How Much Does a Home Appraisal Cost? – Redfin

Congratulations, you’ve found a home that you’re ready to buy. From the days of saving for a down payment, searching the housing market for your dream home, homeownership is almost in sight. So whether you’re a seasoned homebuyer or a first-time homebuyer, you’ll need to plan for a home appraisal before you can get final approval for your mortgage. 

You may be wondering just what is a home appraisal and how much does a home appraisal cost? Before heading into the final steps of the homebuying process, find out about the different types of home appraisals and what factors can change the price of a home appraisal.

home-appraisal-cost

home-appraisal-cost

What is a home appraisal? 

A home appraisal is a prerequisite for most mortgages, whether you’re living in Houston, TX or looking to buy a house in Philadelphia, PA. It determines a home’s value and your lender will use the house appraisal to generate an appraisal report. The report helps lenders decide an appropriate amount to lend to a potential homebuyer to purchase that property. State-certified professionals conduct appraisals to safeguard both buyers and lenders against inflated property valuations.

Who chooses the home appraiser? 

Your mortgage lender will often recommend from a list of preferred appraisers, chosen for their track records as reliable, high-integrity professionals. As the buyer you’ll have to pay the appraisal cost, which usually is a fee added to your closing costs. However, your lender should inform you how much the appraisal will cost when you begin the pre-qualification process, so you’ll know just what to expect.

How much does a home appraisal cost? 

A typical home appraisal can range from $200 to $450. However, the cost of your home appraisal will depend on the type of appraisal you need. Here are the four types of home appraisals you might run across:

1) Uniform Residential Appraisal Report (URAR)

This is the most common type of home appraisal out there and lenders typically require a URAR before approving your mortgage.

During a URAR, a trained and certified appraiser carefully reviews both the home’s interior and exterior. The home appraisal process takes two to four hours — and costs between $300 and $400. At the end of the evaluation, the appraiser will give you a detailed report breaking down your home’s value. This is the most extensive, and therefore most expensive, type of home appraisal.

Note: The remaining three types of appraisals are generally not considered sufficient to obtain a conventional loan, but there are reasons why you may want one of these appraisals.

2) Restricted-Use, Short-form Report, or Drive-by Appraisal: 

As you might expect, this type of appraisal provides less information than other types. Therefore, this home appraisal cost is generally less expensive, around $100 to $150. However, lenders generally do not accept this type of appraisal for mortgage approval. More likely, homeowners and real estate agents may use it to help determine a home’s listing price. For this type of house appraisal, a trained and certified appraiser evaluates only the outside of the house and relies on the owner to provide information about the home’s condition and other details inside. 

3) Comparative Market Analysis (CMA): 

Real estate agents use a CMA to value a home, considering factors like nearby home values, ratings for school districts, and the home’s general condition for their analysis. CMAs provide a reasonable estimate for a home’s value when setting a listing price. While this report is more likely used as a tool for sellers rather than buyers, you can always ask your real estate agent for a CMA if you’re looking to buy. It’s important to note that lenders do not consider a CMA as a valid appraisal to determine loan value. 

4) Online appraisals: 

Numerous online sites offer home appraisals directly to buyers who want to know how much their house is worth. An online home appraisal can be free or have some cost depending on how much information you request. Lenders do not accept this type of home appraisal as a valid appraisal. 

home-with-land

Factors that affect home appraisal cost

Before you have a home appraised, know the four important factors that can affect the cost of your home appraisal. 

Type of property

The type of property you plan to buy will influence the cost of your home appraisal. For example, an appraisal for a two-bedroom home will be less expensive than one with multiple bedrooms, a finished basement, and an attic. Additionally, if you plan to set up your home as a rental property to generate income, the appraiser will require a rent survey and an income statement, which may increase the cost.

The home’s value

The general value of the home affects the cost of the appraisal. As a rule of thumb, the larger the home, the more expensive the appraisal. A larger home will take more time to evaluate and results in a more extensive report. As a general reference point, properties priced at or less than $500,000 will typically result in an appraisal cost at the lower end of the range.

The home’s location 

How far does the appraiser need to travel to conduct the appraisal? Driving times and mileage are all accounted for these days, so you should expect to pay more for your home appraisal if the house is located out of town.

Type of mortgage you’re applying for

Depending on the type of mortgage you’ve applied for, it may result in a more costly home appraisal. For example, mortgages that involve a federal agency, such as the Federal Housing Administration (FHA), require an appraisal to include additional safety inspections, resulting in a higher cost. 

If you plan on getting a mortgage loan to purchase your new home, getting an appraisal will most likely be a non-negotiable requirement from your lender. Make sure to ask your lender ahead of time what to expect for the home appraisal cost, so you can be sure to set aside that amount to be paid as part of the home closing process. The more prepared you are throughout your homebuying journey, the more likely you’ll find yourself at ease and ready to become a homeowner.

Source: redfin.com

How to Refinance Your Mortgage with Bad Credit

Refinancing your mortgage can provide you with a lot of financial benefits. You can cash out on some of your home’s equity when you need a large sum of money.

signing refinance papers

You can also take advantage of lower interest rates to save on your monthly payments. It’s also possible to get rid of your private mortgage insurance if you have enough equity in your home.

If your credit has taken a dive since you first bought your house, it may be difficult to refinance. After all, you’ll essentially be taking out a new home loan and will have to go through the entire application process with a mortgage lender.

However, you’re not left without any options. Learn how to make sure refinancing is the right move for you and how you can refinance your mortgage with bad credit.

Make Sure Refinancing Makes Financial Sense

Before applying to refinance your house, analyze the total cost of the transaction to ensure it’s the right move.

Yes, you might save money on your monthly mortgage payments with a lower interest rate, but remember that you also have to pay closing costs and other fees to get a new loan.

Refinancing Usually Extends Your Loan Term

Also, consider that your newly refinanced loan usually extends the length of your loan back to 30 years, regardless of how long you have been paying down your current loan. That means it will take longer to pay off your house and you’ll also be paying that interest for longer.

If you’ve been paying on your home for 10 years, that’s a long time to add back onto your mortgage, especially while making additional interest payments. Before you refinance, make sure you consider all of the financial implications, not just your new monthly mortgage payment.

Your lender can help you estimate what expenses you’re likely to incur so have an in-depth conversation before making a decision.

Refinance a Mortgage with Bad Credit

Credit scores and interest rates go hand in hand. As with all loans, a higher credit score results in lower interest rates, saving you money every month. This really adds up on mortgages because you’re paying the loan off for so long. And even if you don’t have excellent credit, you still might be able to get approved for a home loan.

Shop Around

Start off by shopping around for lenders. You’re under no obligation to use the same lender as your initial mortgage, and it’s good to compare several offers.

Refinanced home loans can be structured in any number of ways and some may work for you better than others. For example, you might want to roll closing costs into the loan rather than paying them in cash up front.

Mortgage Points

If you plan on staying in your home for a long time, it may be worth paying an extra point at closing in order to get a better interest rate. Think about what your goals are in refinancing and talk to each lender about the different ways you can achieve them.

A good lender can also help you prepare to get approved for a mortgage refinance, even with lower credit scores. If you can, demonstrate that you have strong cash reserves by putting extra money in the bank.

You’re more likely to be approved for a loan if you have money on hand that is accessible because it shows that you’ll be able to pay for your loan even if your monthly budget is tight at times.

Pay Off Debt

Another helpful move is to strategically pay down some of your debt. Although each lender’s exact requirements vary, most like to see a debt to income ratio of less than 41%.

That means the number of recurring debt payments you make each month (like your new mortgage, your credit card minimums, and any personal loans), should only take up 41% of your monthly pre-tax income.

For example, let’s say your monthly income amounts to $5,000 before taxes and health insurance are taken out, and you pay $2,000 a month on credit cards and a car loan.

Divide 2,000 by 5,000 and you’ll get 0.4. Multiply that by 100 to find the percentage of your debt to income. In this case, it’s 40%, which is less than most lender’s required minimum.

To strengthen your application, consider making a few extra payments to lower your debt amount even more. It may take a few months for those numbers to be reflected on your credit report, so ask your lender to perform a rapid rescore if you’re in a hurry.

Getting a Co-signer

If a bad credit score is still holding you back from refinancing a mortgage, you also have the option of adding a co-signer to the loan.

This basically means that someone else with better credit can help get you approved without having to be an owner of the property title. They’ll be responsible for the loan until they’re removed, which can only be done through another refinance or selling the home.

The catch with having a co-signer is that they are also financially responsible for paying the mortgage. So if for some reason you can’t make the payments, your co-signer’s credit will also suffer — even if the loan gets all the way to foreclosure.

You definitely want a strong and trusting relationship with a co-signer and talk about what would happen in a worst-case scenario. Would the co-signer help make payments or be ok with having their credit diminished? Have an honest conversation to make sure you’re both comfortable with every possible scenario.

Required Documents

Once you’re ready to apply, you’ll need to supply the lender with similar documentation as you did when you first applied for a mortgage. This could include pay stubs, tax returns, and bank statements so they can determine your ability to repay the loan.

Another important part of the process if the home appraisal where a professional appraiser comes to your house and assesses its current value.

You’ll need to have at least 20% of the home’s value paid off, whether through mortgage payments or equity earned. So if your outstanding loan is $150,000 and the appraised value of the home is $200,000, you have 25% equity in your home and the appraisal should be good to go.

