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Reasons not to do a 20 percent down payment

Reasons not to do a 20 percent down payment

When people are buying a house, one of the biggest issues they're likely to face is the time and difficulty involved in building a sizable down payment. After all, many lenders require down payments that can easily stretch into the tens of thousands of dollars, and in today's economy that can be difficult for anyone – let alone first-time buyers – to put together.

However, there is a common misconception that people have to have the ability to make down payments of 20 percent to qualify for a mortgage, and that's not at all the case, according to The Mortgage Reports. In fact, many mortgage types allow for significantly lower down payments than that, sometimes as low as 3 percent or so. Some loans – such as those obtained through the U.S. Department of Veterans Affairs, don't require a down payment at all.

What to watch for
There may be plenty of reasons for borrowers to avoid high down payments, though, the report said. These include the fact that any amount they put down is difficult, or sometimes impossible, to get back in the event of a financial emergency. That's money that's given to the bank and can't be tapped again in the event of, say, job loss or an accident.

Moreover, if the value of a home drops unexpectedly in a relatively short amount of time, the impact of having that much money tied up in a down payment can be significant and could inch them closer to delinquency and default if they don't have additional savings to help cover some of their costs.

Likewise, it's often a good idea for people to put low down payments on homes that are a little outside their preferred price range, because doing so will allow them to lock in the deal that gives them a home, but won't hamstring them when it comes to making the resulting higher monthly payments, according to Money Under 30. Along similar lines, if home values in the neighborhood where a first-timer is buying are rising quickly, a low down payment helps them start to build equity more quickly.

Dealing with fixer-uppers
Moreover, making smaller down payments on lower-priced homes in need of renovations or repairs can be a good idea as well, according to Fortune. That's because, for every dollar put into the down payment itself, that's a dollar that can't go into renovating a bathroom or gutting a kitchen to start from scratch.

It's worth noting, however, that while there can be benefits to buying with down payments of less than 20 percent, there can also be drawbacks, such as higher mortgage rates and other requirements that can make the price of borrowing like this more significant than some might expect. That's in addition to the extra loan principal that comes with a low down payment.

As a consequence, borrowers should always talk to their financial professionals and real estate agents about the issues they face thanks to their unique situations, and find a solution that will help them realize their dreams of homeownership while maintaining a strong financial position.

For more information about this article, call 866-614-5959.

Good credit leads to better mortgage deals

Good credit leads to better mortgage deals

When people are getting into the housing market for the first time, they likely have a pretty good idea of the ways in which certain aspects of their finances impact their ability to get approval on a mortgage application. However, they may not fully understand how much their credit scores not only affect the up-or-down decision on whether they get approved, but also dictate how affordable their mortgage deals end up being over the lives of those loans.

Simply put, a credit score is a numerical way for lenders to assess how likely a person is to pay back a loan amount, according to NerdWallet. Those who have good histories of keeping debts down, paying their bills on time and generally managing credit responsibly will have higher scores. In a lot of cases, it's wise for people to only seek a mortgage if their score is at least 700, which is the level many lenders consider to be the floor of "good" credit.

"If somebody has a high credit score, what that shows us is that they've been good on meeting their obligations, whether it be credit cards, car loans or other home loans in the past," Brian Hoovler, a loan production partner with a lender in San Francisco, told the site. "It means we're more likely to want to give you a loan, because we know you're going to pay us back."

A look at the impact
Of course, even having good credit might not be enough to get the best possible home loan deal, according to Bankrate. Generally speaking, the higher an applicant's credit score is, the lower their borrowing costs – usually through the interest rates they pay on their loan balances – will be. For instance, a person with a credit score of, say, 710, might be given a mortgage rate of 4.5 percent, whereas someone whose score is north of 750 would potentially be able to get rates as low as 4 percent.

And while that might not seem like a sizable disparity, over the course of a 30-year home loan, the savings can really add up – to tens of thousands of dollars over the life of that loan, the report said.

The reason lenders are willing to cut borrowers with stronger credit scores those kinds of deals is simple: When they view people as being less risky investments, they don't have as much of a financial incentive to reduce their risk with higher borrowing costs.

What's needed?
It's important for people to keep in mind that their credit scores can range anywhere from 300 to 850, but lenders mostly start loosening the purse strings for would-be borrowers in the high 600s at the very least, according to CNBC. However, to ensure they are both approved quickly and easily and gain access to the best possible rates, mortgage applicants should strive to push their scores north of 750.

Working with a real estate agent or finance professional will help first-time buyers get a better understanding of what they need to do to find reasonable mortgage deals based on their unique financial situations.

For more information about this article, call 866-614-5959.

