your underwriter will review your disclosures, credit, asset documentation, employment, appraisal and additional documents along with the loan program’s guidelines and regulations. Once conditions have been met and any contingencies on the loan have been cleared, the underwriter will give the clear to close/final approval and the loan is sent to closing. Once the loan gets through underwriting, you’ve rounded the last turn and are in the home stretch!

Closing

You are now in the final home loan milestone, closing! A date, time and location should have already been confirmed for closing. At least 3 days prior to closing, you will receive your closing disclosure (CD). This document shows your closing costs, terms of the loan and how much money you need to bring to settlement. Once at settlement, documents will be signed, funds will be distributed and ownership of the property will transfer from the current owners to you. The house is finally yours!

It may seem like a long process, but we strive to make it as seamless as possible. If you are ready to start your home buying process, contact one of our loan officers today!

Why Is a Home No Longer Pending?

A pending sale means the seller has accepted an offer but the deal hasn’t closed yet. A property is placed in pending status when the contract is executed; when the contract is executed, in other words, the property is no longer defined as an active listing. A home will remain pending until all legal work has been processed and the loan closes. If your dream house is currently listed as pending, don’t lose all hope. Some sellers will still allow offers to be made on the house, just in case the deal falls through. Here are a few reasons a deal may fall through.

Finances

Homebuyers are often not aware of how an innocent transaction, such as making a large credit card purchase or moving cash from one back account to another, can jeopardize the mortgage process. Applying for any new kind of credit or accruing any new debt can affect your eligibility to continue with the loan. If any type of financial transaction is made that disqualifies you from continuing with the loan, the pending sale will fall through and the home will likely go back on the market. Always discuss your financial situation with your loan officer during the loan process.

Title Issues on the Property

Once a contract has been written up and the buyers start the loan process, title work on the property will be reviewed. Sometimes there are delinquent liens/bills on the property from the current owner, among other issues, that can affect closing. If the liens are not taken care of by the seller and cleared from the title, a lender will not allow the sale to go through. Errors of public records on title work can also stop a sale from continuing. Clerical or filing errors of the deed or survey of the property can cause financial strain to resolve, so they are not taken care of and the sale falls through.

‘Subject To’ Conditions

A smart buyer will have a property inspection done on the house before closing. An inspector will take a look at the foundation of the house, roof, attic, appliances, and list of other items to make sure everything is in working condition. If issues are found in the house that need to be fixed, the borrower may list “subject to” or “contingent upon” conditions on the contract. If these items are not fulfilled by the seller, the borrower is allowed to exit the contract, thus removing the pending status.

While it is not common for a deal to fall through once a contract is written up, it could happen. It’s a good idea to still follow the sale of the home and keep it in the back of your mind. Contact one of our loan officers if you have any questions, they will be happy to help!

What Causes Rates to Fluctuate?

An interest rate is a percentage of the amount of a loan paid for the use of money for a specified time. More simply put, it is the rate of interest charged on your mortgage loan. Interest rates are volatile, meaning they can fluctuate sharply and regularly. There are many elements that affect your mortgage interest rate, some are caused from your personal and financial information, and other reasons are more universal, deriving from economic and governmental factors. Interest rates are always changing, and it is possible to see different rates while you are looking for your home.

It is common to see mortgage rates fall when the stock market declines, and vice versa; it depends on the reason for the movement. Most of the time, the cause is shifting expectations for economic growth based on newly released data. Stronger growth is good for stocks, but it raises the outlook for future inflation, so it is negative for mortgage rates, and the reverse is true as well.

Inflation may be a cause for fluctuating interest rates. The Consumer Price Index (CPI), a widely followed monthly report that looks at the price change for goods and services, measures inflation rates. It is calculated by taking price changes for each item of goods and services and averaging them. Changes in the index are used to assess price changes associated with the cost of living. Inflation causes higher prices for everything, including home loans. Lower inflation is positive for mortgage rates.

Mortgage interest rates are very susceptible to economic activity. For this reason, jobs reports, Consumer Price Index, Gross Domestic Product, Home Sales, Consumer Confidence, and other data on the economic calendar can move mortgage rates significantly.

Your credit score will be a factor in determining your mortgage interest rate as well. Your lender will determine your likeliness to pay back the loan by reviewing your credit score. The higher your credit score, the more likely you are to repay the loan, making you a candidate for a lower interest rate. On the other hand, if you have poor credit history and your score is below average, your interest rate will likely be a bit higher. The good news is there are ways to improve your credit. A simple start is to pay your bills on time, all the time.