Federal Refinancing Programs

If you can’t get approved to refinance through a traditional lender, check to see if you qualify for one of these government-sponsored programs.

These options for refinancing a mortgage are specifically aimed to help people with bad credit. Each mortgage refinance option has different requirements, so read carefully before proceeding. If you qualify, you might be able to take advantage of significant savings.

Harp 2

This program is specially designed to benefit homeowners whose mortgage is greater than the value of the home, so there are no restrictions on the loan-to-value. However, you do have to meet some basic qualifications to take advantage of this program.

First, your loan has to be owned by Fannie Mae or Freddie Mac and must have been delivered to one of those entities by June 1, 2009. FHA loans don’t qualify and you can’t have already refinanced using Making Home Affordable Refinance Program (Harp 2’s predecessor).

FHA Rate and Term Refinance

If you already have an FHA mortgage, you may be able to qualify for an FHA Rate and Term Refinance. This option allows you to change the terms of your current FHA mortgage and replace them with more favorable terms. The minimum credit score to qualify is 580.

FHA Streamline Refinance Loans

If your current mortgage is not an FHA loan, you may be able to refinance your mortgage with an FHA Streamline Refinance. The minimum credit score is also 580. An FHA streamline refinance can help lower your interest rate, and you sometimes can get approved without having an appraisal performed, so it’s a speedy process.

FHA Cash-Out Refinance Loans

You can also do an FHA cash-out refinance have a minimum credit score of at least 620. The cash-out refinance allows homeowners with equity in their house to receive a lump sum of cash by increasing the principal mortgage amount (and, consequently, monthly payments).

VA Interest Rate Reduction Refinance Loan (VA IRRRL)

If you have an existing home loan backed by the U.S. Department of Veterans Affairs and you want to reduce your monthly mortgage payments, an interest rate reduction refinance loan (IRRRL) may be a good option for you. You can also move from a loan with an adjustable or variable interest rate.

Basically, a VA Interest Rate Reduction Loan lets you replace your current loan with a new one under different terms.

Improve Your Credit Score Before Refinancing

Whether your application to refinance was denied or you want to qualify for even lower interest rates, sometimes it’s worth taking the time to raise your credit score. Start by paying all of your monthly bills on time and in full. If you do that for long enough, you’ll start to see your credit score go up steadily.

You can also increase your credit card limit — as long as you don’t spend extra, you can quickly bump up your credit score.

Hire a Credit Repair Company

For people with a lot of negative items on their credit reports, a credit repair agency may be helpful in disputing those items and getting them removed altogether. Check out our reviews of the leading credit repair companies.

Credit scores are often categorized into five different ranges, from bad to excellent. If you can increase your credit score enough to boost yourself into the next category, you could automatically qualify for better refinance rates.

Don’t give up on your goal of refinancing your mortgage. There’s always room for improvement which means there’s always a way to get a better rate — even if it takes a bit of time.

Source: crediful.com

How Much Does a Home Appraisal Cost?

Congratulations, you’ve found a home that you’re ready to buy. From the days of saving for a down payment, searching the housing market for your dream home, homeownership is almost in sight. So whether you’re a seasoned homebuyer or a first-time homebuyer, you’ll need to plan for a home appraisal before you can get final approval for your mortgage. 

You may be wondering just what is a home appraisal and how much does a home appraisal cost? Before heading into the final steps of the homebuying process, find out about the different types of home appraisals and what factors can change the price of a home appraisal.

home-appraisal-cost

home-appraisal-cost

What is a home appraisal? 

A home appraisal is a prerequisite for most mortgages, whether you’re living in Houston, TX or looking to buy a house in Philadelphia, PA. It determines a home’s value and your lender will use the house appraisal to generate an appraisal report. The report helps lenders decide an appropriate amount to lend to a potential homebuyer to purchase that property. State-certified professionals conduct appraisals to safeguard both buyers and lenders against inflated property valuations.

Who chooses the home appraiser? 

Your mortgage lender will often recommend from a list of preferred appraisers, chosen for their track records as reliable, high-integrity professionals. As the buyer you’ll have to pay the appraisal cost, which usually is a fee added to your closing costs. However, your lender should inform you how much the appraisal will cost when you begin the pre-qualification process, so you’ll know just what to expect.

How much does a home appraisal cost? 

A typical home appraisal can range from $200 to $450. However, the cost of your home appraisal will depend on the type of appraisal you need. Here are the four types of home appraisals you might run across:

1) Uniform Residential Appraisal Report (URAR)

This is the most common type of home appraisal out there and lenders typically require a URAR before approving your mortgage.

During a URAR, a trained and certified appraiser carefully reviews both the home’s interior and exterior. The home appraisal process takes two to four hours — and costs between $300 and $400. At the end of the evaluation, the appraiser will give you a detailed report breaking down your home’s value. This is the most extensive, and therefore most expensive, type of home appraisal.

Note: The remaining three types of appraisals are generally not considered sufficient to obtain a conventional loan, but there are reasons why you may want one of these appraisals.

2) Restricted-Use, Short-form Report, or Drive-by Appraisal: 

As you might expect, this type of appraisal provides less information than other types. Therefore, this home appraisal cost is generally less expensive, around $100 to $150. However, lenders generally do not accept this type of appraisal for mortgage approval. More likely, homeowners and real estate agents may use it to help determine a home’s listing price. For this type of house appraisal, a trained and certified appraiser evaluates only the outside of the house and relies on the owner to provide information about the home’s condition and other details inside. 

3) Comparative Market Analysis (CMA): 

Real estate agents use a CMA to value a home, considering factors like nearby home values, ratings for school districts, and the home’s general condition for their analysis. CMAs provide a reasonable estimate for a home’s value when setting a listing price. While this report is more likely used as a tool for sellers rather than buyers, you can always ask your real estate agent for a CMA if you’re looking to buy. It’s important to note that lenders do not consider a CMA as a valid appraisal to determine loan value. 

4) Online appraisals: 

Numerous online sites offer home appraisals directly to buyers who want to know how much their house is worth. An online home appraisal can be free or have some cost depending on how much information you request. Lenders do not accept this type of home appraisal as a valid appraisal. 

home-with-land

Factors that affect home appraisal cost

Before you have a home appraised, know the four important factors that can affect the cost of your home appraisal. 

Type of property

The type of property you plan to buy will influence the cost of your home appraisal. For example, an appraisal for a two-bedroom home will be less expensive than one with multiple bedrooms, a finished basement, and an attic. Additionally, if you plan to set up your home as a rental property to generate income, the appraiser will require a rent survey and an income statement, which may increase the cost.

The home’s value

The general value of the home affects the cost of the appraisal. As a rule of thumb, the larger the home, the more expensive the appraisal. A larger home will take more time to evaluate and results in a more extensive report. As a general reference point, properties priced at or less than $500,000 will typically result in an appraisal cost at the lower end of the range.

The home’s location 

How far does the appraiser need to travel to conduct the appraisal? Driving times and mileage are all accounted for these days, so you should expect to pay more for your home appraisal if the house is located out of town.

Type of mortgage you’re applying for

Depending on the type of mortgage you’ve applied for, it may result in a more costly home appraisal. For example, mortgages that involve a federal agency, such as the Federal Housing Administration (FHA), require an appraisal to include additional safety inspections, resulting in a higher cost. 

If you plan on getting a mortgage loan to purchase your new home, getting an appraisal will most likely be a non-negotiable requirement from your lender. Make sure to ask your lender ahead of time what to expect for the home appraisal cost, so you can be sure to set aside that amount to be paid as part of the home closing process. The more prepared you are throughout your homebuying journey, the more likely you’ll find yourself at ease and ready to become a homeowner.

Source: redfin.com

What is mortgage loan modification, and is it a good idea?

Trouble paying your mortgage? You have options

You might be wondering about mortgage loan modification if you’re:

  • Experiencing financial hardship due to the coronavirus
  • Having trouble making your monthly mortgage payments
  • Currently in mortgage forbearance but worried about what will happen when forbearance ends

The good news is, help is available. But mortgage relief options are not one-size-fits-all.

Depending on your circumstances, you might be eligible for a loan modification. Or, you might be able to pursue another avenue like a refinance. Here’s what you should know about your options.

Check your refinance eligibility (Feb 17th, 2021)


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What is loan modification?

Loan modification is when a lender agrees to alter the terms of a homeowner’s mortgage to help them avoid default and keep their house during times of financial hardship.

The goal of a mortgage loan modification is to reduce the borrower’s payments so they can afford their loan month-to-month. This is typically done by lowering the mortgage rate or extending the loan’s repayment term.

“A mortgage loan modification does not replace your existing home loan or your lender,” explains Karen Condor, a finance and insurance expert with Loans.org.

“However, it restructures your loan in the interest of making it more manageable when you experience difficulties in making your mortgage payments.”

How mortgage loan modification works

With a loan modification, the total principal amount you owe won’t change.

“But the lender may agree to a lower interest rate, reduced loan length, or a longer payoff period,” says Elizabeth Whitman, attorney and managing member of Whitman Legal Solutions, LLC.

Any of these strategies could help reduce your monthly mortgage payments and/or the total amount of interest you pay in the long run.

Modification can also include switching from an adjustable-rate mortgage to a fixed-rate mortgage and rolling late fees into your principal, adds Condor.

Note, loan modification is intended to make a mortgage more affordable month-to-month. But it often involves extending the loan term or adding missed payments back into the loan — which may increase the total amount of interest paid.