Building a solid down payment

Building a solid down payment

Perhaps the most daunting part of buying a home is the long, often difficult process of saving potentially tens of thousands of dollars for a down payment. For most households – even those with multiple sources of income – this isn't always easy in today's economy.

However, there are a few ways in which experts say would-be buyers can potentially make that process go a little more quickly and smoothly, so heeding that advice ahead of getting into the housing market is always a good idea, according to Trulia. To that end, it's important for first-timers in particular to think about the time frame in which they want to buy and how realistic that is given their unique financial situations.

If, for example, a young couple with plenty of student loan debt wants to be able to buy a home within a year, they need to consider how much they have in savings already and what they need to sock away to meet their goals, the report said. Often, young people aren't going to be financially capable of setting aside thousands of dollars per month, but determining exactly what's needed – and what's realistic – will only take a little math and consideration.

Where to begin
While young adults may have student loan balances too large to reasonably pay down within a year or two (considering most people now graduate college with tens of thousands of dollars in debt), that may not be the case for other accounts, according to Bankrate. If they have any credit card balances outstanding, would-be homebuyers would be wise to first devote their money toward reducing or entirely eliminating them. This not only reduces the amount of money they have to contribute to something other than savings each month going forward, but also improves their debt-to-income ratios – an important component of the mortgage application process.

As with any other reason for paying down credit card bills, experts recommend tackling the balances that carry the highest interest rates – and therefore accrue additional debt fastest – first, rather than the cards that have the largest balances.

What else to consider
Furthermore, buyers need to think about what kinds of mortgages they will seek, as these can carry widely varying down payment requirements, according to NerdWallet. Some lenders, for instance, may require borrowers to make down payments of 20 percent – which even on a median-priced home can mean buyers have to have more than $50,000 in savings – while other loan types might only require consumers to provide about 3 percent of the loan amount – less than $10,000 in many cases – as a down payment.

That's obviously a big difference, but people need to keep in mind what that difference would mean. For instance, loans with lower down payment requirements will typically come with higher costs elsewhere, such as through mortgage insurance, higher rates and so on.

For all these reasons, it's important for first-timers to work with financial and real estate professionals throughout the buying process to make sure they are getting everything right based on their own unique needs.

For more information about this article, call 866-614-5959.

Where are millennials purchasing homes?

Where are millennials purchasing homes?

Millennials today make up a large and seemingly growing share of the mortgage market, as more young adults gain the financial power to make a home purchase. While there are significant forces at work that could continually impact their abilities to make a home purchase, they are nonetheless not being dissuaded from their goals, but have had to become more adaptable.

Today, millennials seem to be shying away from more expensive, busier housing markets and focusing on secondary large metro areas instead, according to the latest data from LendingTree. In February, the three cities where millennials made up the largest share of people submitting purchase mortgage applications were Des Moines, Iowa; Pittsburgh and Buffalo, respectively. In each of these metro regions, adults under the age of 35 made up at least 40.5 percent of the purchase loan market, versus just 32.5 percent for the country as a whole.

Market issues
In addition, all of those major cities saw average purchase prices on those mortgage applications range from less than $114,100 in Buffalo to less than $141,800 in Des Moines, highlighting another issue many millennial homebuyers face, the report said. In general, young adults aren't targeting expensive homes, especially as mortgage rates and prices continue to rise.

On a national basis, the prices young adults may be willing or able to pay could be declining, according to the latest Ellie Mae Millennial Tracker. In April – the latest month for which data is available – the average loan amount sought on purchase mortgages slipped to less than $188,200, down from more than $192,000 just a month earlier.

This came as the average mortgage rate granted to those borrowers increased sharply to 4.73 percent, up 10 basis points from March and the highest level observed since the tracker was launched in January 2014. This despite the fact that the average credit score carried by these borrowers hovered above 720.

What's the impediment?
Millennials may not have the ability to be as flexible about buying more expensive homes because of the financial pressures they have largely faced as a demographic group, according to financial advice site DaveRamsey.com. Most likely have tens of thousands of dollars in outstanding student loan debt, as well as other financial obligations, and this is often cited as the biggest hurdle for young adults to be able to adequately build a sizable down payment.

At the same time, many of today's young adults may have relatively little take-home pay in comparison with previous generations which, when paired with high debt loads, can further depress a young adult's ability to save the tens of thousands of dollars often required to make a down payment.

When millennials are thinking of buying a home, they need to be realistic about what they will be able to afford and search for properties in markets where they will be comfortable both financially and in their lives generally. Working with experienced lending and real estate professionals could help them elucidate what they need to do to adequately prepare for the homebuying process.

For more information about this article, call 866-614-5959.