Since rates can fluctuate, it is a good idea to lock in your rate when rates are low, and you are ready to purchase. A rate lock can protect you from rising interest rates while you are searching for a home. Once your rate is locked, it cannot change for a specified amount of time, even if interest rates increase. Interest rates are a hot topic and tough to track; get in touch with one of our loan officers to learn more about interests rates and the current market.

 

What is Homebuyer Education, and Why Do You Need It?

Homebuyer education, also called housing or pre-purchase counseling, helps homebuyers prepare for the process of purchasing a home and the challenges of being a new homeowner. Some loan programs, like the Maryland Mortgage Program (MMP), require homebuyer education courses.

Recently, the Maryland Mortgage Program has made updates to their homebuyer education requirements to simplify and standardize the process. Effective for MMP reservations dated on or after October 1, 2018, the following will be implemented:

  • Homebuyer education may be taken online or in person, individually or with a group, as long as the class has been approved by HUD, Fannie Mae or Freddie Mac.
  • For Baltimore City and Baltimore County, the above flexibility will apply, but the homebuyer education must be completed prior to signing the sales contract.

The homebuying process is complex and if you are a first-time homebuyer (someone who has never owned a home, or has not owned a primary residence in the last 3 years) it can be a little confusing. This is why homebuyer education courses are so important. They help new homebuyers understand the process and what to anticipate as a homeowner. Below are some of the topics you can expect to learn about during your pre-purchase counseling.

  • Process of purchasing a home- You will be given an overview of the entire homebuying process, from application to closing, exploring each step more in-depth.
  • Budgeting- Buying a home will be one of the biggest purchases you will make, so knowing how to afford your mortgage and budget for extra expenses will be covered.
  • Shopping for a mortgage- Different types of home loans will be reviewed and what you will need for pre-approval. Your credit score, and ways to raise and improve it, will also be covered as a topic since this can help determine which type of mortgage and rate you qualify for.
  • How to maintain a home- Upkeep and regular maintenance of your home lowers the risk of major problems down the road; it is essential to know how to maintain your home and the budget you should keep for maintenance.

Even if you aren’t a first-time homebuyer, taking a homebuyer education course can be beneficial, since the mortgage industry is always changing and new programs are emerging. Additional one-on-one homebuyer counseling is available, and it is sometimes required, depending on the state/county you are purchasing in or loan program you are using. It’s better to have more information than not enough, especially when it comes to buying a home. Please reach out to any one of our loan officers if you have questions.

Wire Fraud on the Rise

E-mail hacking and wire fraud schemes are on the rise in the mortgage industry. In the past few years, homebuyers have been schemed into losing thousands of their hard-earned dollars, and unfortunately, a lot of that money has not been recovered.

So what exactly is wire fraud? It’s a crime in which a person (hacker) creates a scheme to defraud or steal money based on fabricated information. It is common for hackers to gain access to e-mail addresses, whether they are from a settlement agent, title company, realtor or mortgage lender, and impersonate them. The hacker will send an authentic looking e-mail to the borrower with a new set of wire instructions. These wire instructions route the money to a fraudulent bank account rather than the settlement agent’s account. Once the money is out of the borrower’s account, it is very difficult to trace where it was sent, making it tough to recover.

While this is a widespread problem, there are ways borrowers can prevent being schemed into wire fraud.

  • Carefully verify all e-mail addresses on every e-mail received and sent. Hackers will slightly adjust the appearance of an e-mail address to make it seem like an original copy. Even if the signature line and logos are exactly the same, pay attention to the actual e-mail address.
  • Always call the settlement agent to confirm the wire instructions before sending any money. Use a previously known or verified phone number.
  • Instead of wiring money, ask if a certified check or cashier’s check can be brought to closing.
  • If you receive an e-mail changing the wire instructions, call the settlement agent immediately! Wire instructions seldom change. Again, use a previously known or verified number. DO NOT use the phone number in the e-mail with the revised wire instructions, this could be a number directed to the hacker.
  • After wire instructions and have confirmed and money wired, call the settlement agent to confirm the money was received.
  • Instead of having wire instructions sent through e-mail, pick them up from the settlement agent’s office.

If you suspect you have been targeted for wire fraud or something seems out of the ordinary, don’t hesitate to reach out to your loan officer or settlement agent. Raising concern and asking a few extra questions is a lot better than losing thousands of dollars, and most likely losing the house you worked so hard to get.

Pre-Qualification vs. Pre-Approval

You’ve heard the terms pre-qualification and pre-approval, but what do they mean? They are the same thing, right? Not quite! The terms have been used interchangeably, but their true definitions differ. We’re going to break it down and explain the difference between the two.