Refinancing into a new loan, on the other hand, often reduces the monthly payment and the total interest cost.

Loan modification vs. refinance

A refinance is typically the first plan of action for homeowners who need a lower mortgage payment.

Refinancing can replace your original loan with a new one that has a lower interest rate and/or a longer term. This may offer a permanent reduction in mortgage loan payments without negatively affecting your credit.

However, borrowers going through financial hardship might not be able to refinance.

They may have trouble qualifying for the new loan due to a reduced income, lower credit score, or unexpected debts (such as medical expenses).

In these cases, the homeowner might be eligible for a mortgage loan modification.

Loan modification is usually reserved for homeowners who are not eligible to refinance due to a financial hardship.

Mortgage modification is usually reserved for borrowers who do not qualify for a refinance and have exhausted other possible mortgage relief options.

“With a loan modification, you work with your existing bank or lender on modifying the terms of your existing mortgage,” explains David Merritt, a consumer finance litigation attorney with Bernkopf Goodman, LLP.

“If you’ve defaulted on your existing mortgage, chances are your credit has been negatively impacted to the point where a new lender would be wary to give you a new loan.”

“Typically a refinance is not possible in this situation,” says Merritt.

That means there’s no real contest between loan modification vs. refinancing. The right option for you will depend on the status of your current loan, your personal finances, and what your mortgage lender agrees to.

Check your refinance eligibility (Feb 17th, 2021)

Loan modification vs. forbearance

Forbearance is another way servicers can help borrowers during times of financial stress.

Loan forbearance is a temporary plan that pauses mortgage payments while a homeowner gets back on their feet.

For example, many homeowners who lost their jobs or had reduced income were able to request forbearance for up to a year or more during the COVID pandemic.

Unlike forbearance, mortgage loan modification is a permanent plan that changes the rate or terms of a home loan.

Forbearance and loan modification can sometimes be combined to make a more effective mortgage relief plan.

For instance, a homeowner whose income is still reduced at the end of their forbearance period may be approved for a permanent loan modification.

Or, a homeowner approved for mortgage modification may also have part of their unpaid principal forborne (put off) until the end of the repayment period.

Who is eligible for a loan modification?

To qualify for a loan modification, a borrower usually must have missed at least 3 mortgage payments and be in default.

“Sometimes, a borrower who has experienced financial setbacks, which makes a default imminent, can qualify for a loan modification. But not everyone in default under their mortgage is eligible for a loan modification,” explains Whitman.

“Borrowers whose financial setback is so severe that they will never be able to repay their mortgage won’t receive a modification, nor will borrowers who have the ability to make mortgage payments either from their income or savings.”

“Borrowers whose financial setback is so severe that they will never be able to repay their mortgage won’t receive a modification” –Elizabeth Whitman, attorney & managing member, Whitman Legal Solutions, LLC

In addition to providing a hardship letter or statement, prepare to provide proof of income, two years’ worth of tax returns, and bank/financial statements, says Condor.

Be aware, however, that your lender is not obligated to provide a loan modification.

“Once a lender has an executed contract — meaning the loan — they don’t have to change it. Many [homeowners] are denied a mortgage loan modification,” Gallagher explains.

“If the lender desires to modify the terms, per your request, then you have a starting point.”

How to request a loan modification

The process for requesting a loan modification will vary depending on who manages your loan.

The first thing you need to do is contact your loan servicer. This is the company to which you send payments, and the one you need to work with to determine your options for loan modification.

Some mortgages are managed, or “serviced” by the original lender. But most home loans are serviced by a separate company.

For instance, you may have received the loan from Wells Fargo, but now make payments to U.S. Bank.

The loan servicer is the company that takes your monthly mortgage payments; you can find yours by checking the name and contact information on your latest mortgage statement.

Many borrowers begin the process by sending a ‘hardship letter’ to their servicer or lender. A hardship letter is simply a note that describes the borrower’s financial difficulties and explains why they can’t make payments.

The lender will likely request financial information and documentation, including bank statements, pay stubs, and proof of your assets.

These documents will help your lender understand the full scope of your personal finances and determine the correct path for mortgage relief.

Mortgage loan modification programs

Your loan modification options will depend on the type of loan you have and what your lender or loan servicer agrees to.

Conventional loan modification

“Fannie Mae, Freddie Mac, and private lenders of conventional loans have their own modification programs and guidelines,” says Charles Gallagher, a real estate attorney.

In particular, Freddie Mac and Fannie Mae offer Flex Modification programs designed to decrease a qualified borrower’s mortgage payment by about 20%.

Flex Modification typically involves adjusting the interest rate, forbearing a portion of the principal balance, or extending the loan’s term to make monthly payments more affordable for the homeowner.

To be eligible for a Flex Modification program, the homeowner must have:

  • At least 3 monthly payments past due on a primary residence, second home, or investment property
  • Or; less than 3 monthly payments past due but the loan is in “imminent default,” meaning the lender has determined the loan will definitely default without modification. This is only an option for primary residences

Certain hardships can trigger “imminent default” status; for instance, the death of a primary wage earner in the household, or serious illness or disability of the borrower.

Unemployment is typically not an eligible reason for Flex Modification.

Borrowers who are unemployed are more likely to be placed in a temporary forbearance plan — which pauses payments for a set period of time, but does not permanently change the loan’s term or interest rate.

In addition, government-backed FHA, VA, and USDA loans are not eligible for Flex Modification programs.

FHA loan modification

The Federal Housing Administration offers its own loan modification options to make payments more manageable for delinquent borrowers.

Depending on your situation, FHA loan modification options may include:

  • Lowering the interest rate
  • Extending the loan term
  • Rolling unpaid principal, interest, or loan costs back into the loan’s balance
  • Re-amortizing the mortgage to help the borrower make up missed payments

In some cases where extra assistance is needed, FHA borrowers may be eligible for the FHA-Home Affordable Modification Program (FHA-HAMP).

FHA-HAMP allows the lender to defer missed mortgage payments to bring the homeowner’s loan current. It can then request that HUD (FHA’s overseer) further reduce the monthly payment by opening an interest-free subordinate loan of up to 30% of the remaining loan balance. The borrower only pays principal and interest based on 70% of the balance, and can pay back the remainder upon a sale or refinance of the home.

Deferring this extra principal amount can help make it easier for FHA borrowers to get back on track with their loans.

FHA-HAMP is typically combined with one of the loan modification methods above to lower the borrower’s monthly payment.

Eligible FHA borrowers must complete a trial repayment plan to qualify for either loan modification or the FHA-HAMP program. This involves making on-time payments in the modified amount for 3 months straight.

VA loan modification

Veterans and service members with loans backed by the Department of Veterans Affairs can ask their servicer about VA loan modification.

VA loan modification can roll missed payments back into the loan balance, as well as other delinquent homeownership costs like unpaid property taxes and homeowners insurance.

After these costs are added to the loan, the borrower and servicer work together to establish a new repayment schedule that will be manageable for the veteran.

Note, VA modification is unique in that the interest rate might actually increase. So while this plan can help veterans bring their loans current, it won’t always reduce the homeowner’s monthly payments.

“For VA loan modification, several requirements apply,” notes Condor. She explains:

  • “Your VA loan must in default
  • You must have since recovered from the temporary hardship that caused the default
  • You must be able to support the financial obligations of the modified VA loan
  • And you must not have modified your VA loan in the past three years”

Some homeowners with VA loans may qualify for a ‘Streamline Modification.’

Streamline Modification does not require as much documentation as the traditional VA modification plan, but includes two extra requirements:

  • The combined principal and interest payment must drop by at least 10%
  • The borrower must complete a 3-month trial repayment plan to prove they can make the modified payments

Talk to your loan servicer about options for your VA loan.

USDA loan modification

USDA loan modification is for homeowners whose current loans are backed by the U.S. Department of Agriculture.

A USDA loan modification allows missing mortgage payments (including principal, interest, taxes, and insurance) to be rolled back into the loan balance.

USDA modification plans also allow a term extension up to 480 months, or 40 years total, to help reduce the borrower’s payments. And the servicer can lower the borrower’s interest rate, “even below the market rate if necessary,” according to USDA.

Servicers may cover up to 30 percent of the homeowner’s unpaid principal balance using a mortgage recovery advance.

Contact your loan servicer to find out whether you’re eligible for a USDA loan modification.

Is mortgage loan modification a good idea?

A mortgage loan modification is worth pursuing for the right candidates.

“A modification can give you a second bite at the apple and get you out of the default or foreclosure process, allowing you a chance to remain in your home,” says Merritt.

But caveats apply.

“Typically, a modification will take all of your missed payments and add those to the outstanding principal balance,” Merritt says.

Say your current mortgage has an outstanding balance of $300,000. Assume you missed $50,000 in payments. In this example, your modified balance would be $350,000, which is called ‘capitalization.’

“But imagine your home’s value is only $310,000,” adds Merritt. “Here, a modification would allow you to stay in your home and avoid foreclosure, but you would owe more than your house is worth. That would be a problem if, say, two years after modification you wanted to sell your home.”

Refinancing and other alternatives to modification

Loan modification isn’t your only option, thankfully.

Possible alternatives include refinancing, forbearance, a deed-in-lieu of foreclosure, or Chapter 13 bankruptcy.

Refinancing

As mentioned above, you should first check if you’re eligible to lower your interest rate and payment with a mortgage refinance.