How to keep bills down

How to keep bills down

When buying a home – especially for the first time – many people might have the need and desire to save money on their monthly costs. The good news is that there are plenty of ways to do so without making significant life changes, and all it might take is for homeowners to do a bit of research and find some options that will work well for their needs and routines.

One of the simplest changes for many homeowners is to swap out their lightbulbs for the more energy-efficient models now widely available, according to Family Handyman. New compact fluorescent lightbulbs last for 10,000 hours and use about 75 percent less power over their lives than traditional bulbs. In addition, light switches that are on motion sensors will help ensure bulbs come on only when someone is in the room could save homeowners at least $100 a year.

Other ways to save on costs
New homeowners with older central air conditioning units can ask the previous occupant about the last time the AC was serviced, the report said. If it was a while ago, a quick tune-up could make the system work better and far less energy in cooling a home at this time of year. Furthermore, an energy audit of a home in general could help them identify areas where they can potentially save money.

Along similar lines, making sure all lint is cleaned out of a dryer's trap or exhaust will make that appliance operate a lot more efficiently, the site advised. Experts note that a clogged or even dirty lint screen can make a dryer as much as 30 percent less efficient. Likewise, performing routine maintenance checks on various other appliances throughout a home may help homeowners keep everything in good working order and keep their energy costs down.

Attacking bigger expenses
While many people will certainly see their energy bills go up when they move from an apartment into a house, that's probably not the biggest driver of their monthly expenses, according to The Simple Dollar. While every bit certainly helps, it might be wiser for homeowners to do more to cut their monthly contributions to debt by more aggressively paying down their highest-interest accounts first.

In addition, finding ways to refinance existing financing – such as an auto loan – will likely also pay off in terms of reducing monthly and long-term costs, the site said. 

Along similar lines, taking steps such as getting rid of cable or other monthly subscriptions that might not be used often can also help new homeowners save hundreds of dollars or more each year, the report said.

Furthermore, homeowners might now need to think about putting money away in rainy-day funds, according to HGTV. After all, they're likely to incur far more maintenance costs than they're used to paying, and being able to budget for those expenses so any issues faced can be dealt with expediently is crucial to living comfortably.

Homeowners should always be proactive about looking for methods to save money, and talking with a financial professional may help them find ways they can do so quickly and easily.

For more information about this article, call 866-614-5959.

Reduce debt to boost down payment savings

Reduce debt to boost down payment savings

Many people who may want to buy a home in today's market might not have the opportunity to do so because they have significant existing debt burdens that can imperil their credit and hurt their ability to build their savings. As a consequence, those with dreams of homeownership would benefit from having a strategy for reducing debt so they can better boost their ability to make a sizable down payment.

Perhaps the most important step to start saving more money is to pay off the debts that add up fastest, according to USA Today. With this in mind, it's wise for consumers to figure out which credit cards or other accounts have the highest interest rates and start devoting more time toward reducing those balances first. Future homeowners can start by paying the bare minimum on other accounts and devoting additional funds toward paying down the highest-interest accounts because under federal law, every cent contributed above the minimum on a credit card bill goes toward reducing the balance. 

Furthermore, it's also vital for consumers to stop using the accounts they're trying to pay down, the report said. In addition, some lenders whose cards allow consumers to accrue points or cash back will allow borrowers to contribute those accrued benefits toward their balances, rather than cashing out in other ways.

Where to begin
While "the account with the highest interest rate" is always a good jumping-off point, issues may arise when consumers have a few accounts that have interest rates in the same range, according to Financial Finesse in an article for Forbes. Any balances with rates over 7 percent are the ones to target first, but those with lower rates – such as auto loans – probably shouldn't be as significant of priorities.

When those balances are reduced to zero, more money can go into paying down other obligations with lower interest rates, the report said. After all, accounts with large balances and sky-high rates add up quickly and also typically require somewhat sizable minimum monthly payments. When those debts go away, prospective homebuyers could have hundreds of additional dollars that can go toward paying down the next-highest balance and so on until all accounts are paid down to zero (but not closed out, as doing so can negatively affect a borrower's credit score).

Other strategies
Meanwhile, it's probably wise to reduce discretionary spending as much as possible as a means of freeing up even more money that can go toward debt reduction, according to Leisurely Does It. Even an additional $50 per month can help reduce debt that much more quickly, and once future homeowners take care of those balances, they can contribute potentially hundreds of dollars per month toward their down payment savings.

It might be wise for homebuying hopefuls to talk to a financial or real estate professional about options when it comes to finding an affordable mortgage, and what they can do to improve the quality of their applications. When consumers have higher credit scores and larger down payments, they're not only more likely to be approved, but also to get a better deal.

For more information about this article, call 866-614-5959.