Pre-qualification

The very first step to take if you are ready to start your new home search is to get pre-qualified. This is a no-cost, no-commitment, 10-20 minute analysis that will give you a great starting point for your new home loan. You can do this in-person or on the phone with a loan officer, or in most cases complete an online form. You will need to provide some basic information such as income, current monthly debts and credit score, but typically you won’t need to provide any documentation. By providing these items, your lender will be able to determine an estimate of your maximum monthly mortgage payment and how much you can borrow. These aren’t concrete numbers, more of a gauge so you know your price range.

Pre-approval

Once you have been pre-qualified, the next step would be to get pre-approved. This process is more involved, requiring more paperwork and the help of a loan officer. Documents you typically need to provide are copies of your paystubs, bank statements and tax returns; additional documents may be needed as well. The loan officer will also pull your credit report to get a better understanding of your credit history and financial situation. Once your information has been reviewed, your loan officer will provide you a pre-approval letter stating how much you are approved to borrow. Having a pre-approval letter can give you a competitive edge against other buyers; it shows the seller you are serious and ready to buy.

You should refrain from making large purchases and incurring new debt at this time, as this can affect your pre-approval amount. Keep in mind getting pre-approved does not mean final approval; once you put an offer on a home and the offer has been accepted, the loan will still need to go through processing and underwriting before final approval is granted.

Getting pre-approved will help speed up the home buying process since you will have a solid foundation of information. Once you are pre-approved, you are on your way to homeownership! Contact one of our loan officers to get started.

When to Consider a Renovation Loan

Sometimes you find a great house, but it needs a little bit of TLC. That is where a renovation loan comes in to the picture. A renovation loan, or 203(k), makes the process easier by allowing you to combine your renovation costs into your mortgage, helping you fund your home improvements. That means one loan and one closing, and a lot less stress on you!

There are a few different types of renovation loans offered that help fund minor repairs to major rehabilitation. Take a look at the overview below and decide which one will help you complete your dream home.

Standard 203(k) Mortgage Program: Use this program if you are looking to do large scale renovations, remodeling and repairs, and when a 203(k) consultant is required.

  • No maximum repair cost amount, minimum $5,000 in eligible improvements required.
  • Renovating/Remodeling: converting a 1-family structure to a 2-4 family structure, alterations such as repair or replacement of structural damage, constructing a garage, creating accessibility for persons with disabilities.
  • Repairs: fixing HVAC systems, decks, patios, porches, well and/or septic systems.
  • Energy conservation improvements: adding insulation, replacing windows and doors, install energy efficient lighting.
  • Landscaping.
  • May not be used for luxury items that do not become a permanent part of the property: swimming pools and hot tubs, bath houses, outdoor fireplaces, gazebos.
  • Minimum down payment of 3.5% for purchases, 2.25% for rate/term refinances.
  • Owner-occupied property only.

Limited 203k Mortgage Program: This program may only be used for minor remodeling and non-structural repairs. A 203(k) consultant is not required, but may be used for the project.

  • Maximum repair cost $35,000.
  • Improve house function and modernization: installing a new refrigerator, cooktop, oven, dishwasher, and/or washer/dryer, installing smoke detectors.
  • Connecting to public water and sewage systems.
  • Installing or repairing fences, walkways, and driveways, repairing old or damaged siding, gutters and downspouts.
  • May not be used for luxury items that do not become a permanent part of the property: swimming pools and hot tubs, bath houses, outdoor fireplaces, gazebos.
  • Repairs and improvements are completed in 6 months or less.
  • Minimum down payment of 3.5% for purchases, 2.25% for rate/term refinances.
  • Owner-occupied property only.

Fannie Mae HomeStyle® Renovation Mortgage: There are no required improvements or restrictions on the types of renovations allowed.

  • No minimum dollar amount required for improvements, however, a HUD-approved consultant must be used when repairs and renovations exceed $15,000.
  • May be used to complete final work on a newly built home when the home is at least 90% complete, remaining improvements must be related to completing non-structural items such as installation of buyer-selected items (flooring, cabinets, kitchen appliances, fixtures, and trim, etc.).
  • May not be used for complete tear-down and reconstruction.
  • May be used to construct outdoor buildings and structures such as swimming pools, garages, recreation rooms and accessory units.
  • Repairs and improvements are completed in 6 months or less.
  • Minimum down payment is dependent upon transaction type (3-25% required).

 

Already own your home but need to make some updates and repairs? We also offer renovation loans for refinances.

 

Contact a First Home Loan Officer in your area to discuss which option best fits your needs.