You’ll have to qualify for the new mortgage based on your:

  • Credit score and credit report
  • Debt-to-income ratio
  • Loan-to-value ratio (your loan balance versus the home’s value)
  • Income and employment

It may be difficult to qualify for a refinance during times of financial hardship. But before writing this strategy off, check all the loan options available.

For instance, FHA loans have lower credit score requirements and allow higher debt-to-income (DTI) ratios than conventional loans. So it may be easier to refinance into an FHA loan than a conventional one.

Streamline refinancing

Homeowners with FHA, VA, and USDA loans have an additional option in the form of Streamline Refinancing.

A Streamline Refinance typically does not require income or employment verification, or a new home appraisal. Even the credit check might be waived (though the lender will always verify you have been making mortgage payments on time).

These loans are a lot more forgiving for homeowners whose finances have taken a downturn.

Note, Streamline Refinancing is only allowed within the same loan program: FHA-to-FHA, VA-to-VA, or USDA-to-USDA.

Check your Streamline Refi eligibility (Feb 17th, 2021)

Other mortgage relief options

Refinancing typically requires a loan-to-value ratio of 97% or lower, meaning the homeowner has at least 3% equity.

However, “borrowers who have less than 3 percent equity in their homes may qualify for Fannie Mae’s HIRO program,” suggests Whitman.

This ‘High-LTV Refinance Option‘ is intended for homeowners with Fannie Mae-backed loans who owe more on their mortgage than the property is worth.

“Other choices for borrowers with little or no equity in their homes include a consensual foreclosure or a short sale, which involves selling the property for less than the outstanding mortgage amount.”

What should you do?

Whitman continues, “Any borrower who will struggle to repay their mortgage and other debts after a loan modification should consider whether it is better to dispose of their home and find a more affordable housing option.”

To better determine if a refinance or mortgage loan modification is the right strategy for you, consult with your loan servicer, an attorney, or a housing counselor.

Mortgage loan modification FAQ

What happens when you get a loan modification?

The goal of a loan modification is to help a homeowner catch up on missed mortgage payments and avoid foreclosure. If your servicer or lender agrees to a mortgage loan modification, it may result in lowering your monthly payment, extending or shortening your loan’s term, or decreasing the interest rate you pay.

How do I get a mortgage loan modification?

Contact your mortgage servicer or lender immediately to alert them of your financial hardship and ask about loan modification options available. Be ready to provide all documentation requested, which can include financial statements, pay stubs, tax returns, and more.

How long does loan modification last?

Expect your loan modification process to take anywhere from one to three months, according to finance and insurance expert Karen Condor. Once your loan modification has been approved, the changes to your interest rate and/or loan terms are permanent.

Does loan modification hurt your credit?

A mortgage loan modification under certain government programs will not affect your credit. “But other loan modifications may negatively impact your credit and show up on your credit report. However, since your mortgage usually must be in default to request a modification, your financial difficulties are probably already on your credit report,” explains attorney Elizabeth Whitman.

Can you be denied a loan modification?

Yes. A mortgage loan is a contract, and the mortgage lender isn’t obligated to agree to a loan modification. “Borrowers whose financial situation is such that they will never be able to repay their mortgage loan, as well as borrowers who do not cooperate with lender requests, are likely to be denied a modification,” says Whitman.

How much does mortgage modification cost?

While there are no closing costs for a mortgage modification, your lender may charge a processing fee. “If your modification involves extending your loan’s term, that means you’ll pay more interest over the life of your loan,” explains attorney Charles Gallagher.

Do you have to pay back a loan modification?

Paying back a loan modification will depend on the type of modification you are given. “Your lender can apply a reduced interest amount to your loan’s principal on the backend that you must later pay back,” says Condor. “With a principal deferral loan modification, your lender reduces the amount of principal paid off with each payment. But the amount of principal your lender deferred will be due when your loan matures or the home is sold.”

Understand your options

Mortgage loan modification is typically reserved for homeowners who are already delinquent on their loans.

If you’re worried about mortgage payments, get ahead of the issue by checking your eligibility for a refinance or contacting your loan servicer about options before your loan becomes delinquent.

Many homeowners are facing financial hardship right now, and many lenders and loan servicers are willing to help. But help is only available to those who ask for it.

Verify your new rate (Feb 17th, 2021)

Source: themortgagereports.com

APR vs. interest rate for mortgages: Which matters more?

APR vs. interest rate for mortgages

APR and interest rate are both important numbers when choosing a mortgage loan. But which matters more?

Some experts say APR is most important because it includes your interest rate and your loan fees. It’s the ‘real’ cost of a mortgage.

But APR is often too broad to be a good comparison tool.

Today’s mortgage shoppers have a lot of flexibility to choose their interest rates and upfront fees. So you should choose the combination of short- and long-term costs that makes sense for you — rather than looking for the lowest APR or interest rate alone.

Compare mortgage options (Feb 9th, 2021)


In this article (Skip to…)


What is APR?

A loan’s annual percentage rate (APR) measures the total cost of borrowing money. APR is designed to represent the long-term cost of a loan, from closing day to the date it’s paid off.

Rather than looking at interest rate alone, the APR on a mortgage includes lender charges and fees like: 

  • Mortgage insurance 
  • Discount points
  • Mortgage origination fees
  • Other closing costs 

Mortgage lenders are mandated by the Truth In Lending Act to disclose a home loan’s APR as well as the interest rate each time they provide a loan offer.

APR can be found on the Loan Estimate you’ll get from any lender after being pre-approved. It is provided to enable borrowers to make a more informed decision when it comes to loan choices.

How is APR calculated?

APR is calculated by finding the total cost of a mortgage loan’s upfront fees, then spreading them over the life of the loan to estimate the yearly cost. This is added to the interest rate to find the ‘real’ annual cost of financing.

“This indicates the true amount you will pay on top of the balance of the mortgage,” says John Davis, educational ambassador for ScoreSense.

However, not all lending institutions include the same fees in their APR calculation.

“By law, the APR must include interest, points, loan origination fee, broker fee, and mortgage insurance,” says Scott Auen, senior vice president of Retail Lending for Cornerstone Bank.

“There are also third-party fees that legally cannot be included, such as notary, home appraisal, and attorney costs. And there are other fees that some lenders include while others don’t.”

This means APR is not a perfect way to compare mortgage loans apples-to-apples. You have to look at the interest rate and total upfront fees, too.

Compare mortgage loan options (Feb 9th, 2021)

What’s the difference between APR and interest rate?

A mortgage interest rate represents only the amount you’ll pay your lender each year in interest. APR includes interest as well as loan fees; it measures the total amount you’re paying above and beyond the loan’s principal. That means APR will normally be higher than your interest rate.

“The interest rate will indicate what you would expect to pay monthly for your mortgage,” explains Auen.

“The APR, on the other hand, should give you a bigger picture of what the total mortgage loan cost is over the life of your loan.”

When you ask for a rate quote from a lender, the most prominent number advertised is normally the interest rate. But APR must be included, too.

You might think APR is a better way to compare mortgage offers than interest rates alone. After all, wouldn’t you want to know which loan has a lower cost overall — not just a lower mortgage rate?

Well, not necessarily. There are pros and cons to using either APR or interest rate to shop for a mortgage loan.

Benefits of comparing APR

Interest rate is typically the first number most home buyers look at. But it can be deceiving.

For example, the interest rate quoted for an FHA mortgage could appear enticingly low. Advertised rates for FHA loans are typically below rates for a comparable conventional loan.

But because an FHA loan requires annual mortgage insurance — which costs 0.85% of the loan amount each year — its APR will often be higher than a conventional loan.

APR is often a better tool for comparing multiple loan products: For instance, an FHA loan vs. a conventional loan.

Factors like your credit score and down payment also make a difference when it comes to loan fees and APR.

“APR is often a better tool for comparing multiple loan products,” says Nishank Khanna, chief financial officer for Clarify Capital.

“If you have a low interest rate loan but tons of fees, calculating APR costs can help you better understand how much you’ll really be saving or spending.

“APR is a more complete metric for comparing mortgages with different interest rates and total fees. It levels out the playing field, allowing you to see things from an apples-to-apples perspective,” Khanna continues.

Drawbacks of using APR to compare loans

For many borrowers, though, APR is not a realistic way to compare costs.

That’s because the APR calculation makes a few big assumptions:

  • APR assumes you’ll keep your loan for its full term
  • APR assumes you won’t sell the home or refinance
  • APR assumes you won’t pay off the loan early

Most borrowers do not pay off their mortgage in full. It’s typical to sell or refinance after only a few years. So comparing loans based on their long term cost might not make sense.

And APR doesn’t account for different financial priorities.

For example, some borrowers choose to pay discount points. Points can add thousands to your upfront fees but significantly reduce your interest rate.

“In this case, having lower mortgage payments or building equity is a priority. Hence, it might be wiser to put more stock in the interest rate number than the APR number,” Khanna suggests.

On the flip side, some borrowers want or need to save money at closing.

They might accept a lender with a higher interest rate and APR if it’s willing to cover part of their upfront costs.

“In this scenario, having a higher interest rate loan with fewer upfront fees can be more affordable month-two-month,” says Khanna.

“Borrowers should consider how much liquid assets they have and what they are comfortable with paying at the get-go rather than simply pursuing a loan with the lowest APR.”