Ways to improve a bid on a new home

Ways to improve a bid on a new home

When even the most qualified homebuyer is shopping for a property, they're likely to encounter some resistance among sellers simply because most houses now earn multiple bids. To that end, it's important for would-be buyers to make sure they not only know what their initial bid is going to be, but also how to improve that bid when there's interest from other shoppers as well.

Obviously the simplest way for shoppers to improve their offers in a multiple-bid situation is to offer more money, but that's not going to be feasible for every person just on the basis of current and long-term affordability, according to Realtor.com. However, if a higher bid isn't always feasible, owners might be enticed to accept a new bid with buyers opting to put more money into escrow, which can help show how serious they are about buying the property.

Other changes to make
Another way to improve a bid financially without increasing its dollar value is to come to the table with mortgage pre-approval, Realtor.com advised. This is something buyers should be doing anyway simply as a means of expediting the mortgage and sales processes, but it can also give them an edge on the competition.

"Whether you are planning to take out a mortgage or pay all cash, you can stand out from other offers if you show you are a serious buyer by proving you have the funds to buy the home," real estate agent Andrew Sandholm told the site.

In addition, buyers can say they're willing to buy a home "as is" instead of increasing the size of a bid, the report said. While this isn't necessarily advisable with older homes, choosing to forego repairs that sellers would have otherwise made, or going without a home inspection, could help sweeten the deal and make sellers more motivated.

Tips and tricks
Meanwhile, buyers can build "escalation clauses" into their bids, meaning they're making the initial bid they want to, but sellers are authorized to automatically increase that amount if other bids come in and beat the initial number, according to MoneyTips. This, too, makes mortgage pre-approval valuable because buyers will know exactly how much their lenders will allow them to spend on a bid, so they can set their initial offers anywhere below that level and allow for escalation up to the maximum.

Finally, a relatively new trend in bidding is for would-be buyers to write letters to current owners explaining how much the home would mean to them if they were to have their bids selected, according to Redfin. Interestingly, some bidders have been known to write letters so good that owners accept their offers despite the fact that it wasn't as much money as other shoppers would have paid.

As with many other things in the homebuying process, it's important for shoppers to keep the lines of communication with their agents open, and seek advice on a regular basis. These professionals can typically provide critical insight that helps them find the home they're looking for without going over budget.

For more information about this article, call 866-614-5959.

What costs to anticipate in the first year of homeownership

What costs to anticipate in the first year of homeownership

When people buy homes for the first time, they typically do so with the expectation that their costs will drop. And while this may be true when it comes to issues like the cost of rent versus that of paying down a mortgage, there may also be plenty of unexpected expenses to face if they're not adequately prepared by a real estate professional.

For instance, if people move into an existing home that comes with its own appliances, they may have a need – or desire – to replace or repair those units at some point in the first year of homeownership, according to Money Ning. This can cost hundreds of dollars or more and may be necessary in a lot of cases, but nonetheless it is important for new buyers to think about whether this is something they might have to do, as early as the start of the homebuying process. Most appliances have a lifespan of between 10 and 20 years, so taking stock of that potential need during a sale is critical.

Other expenses to consider
Meanwhile, many owners will also be moving from smaller homes or even apartments into good-sized houses that will necessarily require more furniture, the report said. Often, furniture can be expensive if it's being bought new, but even going online and finding items on Craigslist or similar sites could end up resulting in hundreds of dollars in expenses. And while these may be necessary for a home to feel truly "lived in," it's nonetheless something new owners will have to budget for.

Paying more for common expenses
Meanwhile, many homeowners may not always think about the ways in which a larger home will often result in them paying a lot more for utilities, according to Quicken. Adding potentially hundreds of dollars per month for heating and electrical costs is not out of the norm, and it's definitely something owners will have to budget for/

The same is true of homeowners insurance, which can cost thousands of dollars per year based on a number of factors, the report said. While many people who previously only rented have renters' insurance that costs relatively little each month, homeowners insurance necessarily has to cost a lot more, and for those moving into homes that may be at particular risk for damage, the expense can mount quickly.

Adding everything up together, even beyond mortgage costs, the average homeowner might expect to pay as much as $1,200 per month for all of these expenses, according to Go Banking Rates. Property taxes, homeowners association fees, private mortgage insurance and general home repair and maintenance are some of the other common expenses that people who didn't previously own will suddenly have to pay. While these are by no means hard and fast numbers, they are certainly in the ballpark of what owners will face.

With all this in mind, it's vital for would-be buyers to really think about exactly how much home they can afford as they begin the shopping process, because there's a lot more than just mortgage costs that go into homeownership.

For more information about this article, call 866-614-5959.