 

 

HomeStyle® is a registered trademark of Fannie Mae.

New Tax Laws of 2018

On Friday, December 22, 2017, President Trump signed the Tax Cuts and Jobs Act, designed to lower taxes and spur economic growth.  Most of these changes have already taken effect, starting on January 1, 2018.  Expecting to reduce taxes for individuals and businesses, this new tax reform bill will increase standard deduction, increase child credit tax among several other adjustments.

Mortgage Interest Deduction

The limit for mortgage interest deduction dropped from $1 million in housing debt to $750,000.  This is effective on homes purchased after 12/15/17.  Also allows the $1 million limit for refinancing an existing loan as long as the new loan is not greater than amount refinanced.

Standard Deduction

Increasing (nearly doubling) to $12,000 for individuals and $24,000 for couples filing jointly.  This increase means fewer people will have to itemize and more taxpayers will be able to take the standard deduction.  The standard deduction for taxpayers with few itemized deductions will exempt twice as much of their income from federal taxation.

State and Local Tax Deductions

New $10,000 deduction limit on state and local taxes, including income and property taxes.  Taxpayers can claim the aggregate of state and local property taxes capped at $10,000.  Interest can be deducted at $750,000 down from $1 million on the amount of mortgage obligation on new home purchases.

Home Equity Deduction

HELOC (Home Equity Line of Credit) was tax deductible when debt was incurred “for reasons other than to buy, build, or substantially improve your home.” This tax deduction has been removed.

Moving Expense Deduction

Certain moving expenses were tax deductible if starting a new job.  This is now limited to only active duty in the armed forces.

Increased Child Tax Credit

The Child Tax Credit is doubled from $1,000 per child to $2,000 with an amount that is refundable to $1400. Also, adding a nonrefundable credit of $500 for dependents other than children.  Income threshold raised from $110,000 for a married couple to $400,000.

*Please consult a tax advisor

 

Want to learn more? Contact a First Home Loan Officer, today!

What is Mortgage Insurance and Can I Cancel it?

What is mortgage insurance?

Mortgage insurance protects the lender in the event the borrower defaults on the loan. Defaults include failure to make payments because of death, medical bills and job loss. Mortgage insurance can be provided by a private mortgage insurance company (PMI) or by a government agency such as FHA or VA.

How can I benefit from mortgage insurance on government-backed loans?

The FHA provides borrowers with the opportunity to purchase their home with a smaller down payment and/or lower credit score (compared to conventional loans) in return for the borrower paying mortgage insurance.

How do I pay for private mortgage insurance? Can this be added into my mortgage payment?

Yes! There are different types of mortgage insurance that allow you to pay in different ways.

  • Monthly
    • No upfront premium
    • Versatile and maximum flexibility
    • May be canceled
    • Paid with monthly mortgage payment
  • Single
    • Premium paid upfront
    • Refundable and nonrefundable options
    • Paid by borrower, seller, builder or 3rd party
    • May be financed into loan amount
    • Portion may be refundable when cancelled
  • Split
    • Upfront premium combined with lower monthly renewal
    • Upfront premium may be paid by borrower, 3rd party or financed
    • May be cancelled
  • Lender-Paid
    • Paid by lender or 3rd party
    • Cost paid via higher interest rate and/or fees

I see that a few of these private mortgage insurance options offer the opportunity to cancel.  How and when can I cancel? 

You may ask your servicer to cancel the private mortgage insurance (PMI) once you have paid down the mortgage balance to 80% of the home’s original appraised value.  When the balance drops to 78%, the mortgage servicer is required to eliminate the PMI.

Also, insurance on the loan may be cancelled if a new appraisal is ordered through the servicer and demonstrates one of the following Loan-To-Value requirements:

  • A Loan-To-Original-Value ratio of 80% or less
  • A Loan-To-Current-Value ratio of 75% or less for loans ages between 2 and 5 years
  • A Loan-To-Current-Value ratio of 80% or less for loans aged greater than 5 years

If the age of the loan is less than 2 years, principal reduction payment must be made to bring unpaid principal balance down to 80% of the original property value.  In addition, a new appraisal must be ordered to verify the property has maintained its original value.

Additional requirements to cancel mortgage insurance:

  • The borrower submits a written cancellation request
  • The borrower has a good payment history
  • The borrower is current with payments
  • The borrower satisfies any requirement of the mortgage holder, such as:
    • Evidence that the value of the property has not declined below the original value
    • Certification that the borrower’s equity in the property is not subject to a subordinate lien

Want more information on mortgage insurance and how to cancel? Contact a First Home Mortgage loan officer today! Click Here

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