Compare mortgage loan options (Feb 9th, 2021)

When to use APR vs. interest rate

Be cautious not to overvalue the APR number. APR is most useful if you plan to keep the loan for its entire term.

“If you are purchasing a home with plans to move or refinance within 5 to 10 years, it makes more sense to pay attention to interest rates so that you can keep your monthly payments lower,” says Auen.

Remember, too, that lenders don’t include exactly the same costs in their APR calculations.

“That’s why you should ask specifically what is included in your APR so that you can make an accurate assessment when comparing offers,” Auen notes.

If you only plan to stay in the home for a few years, comparing the 5-year cost of each loan might be more helpful than APR.

The 5-year cost projection can be found on page 3 of your Loan Estimate, directly above the APR. It shows the real cost of your loan after 5 years, including loan principal, interest, and upfront costs.

This number will be more realistic for a short-term borrower than APR, which spreads loan costs over the full loan term — often 30 years.

Fixed- vs. adjustable-rate mortgage APRs

On a fixed-rate mortgage, the APR will almost always be higher than the interest rate. That’s because your rate stays the same over the life of the loan — so adding fees on top of the fixed rate will naturally increase the APR.

But what about an adjustable-rate mortgage?

If you’re comparing ARM interest rates, you may notice something odd: the APR can actually be lower than the interest rate.

This isn’t because ARMs have low or no loan fees. Rather, it’s because of the way lenders calculate APR on an adjustable-rate loan.

The annual percentage rate on an ARM is based on the index rate your loan is tied to. An index is simply a measurement of the economic conditions at the time, expressed in an interest rate.

But ARM APRs assume the index rate will stay the same over the life of the loan. Not likely.

For instance, say you take out a 5/1 ARM. Your initial interest rate is 3.5%, and your ‘margin’ is 2.25%. On the day your loan closes, the index rate your loan’s tied to is at 0.5%.

  • Initial interest rate: 3.5%
  • Index rate at closing: 0.5%
  • Your loan’s margin: 2.25%
  • APR: 2.75%

This calculation can make ARMs look incredibly attractive during a low-rate period like the one we’re currently in — especially if you’re shopping based on APR.

But this calculation makes the assumption your interest rate will fall when the loan finally adjusts. If you take the ARM out when rates are at rock bottom, this is unlikely to happen. It’s more likely your interest rate and monthly mortgage payment will increase.

So, don’t be fooled by the ultra-low APR on an adjustable-rate mortgage. It’s an estimate based on some big assumptions

And many borrowers sell or refinance before their ARM’s fixed-rate period is up, in any case.

How to find the best mortgage deal

When thinking about APR vs. interest rate, remember it’s not one or the other. You can (and should) look at both numbers.

“When deciding which mortgage to opt for, consider both the interest rate and the APR,” recommends Davis.

“You can first use the interest rate as a tool to filter down your options. Then, once you shortlist the most preferred interest rate offers, you can compare the APRs on those offers carefully to get the best possible deal.”

Also, if you have a high credit score, use it to your advantage.

“If you have great credit but are undecided between two lenders who have similar repayment terms — with one boasting a lower interest rate but higher APR and the other offering a lower APR but higher interest rate — try to negotiate terms with both,” Davis advises.

“Aim to get either the fees or interest rate reduced to match or beat the other offer.”

When in doubt, and for best results, consult a mortgage professional who can help you determine the best loan deals based on APR vs. interest rate.

Verify your new rate (Feb 9th, 2021)

Compare top lenders

Source: themortgagereports.com

President Biden could reduce FHA mortgage insurance premiums. Here’s what it means for you

FHA mortgage insurance might get cheaper this year

“Mortgage industry abuzz with speculation of FHA MIP cut,” stated one trade magazine on January 28. And that journalist was right.

Many insiders are confidently predicting a big cut in the Federal Housing Administration’s (FHA’s) annual mortgage insurance rates.

FHA borrowers currently pay 0.85% annually in mortgage insurance premiums (MIP). That’s $1,700 per year, or $140 per month, on a $200,000 mortgage.

So it’s no wonder a possible MIP rate cut is big news. It could help new home buyers and refinancing homeowners save big on their housing payments.

Verify your FHA loan eligibility (Feb 8th, 2021)

Why experts think Biden will lower mortgage insurance premiums

Lowering FHA mortgage insurance rates isn’t a new idea from President Biden. It’s a holdover from former President Obama’s agenda.

American Banker magazine explains “The Department of Housing and Urban Development under former President Barack Obama had announced a scheduled 25-basis-point [0.25%] reduction in the FHA’s annual mortgage insurance premiums just before President Donald Trump took office.”

But Trump reversed this change at the start of his term, leaving FHA MIP rates at 0.85% per year.

Now, says American Banker, “observers expect the Biden administration to follow through on that 25-basis-point cut and potentially go even further.”

Lowering FHA MIP costs would be right in line with President Biden’s goals of expanding affordable housing opportunities for low- and middle-income families.

Of course, this is only speculation for now. No official announcements have been made.

But the pervasiveness of the rumor — and the absence of denials from the administration — mean a change seems likely.

So potential home buyers and FHA homeowners should be aware of what the (potential) change would mean for them.

What an MIP reduction could mean for you 

There’s good news and bad news.

The bad news is that if you already have an FHA loan if and when the reduction takes effect, you won’t see any savings. You would have to refinance into a new FHA loan to see the reduction.

The good news is that if you haven’t applied for an FHA loan yet if/when the cut is announced, you can likely take advantage of the new, lower fees.

But just how much would home buyers and refinancers stand to save?

A 25-basis-point reduction means MIP rates would fall by 0.25%. So you’d be paying 0.6% of your loan balance each year instead of the 0.85% that nearly all FHA borrowers now pay now.

These mortgage insurance rates are calculated annually but charged monthly.

Example: 0.25% MIP rate cut

Let’s say you plan to borrow $200,000 with an FHA loan. Your MIP rate at current levels would be 0.85%, making an annual charge of $1,700 — or $140 per month.

Now let’s assume the new MIP rate falls to 0.6%.

Your annual charge tumbles to $1,200. And your new monthly MIP cost would be exactly $100 per month.

That’s a saving of $500 a year, which few of us would sneeze at. But there’s a possibility that the savings could be even bigger.

Example: 0.50% MIP rate cut

American Banker wondered whether the Biden administration might “potentially go even further.”

So how does the math work if annual MIP rates were to be cut a little more — to 0.5%?

Assuming the same $200,000 loan, a 0.5% rate would reduce the annual payment to $1,000. And that would make the monthly payment just $83 versus $140 per month at current levels.

That would save you $700 a year over your current payment.

Rates haven’t changed yet…

Remember: this is just speculation. Unless and until an official announcement is made, you should continue to budget for your full, existing 0.85% MIP rate.

But if you’re considering a home purchase or refinance later this year, you should keep an eye out for news from the Department of Housing and Urban Development (HUD).

If a change is announced, it could be worth waiting on that application until you can secure the lower rate.

Verify your FHA loan eligibility (Feb 8th, 2021)

What happens to existing FHA loans?

Homeowners with an existing FHA loan may not benefit from lower mortgage insurance premiums right away.

An MIP rate reduction likely would not change the terms of your current mortgage.

So if a change is announced, you’d have to refinance into a new FHA loan to take advantage of MIP savings.

Keep Streamline Refinancing in mind

The good news is that FHA borrowers may well be in line for an FHA Streamline Refinance — a simplified, low-doc refi program.

FHA Streamline loans typically come with minimum paperwork, low costs, and no credit check. You likely won’t need a new home appraisal or income verification.

However, you’ll have to pay closing costs yourself — only the upfront mortgage insurance charge can be rolled into the loan balance.

And cashing out is not allowed with the FHA Streamline program. If you want cash-back with your refinance, you’ll need the FHA cash-out loan, which requires full underwriting.

How the MIP cut could contribute to the FHA Streamline “net tangible benefit” rule

Right now, FHA Streamline Refinances have a requirement that you gain a ‘net tangible benefit’ (some clear monetary advantage) as a result of using one.

This typically means you need to lower your ‘combined rate’ (mortgage interest plus mortgage insurance) by at least 0.5%.

Say the Biden administration does cut MIP rates by 0.25%. Under the current rule, you’d also need to lower your mortgage interest rate by 0.25% to be eligible for Streamline Refinancing.

But with rates trending downward through 2020 and into 2021, it’s quite likely that a 0.25% reduction is in reach.

But do keep in mind that your current FHA loan has to be at least 210 days old before you’re allowed to refinance.

When could the change take place?

Some mortgage industry insiders are expecting an announcement during President Joe Biden’s first 100 days in office. And they may be proved right.

But there’s a reason we rarely quote speculation from mortgage industry insiders. They’re often wrong.

And the fact is, nobody outside the government knows whether there will be an announcement at all, let alone its likely date. Which raises an important question: What are you supposed to do with this information?

What are you supposed to do with this information?

We wouldn’t be sharing this speculation with you if we didn’t think there was a good chance of the rate cut really happening. But there’s no guarantee it will.

So you probably shouldn’t change immediate plans to purchase a home or refinance.

Today’s FHA mortgage rates are at historic lows — and your interest rate has a much bigger impact on your total loan cost than your mortgage insurance rate.

If you wait on a rate cut and miss today’s low interest rates, it could negate your savings. You could also risk losing out on your dream home by waiting for financing.

Keep in mind, you only need to wait 210 days — about 7 months — from your FHA home purchase or refinance before you can refinance again.

If Biden does cut MIP rates, the change will be long-term. So you can always refinance if it makes financial sense for you to do so later on.

Verify your FHA loan eligibility (Feb 8th, 2021)

Will other aspects of FHA loans change?

Most people who opt for an FHA loan do so because it’s the easiest, most affordable path to homeownership that’s open to them.

American Banker describes FHA borrowers as, “traditionally first-time homebuyers and largely minorities and lower-income earners.”

And they choose FHA loans because they can get approved with lower credit scores and higher existing debts than Fannie Mae, Freddie Mac, and other conventional loans usually allow.

None of that’s likely to change if the Biden administration comes through with the rumored changes.

The only difference should be the amount these borrowers have to pay for their annual mortgage insurance.

Remember, there’s also an upfront mortgage insurance (UFMIP) fee equal to 1.75% of the loan amount. Most borrowers roll this into their loan balance so they don’t have to pay it at closing.

So far, we haven’t heard talk of the UFMIP rate changing — only the annual mortgage insurance premium of 0.85%.

The bottom line

An FHA MIP reduction would be a great win for borrowers, helping to keep monthly housing costs low.

If you plan to buy a home or refinance via an FHA loan later this year, there’s a good chance you could see lower mortgage insurance premiums.

But if you’re already in the process of buying or refinancing, we don’t recommend waiting on news of lower MIP rates. You’re likely to see bigger savings by taking advantage of today’s ultra-low mortgage rates.

Verify your new rate (Feb 8th, 2021)

Source: themortgagereports.com

Do You Need Termite Inspection When Buying a Home? 4 Reasons To Call Pest Control

You’ve finally found your ideal home and are on your way to being a homeowner. But before the sale is closed, you will need to clear several hurdles, one of which may be a termite inspection. While only a few states require it—and there is no federal law that mandates a termite inspection when buying a home—you might want to think twice before skipping it.

“Termites are commonly known as ‘silent destroyers’ for good reason,” says Dr. Jim Fredericks, chief entomologist for the National Pest Management Association. “These voracious pests are capable of causing serious damage, threatening the structural integrity of a home while remaining hidden within the walls and foundation of a house.”

Being proactive to protect your asset makes sense—especially when it comes to home infestations or major structural issues.

If you’re still unsure about whether or not you need a termite inspection, here are some solid reasons why you should probably make an appointment with a pest control company.

1. Your lender may require it

When purchasing your home through a mortgage lender, a termite clearance letter—which says that a pest control company inspected the property for termites and has found no evidence of infestation or damage—may be required.

“Termite inspections may be a lender requirement, depending on the region you live in and if the results of your home appraisal or inspection show evidence of infestation or decay,” says Jason Bates, vice president of purchase at the home mortgage lending company American Financing, in Aurora, CO.

Government-backed loans, like Federal Housing Administration and Veterans Affairs loans, commonly require a termite inspection. Fredericks says these loans require a Wood Destroying Insect inspection if it is also customary to the area and mandated by the state or local jurisdiction.

“Since many private lenders take guidance from the Department of Housing and Urban Development/FHA, lenders in regions across the United States with high levels of termite activity often require a WDI inspection too,” says Fredericks.

He says a WDI inspection includes a careful visual inspection for evidence of any wood-destroying insect, including termites, beetles, carpenter bees, and carpenter ants.

2. Termites may be active even if you don’t see them

Here’s an unnerving fact: Termites can be present for up to five years before the colonies are large enough to cause true damage. Yikes!

“Termites like to do an inside job, they are rarely seen—only when they send out swarmers, which are winged reproductives that will go out and start new colonies,” says Raymond Web, online marketing manager, Take Care Termite & Pest Control in Tracy, CA.

Bates says termite damage typically starts in areas where there is wood-to-ground contact and spreads from there. In time, termites can damage the integrity of the structure and, in extreme cases, can require a complete demolition.

“Termites are active year-round, as colonies sheltering in the foundation or walls of a home are somewhat shielded from the cold temperatures outside,” says Fredericks. “While these intruders can easily stay hidden from homeowners, a professional inspection can help uncover termite activity taking place behind the walls.”

He says it’s a good practice to have a professional termite inspection on your house each year to detect an infestation early.

3. Homeowner insurance usually doesn’t cover it

Should you have a termite issue in your house, your homeowner insurance will most likely not cover termite damage or removal.

“Most homeowner insurance does not cover termite damage unless there is an additional coverage plan or rider, similar to flood insurance,” says Bates.

Fredericks says since most homeowner insurance doesn’t cover it, homeowners should identify termite infestations early, to reduce the likelihood of extensive damage developing.

“The longer termites are actively feeding on and damaging the wood portions of a home, the more extensive and costly the repair process can be,” says Fredericks.

4. Termite damage is expensive

U.S. residents spend an estimated $5 billion annually to control termites and repair termite damage, according to Orkin. A homeowner who discovers termite damage will spend an average of $3,000 to repair the damage.

“Termite treatment varies in cost but can be as much as $20 per linear foot for minor infestation. If a structure has been infested, the cost can be thousands to treat, plus the cost to repair the damage,” says Bates.

Calling an inspector to check your house won’t cost that much money (around $100) and will save you headaches down the line. Fredericks says that although termites are small in size, they live in colonies of up to two million and eat wood to get the cellulose and nutrients within for survival.

“If left unchecked, termites can cause widespread and costly damage over time, which is why annual professional termite inspections are so important,” says Fredericks.

Source: realtor.com

Best Reverse Mortgage Lenders for 2021

Reverse mortgage companies provide homeowners ages 62 and over with home equity conversion mortgages, or HECMs, that convert home equity into cash. The best reverse mortgage lender provides multiple options for tapping your home equity and solid educational resources focused on the lending process and reverse mortgage rates and costs. A counseling session is mandated for all homeowners who apply for a reverse mortgage, but you will still most likely have questions. A good lender is prepared to answer questions and serve as a guide through the entire process.

In this article

Today’s mortgage and refinance rates

According to Bankrate’s latest survey of the nation’s largest mortgage lenders, these are the current refinance average rates for a 30-year, 15-year fixed and 5/1 adjustable-rate mortgage (ARM) refinance rates among others.

Product Interest Rate APR
30-Year Fixed Rate 2.840% 3.140%
30-Year FHA Rate 2.680% 3.560%
30-Year VA Rate 2.780% 3.130%
30-Year Jumbo Rate 2.870% 2.980%
20-Year Fixed Rate 2.720% 3.040%
15-Year Fixed Rate 2.330% 2.650%
15-Year Fixed Jumbo Rate 2.340% 2.410%
5/1 ARM Rate 2.990% 4.000%
7/1 ARM Rate 2.880% 3.860%
7/1 ARM Jumbo Rate 2.950% 3.830%
10/1 ARM Rate 3.000% 3.910%

Rates data as of 2/3/2021

Best reverse mortgage lenders reviewed

Lender Sample Interest Rates Mortgage Types
Quontic Bank 4.195%–4.815% HECM
AAG 2.264%–6.168% Lump-sum payout
Growing line of credit
Jumbo loan
Term or tenure
Reverse for purchase
Longbridge 2.949%–4.333% HECM reverse mortgage
HECM for purchase reverse mortgage
Platinum mortgage
All Reverse Mortgage Inc 3.31%–6.99% HECM reverse mortgage
HECM for purchase
Jumbo loans
Proprietary loans
Finance of America Reverse Not listed HECM reverse mortgage
HECM for purchase
Jumbo loans
HomeSafe® Standard
HomeSafe® Select

*Rates accurate as of December 2020

Best reverse mortgage lenders reviewed

Quontic Bank – Best digital option

In recent years, Quontic Bank, formerly a regional bank in the northeast, has expanded its digital footprint and does business in all 50 states. Its reverse mortgage options are limited to HECM, meaning you must meet all of the standard requirements for the FHA’s program. As part of the process, Quontic will verify you have adequate assets to cover the necessary fees for the loan, including annual insurance payments, the money needed to maintain the home, and enough to cover property and other taxes. The bank provides easy access to loan officers who can answer the questions of remote customers via phone, e-mail or live chat.

AAG – Best recognized brand

AAG, or American Advisors Group, is the most recognized reverse mortgage lender due to its advertising efforts. The brand clearly explains the different types of reverse mortgages to potential borrowers and provides specialists to help you review the different loans options.

A lump-sum payout is an option that provides 60% of your potential funding in the first year. This is an option that is best used for major unexpected expenses. A line of credit could appeal to you if you have a need for more funds, like a new vehicle purchase or home improvements, and would prefer not to tap into your traditional retirement accounts to pay for it. Much like ORM, AAG also offers an in-house loan known as the jumbo reverse mortgage for properties outside the scope of FHA’s HECM program. The loan lets you tap up to $4 million in equity at a fixed rate. No mortgage insurance is required.

Longbridge – Best online tools

Longbridge Financial, LLC differentiates itself from competitors by offering easy-to-use tools, including a free quote calculator and scenario-based guides to answer the most common questions about reverse mortgages, such as, “What happens when the homeowner can no longer live in the home or dies?” The answer is that the loan must be repaid. In many cases, the home is sold. If it sells for less than the amount owed on the reverse mortgage, the FHA insurance covers the difference, not the heirs. If it sells for more, the lender is paid back, and the estate receives the remainder.

Longbridge also provides a loan option for homes with a higher value along with the common HECM for purchase loan. With a for-purchase loan, you buy a new home with a down payment up to 50% of its purchase price and pay for closing. The HECM covers the balance and provides any remaining funds to you. Going forward, you do not have to make monthly mortgage payments. Many homeowners who choose the option want to relocate to a different climate, move closer to children and other family members or need a home that meets new needs by providing accessibility options and other amenities.

All Reverse Mortgage Inc – Best customer reviews

All Reverse Mortgage Inc — also called ARLO — offers a variety of reverse mortgages including HECM’s, jumbo reverse, HECM purchase, proprietary reverse, HomeSafe reverse, Platinum reverse, and more. Using the ARLO calculator on its website, you can get information quickly and easily on what reverse mortgage you may qualify for. If you meet the requirements of a reverse mortgage, you can apply over the phone or online. It can take 30 or more days to close a reverse mortgage with All Reverse Mortgage, which is pretty standard in the industry.

Depending on factors like age, current rates and type of reverse mortgage loan you can expect to receive anywhere from 40% to 60% of your home value. You may choose a line of credit with an adjustable-rate, a HECM (traditional or jumbo), a reverse mortgage for purchase if you’re buying a new home, and if your property exceeds FHA limits, ARLO offers a proprietary reverse mortgage option.

Finance of America Reverse – Best private option

Also in business for 16 years, Finance of America Reverse’s website is user-friendly and thorough, offering loan options to accommodate various life goals you may have. You can then easily review each loan option, including detailed brochures. For example, if you want to unlock the potential in your home’s equity the HECM mortgage option may be for you. This may allow you to achieve goals like paying off your existing mortgage, pay for in-home care, renovate, supplement income, cover medical expenses, stay in the home long-term, and more.

If you are looking for a new home whether to upsize, downsize, or just relocate, the Reverse for Purchase option is available. Finance of America Reverse also offers a HomeSafe option that includes a standard and jumbo reverse mortgage. If you are looking to increase cash flow or leverage your current equity to buy a new home, one of these options may be right for you.

Lender Sample Interest Rates Mortgage Types
Quontic Bank 4.199%–4.815% HECM
AAG 2.264%–6.168% Lump-sum payout
Growing line of credit
Jumbo loan
Term or tenure
Reverse for purchase
Longbridge 2.949%–4.333% HECM reverse mortgage
HECM for purchase reverse mortgage
Platinum mortgage
All Reverse Mortgage Inc 3.39%–6.99% HECM reverse mortgage
HECM for purchase
Jumbo loans
Proprietary loans
Finance of America Reverse Not listed HECM reverse mortgage
HECM for purchase
Jumbo loans
HomeSafe® Standard
HomeSafe® Select

Reverse Mortgage Buying Guide

What is a reverse mortgage?

A reverse mortgage is a loan that allows you to cash in on the equity built up in a home. These loans are primarily for homeowners over the age of 62. Instead of monthly payments due to the lender, the loaned amount is owed in a lump sum paid when the homeowner passes, sells the home or moves away permanently. There are strict regulations involved with reverse mortgages that prevent the amount owed from being larger than the value of the home when sold by the homeowner or their estate after passing.

How reverse mortgages work

Let’s say you are a homeowner over the age of 62 and your monthly Social Security payments aren’t enough to pay the bills, or you want to help pay for a grandchild’s college. Similar to a home equity loan, a reverse mortgage will cash out the equity built up in the home in one lump sum. Unlike a home equity loan, however, you don’t make monthly payments to repay the loan. The loan is repaid when the house is sold, you pass away or move permanently away from the house, like to an assisted living facility.

Let’s say you have a $150,000 mortgage that you’ve paid off down to $40,000. Assuming that the house’s value is also $150,000, you can access up to the remaining $110,000 in a reverse mortgage loan. No monthly payments need to be made to repay the reverse mortgage loan, but interest is charged on the borrowed amount over the life of the loan. Then, let’s say you sell the home to move to an assisted living center or move in with family members, that’s when the loan payment is due.

If the house went up in value and you sold it for $160,000, part of the sale must go toward paying off the remainder of your original mortgage as well as the money you borrowed in your reverse mortgage. If the house went down in value, there are federal regulations in place to protect the borrower from owing more than the house’s worth in a sale.

Reverse mortgage vs. home equity loan

A reverse mortgage and home equity loan are two very similar home lending products. Both require homeownership and equity built up in the home to borrow. However, while home equity loans require monthly payments immediately after funds are dispersed, reverse mortgages do not have monthly payments attached to the terms. Instead, the funds borrowed in a reverse mortgage are due for repayment when the home is sold or the owner passes away, in which case the estate will be responsible for paying back the loan.

Types of reverse mortgages

Just as there are multiple types of mortgage loans at the beginning of the homeownership journey, there are different types of reverse mortgage available to homeowners.

  1. Lump sum: the funds from the loan are available all at once and charged a fixed interest rate.
  2. Annuity/equal payments: when the reverse mortgage is agreed upon, the lender will send the funds to the borrower in equal monthly payments.
  3. Term payments: the funds are sent to the borrower in equal monthly payments over a certain period of time, such as 10 or 15 years.
  4. Line of credit: similar to a home equity line of credit, the funds from the reverse mortgage are available to the borrower to draw upon as needed, and only what is borrowed will be charged interest and need paid back.
  5. Term and line of credit: this is a hybrid between term payments and line of credit. Monthly payments are made to the borrower over a set term (such as 10 or 15 years), but more funds are available to draw upon if needed.
  6. Equal payments and line of credit: similar to term payments and line of credit, equal monthly payments based on how much is borrowed are made to the borrower, plus additional funds available to draw upon if needed.

How to choose the best reverse mortgage for you

Because there are many different types of reverse mortgages and even more types of borrower financial situations, it can be difficult to determine which is the best reverse mortgage for you. However, simply addressing your needs, what you want from a reverse mortgage and how you expect your financial status to change.

  1. Determine if a reverse mortgage is the right financial decision to begin with. You should expect to live in the house for another 10 to 15 years to reap the full benefits of the financial transaction. Furthermore, you should have a considerable amount of equity built up in the house.
  2. Determine which type of reverse mortgage you need. If you’re using the funds to supplement Social Security payments, then a term or annuity payments may be the best bet. On the other hand, if you’re using the funds to help a family member with a down payment on a house or to pay for college education, a lump sum reverse mortgage is a better option.
  3. Find and do research on reverse mortgage lenders. Although we’ve covered a few of the top picks in reverse mortgage lending, there are some illegitimate lenders out there that only want to take advantage of older homeowners who do not know any better.
  4. Pick a reverse mortgage lender that offers reasonable interest rates and provides the type of reverse mortgage that you need. The lender should help you in every step of the way, from home appraisal to closing on the loan. If the lender doesn’t offer this type of assistance to borrowers, it may not be worth it to do business with them.

Reverse mortgage FAQS

In short, no. Because it’s still a loan and not a sale or income wages, the IRS does not tax the monthly payments from a reverse mortgage.

Generally, borrowers will have to pay fees upfront for a reverse mortgage. These are typically origination fees, insurance premiums, mortgage insurance and lending fees. However, the government does limit how much lenders can charge borrowers in a reverse mortgage.

Unfortunately for the lender, that’s part of the risk of lending — generally, lenders believe that the house will increase in value, making it possible for the borrower to pay back the loan. However, federal regulations dictate that in a reverse mortgage, the estate or borrower is not responsible for the difference between the sale of the house and the loan; the lender must absorb that loss.

We welcome your feedback on this article and would love to hear about your experience with the reverse mortgage lenders we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

How To Make an Offer on a House: A 9 Step Guide

You’ve found your dream home and you’re ready to take the next step toward making it yours. After preparing and saving for your big purchase, it’s time to learn how to make an offer on a house. Offer letters are sales contracts and are legally binding, so it’s important to take this process seriously.

Find out everything you need to know about making an offer on a house with this guide. Below is a quick overview of the offer process. Feel free to click on each one to jump to everything you need to know about that step.

Steps for Making an Offer on a House:

  1. Determine you can afford the house and decide to make an offer.
  2. Talk with your real estate agent about comparable homes before making an offer.
  3. Your real estate agent compiles a written offer.
  4. The written offer is sent to the seller’s agent.
  5. The seller replies and your offer is accepted, countered, or declined.
  6. Learn how to compete with multiple buyers.
  7. The closing process begins when your offer is accepted.
  8. Remember to negotiate before finalizing if contingencies reveal flaws with the house or deal.
  9. Once your offer is accepted, you finalize the contract.

What to Know Before Making an Offer on a House

In addition to researching the process of making an offer, learn these key tips to keep in mind throughout.

things-to-know-before-making-an-offer-on-a-house

  • Try to sell first and buy after. If you aren’t a first-time homebuyer, it’s a good idea to sell your current home before buying a new one. This is important if you’re using the sale of the old home to purchase the new one.
  • Scope out the local market. Your real estate agent will use information on similar houses for sale in the area to put together your offer.
  • Ask about other offers. Your agent does this for you. Sometimes the seller’s agent won’t disclose this, but this information can inform your offer.
  • Learn about the house. If there are problems with the house, you’ll want to find out and keep them in mind when you make an offer.
  • Know what the seller wants. Have your agent find out what appeals to the seller and try to include it in your offer. If the house still has a mortgage, offering an early payment can help tip the balance in your favor.
  • Act fast. For the best chance at your dream home, submit an offer quickly. Don’t wait around because someone else will likely snap it up if you hesitate.

Step 1: Determine Affordability of the House

Finding your dream house is the easy part. Figuring out if you can afford it takes a hard look at the numbers. Set a home budget beforehand and be strict about sticking to it when looking at houses. To gauge what your budget should be, a majority of lenders advise that you shouldn’t spend more than 28 percent of your monthly pre-tax income. Be sure to include your estimated monthly payment plus other costs like the down payment, HOA fees, home insurance, and property taxes in your budget.

When you go through the lending process, lenders can help you determine what is affordable. If you’re not there yet, use this home affordability calculator to see if your dream house is in your budget.

Step 2: Talk with Your Real Estate Agent

Making an informed offer is the key to giving you the best chance of getting the house you want. Speak with your real estate agent about what comparable homes in the area are going for and use this information to guide your offer.

Step 3. Compile an Offer Letter

After comparing similar houses for sale, you’ll work with your agent on your offer. There are many components to an offer letter. We discuss everything that is included, how to navigate your offer price and contingencies, and tips for making an offer they can’t refuse.

What’s Inside an Offer Letter

Offer letters are legally binding sales contracts, and it’s important to be thorough about what you include.

Typical Components of an Offer Letter:

  • Offer price: This is the amount of money you are willing to pay for the house.
  • Contingencies: Conditions that the seller must abide by if and when they accept your offer. Standard contingencies include a home inspection and appraisal. Jump down to learn more about contingencies.
  • Down payment: The amount paid for the home upfront. This can be anywhere between 3 to 20 percent when paired with a conventional loan.
  • Earnest money: This is a deposit made by the buyer to demonstrate good faith on a contract to buy a home. It’s generally a small percentage of the price and is held in escrow until the offer is closed. It’s usually applied to the down payment or closing costs once the offer is accepted.
  • Closing costs: These include all costs associated with purchasing a home. Read more on some of the common closing costs like inspection and loan origination fees.
  • Timeline: You’ll include your preferred closing date, as well as the closing date of your current home if you aren’t a first-time buyer.

How Much Should You Offer?

Figuring out how much you should offer depends on what you can afford and what kind of market you’re dealing with at the time of the purchase. Your real estate agent should guide you through making an offer, but ultimately, you are the one who decides what you’re willing to pay. A good rule of thumb is that your first offer should leave some room for negotiation, so don’t give away what you’re willing to pay right away.

buyer-vs-sellers-market

Making an Offer in a Buyer’s Market

In a buyer’s market, you have more power to negotiate because there is more supply than demand. With the bargaining advantage on your side, you can feel more comfortable making an offer below the asking price. If you do offer below asking price, negotiation is a typical response.

When offering less, it’s also important to be respectful of the seller. Offending them with an outrageously low offer could result in them rejecting and you losing your dream house.

Making an Offer in a Seller’s Market

A seller’s market is when the housing demand exceeds the supply. In this situation, you will not have the bargaining advantage, and you will be competing with others for attractive properties. If you can afford it, exceeding the seller’s asking price can help you stand out among other offers. Remember to keep your budget in mind when negotiating and don’t offer an amount you can’t afford.

Contingencies

Contingencies are conditions of the purchase that get outlined in your offer and must be met for the sale to go through. If they aren’t met, based on the contingency, either the buyer or seller can cancel the sale. About 74 percent of buyers include contingencies in their offers, so let’s discuss the standard ones below.

Home Inspection Contingency
A home inspection contingency exercises your right to have the property inspected before closing the sale. If the inspection reveals problems with the house like faulty plumbing or a compromised structure, there is room to remedy any issues before you close. You can negotiate for a lower price, ask the seller to make repairs, or even back out of the offer.

It’s not advisable to forego a home inspection contingency to make your offer more attractive. This could cause you to pay more for a damaged property and could cause financial problems down the line if you find out there are major issues with the house that are costly to fix. Home inspections prior to closing are always recommended.

Home Appraisal Contingency
A home appraisal contingency verifies that the price you are paying is fair compared to the home’s market value. In the event that the house you are buying is appraised as lower than the selling price, you are able to negotiate with the seller or cancel the contract. This is recommended to prevent you from paying more than you should for a house.

Home Sale Contingency
In case you need to sell your current home in order to finance a new one, you can make a home sale contingency. This contingency stipulates that the current house must be sold before the new purchase can close.

Home sale contingencies aren’t attractive for sellers, as they cause delays and discourage other offers. A clause can be attached to this contingency by sellers to include a sell-by date. If your house hasn’t sold by the date in the clause, the seller is legally able to move on with other offers.

Financing/Mortgage Contingency
A financing or mortgage contingency allows the buyer time to secure financing from a lender. For buyers, this provides insurance that they can cancel the sale and recover their earnest money in case their financing options fall through.

This contingency is usually given a specific timeline, and the buyer can end the contract before time expires. If the buyer has not secured a mortgage and fails to cancel the contract before the allotted time is up, they will still be obligated to purchase the property.

Tips For Making an Offer They Can’t Refuse

When making an offer on a house, remember to appeal to the seller by using these tips to make an offer they can’t refuse.

  • Make an offer in cash. If you have the savings and can afford to make an offer in cash, you can forego the financing contingency. This means less delay in the sale, and it can also help you compete with higher offers with more contingencies.
  • Propose a short closing period. If you’re willing to move quickly, offering a short closing period can appeal to a seller who needs to sell fast.
  • Pay some of their closing costs. All sellers will have closing costs when the sale goes through. Paying off some of those costs can help sweeten the deal for them.
  • Offer up more earnest money. More earnest money shows you’re serious about the home. It’s also more money in the seller’s pocket upfront.
  • Write a personal letter. Homes are very personal and sellers may be emotionally attached to them. Make an emotional appeal by writing a personal letter to tell them the home will be in good hands.

write-personal-letter

Step 4. Submit Your Offer

Once you have decided on an offer, your real estate agent will write up a purchase and sale agreement. You will sign this agreement and then they will submit it to the seller’s agent. This agreement is legally binding if the seller agrees.

Step 5. Review Seller’s Reply

A seller can reply in a couple of ways. They can accept, counter or decline. Let’s walk through what to do with any of these three responses and what to do when there’s another buyer.

What to Do When They Accept

Congratulations — they’ve accepted your offer! You can now move on to Step 7 of the offer process. As long as all contingencies are met, you are buying a house.

What to Do When They Counter

The seller might not have liked your offer exactly how it was written and they can counter. It’s then up to you to accept that offer or to start negotiating by countering again. You are also free to back out of the offer if you aren’t happy with the seller’s counteroffer.

If you do end up negotiating, it’s normal for there to be a back and forth of counteroffers. You are both working to come to an agreement on price, timeline, and contingencies, and this takes time.

What to Do When They Decline

Unfortunately, if the seller declines, you won’t be buying that particular house for what you offered. If there is room in your budget, you could attempt to make a more attractive offer. About 45 percent of buyers end up making multiple offers during the buying process. However, not every budget allows for a better offer.

A declined offer is a disappointing outcome, but it’s important to be respectful of the seller’s decision. Take the time to talk to your real estate agent and learn about what can be done differently when the next opportunity comes around.

Step 6: How to Compete With Multiple Buyers

In a competitive housing market, desirable properties will attract many buyers. Here are a few potential scenarios that can play out if a seller receives multiple offers.

Multiple Buyer Scenarios:

  1. If your offer didn’t compare with the others, they may decline you and pursue other offers.
  2. If your offer was one of the better offers, they may ask each buyer to return with their best offer and make a decision among those final offers.
  3. They may allow a bidding war to see who will come up with the best offer.

Strategies for Competing With Multiple Offers:

  1. Be flexible with your contingencies. Keep important ones like the home inspection and appraisal, but figure out which ones aren’t necessary for you.
  2. If there is room in your budget, add an escalation clause. This notifies the seller that you will outbid the highest offer up to a maximum amount. This shows you are serious and keeps you competitive price-wise.
  3. Mention preapproval for a mortgage if you have it. The more likely you are to obtain financing, the more attractive you are as a candidate.
  4. If you can afford it, increase your down payment or earnest money deposit.

To keep everything professional, remember that your real estate agent should facilitate negotiations directly with the seller’s agent.

Step 7: Start the Closing Process

The closing process begins when a buyer accepts your offer. This process includes all necessary actions that must be done to move the transaction forward like reviewing what you owe, authorizing documents, and transferring the title. For an in depth walkthrough of this process, check out this guide for closing on a house.

Step 8. Negotiating After Your Offer is Accepted

When a seller accepts your offer, you will first move forward with any contingencies. If anything is wrong with the house or deal, you have the ability to negotiate or even walk away. Here are some examples of negotiations based on contingencies:

  • If a home inspection reveals flaws with the house, you can ask for repairs to be made by the seller before the deal is closed so that the financial burden doesn’t fall to you.
  • If the home is appraised to be lower in value than the accepted offer price, negotiate for a lower, more appropriate sale price.

Step 9: Finalize Your Contract

When negotiations have ended and you are satisfied with your contract, you will sign to finalize your purchase. Once you sign, the contract is legally binding.

After you make it through the final step, it’s time to celebrate! Revel in the excitement of purchasing your dream home, and know that you just took a big step toward a new life. Keep up good saving and budgeting habits so you can continue to hit your financial goals in the future.

Sources: Investopedia

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