Can you use a 203k loan for an investment property?

203k loans for investors: A special use case

The FHA 203k rehab loan can be an affordable way to buy or refinance a home and refurbish it with a single loan. 

This might make the 203k loan attractive to investors and fix-and-flippers. But there’s a catch.

These mortgages are limited to ‘primary residences,’ meaning the borrower has to live in the home full time. So they’ll only work for specific types of investment properties. 

But there are ways to legally and ethically use a 203k loan for rentals and investments. Here’s how.

Verify your 203k loan eligibility (Feb 23rd, 2021)


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FHA 203k loan for investment properties

There’s only one legitimate way to use a 203k loan for an investment property. You can buy and renovate — or construct or convert — a multifamily (2-4 unit) building and live in one of the units.

FHA allows borrowers to purchase 2-, 3-, and 4-unit properties and renovate them using the 203k loan.

To fulfill FHA’s residency condition, you’ll need to occupy one of the units yourself as your primary residence for at least 12 months.

You can rent out the other unit(s), and even use the rental income to cover your monthly mortgage payments.

Benefits of the FHA 203k loan for investors

While this might not be your first idea of an investment property, it can be a foot in the door for first-time investors who want to test out owning and renting properties.

It’s also worth noting that since you’d be buying the property as a primary residence, you get access to lower interest rates.

This means you’d have lower monthly payments and pay less interest overall compared to someone with a ‘true’ investment property mortgage.

Drawbacks

The main downside to this strategy is that you yourself need to occupy one of the units for at least one year.

After 12 months, you could rent out the unit that you live in and move on to purchase other real estate.

But FHA is not for serial investors. Once you use one FHA loan, you likely can’t get another one. You’ll have to secure other financing if you move out and buy again.

Also, keep in mind that you will be living side by side with your future tenants for those 12 months — some may consider this a downside while others won’t mind.

Another downside: FHA loans come with pricey mortgage insurance premiums (MIP) which borrowers are normally stuck with until they sell or refinance into a different loan program.

So there’s a lot to consider before going the 203k investment property route.

But for the right borrower, this could be a great strategy to finance and renovate their own home and a few rental units at the same time.

Verify your 203k loan eligibility (Feb 23rd, 2021)

Can I use a 203k loan if I already own the home?

If you already bought your home, you can use a 203k rehab loan to refinance your current mortgage. This opens up another back door for investors.

You could potentially use the 203k loan to refinance your current home, make renovations, then move after one year and rent the house out as an investment property.

FHA allows you to rent out a home you still own with an FHA loan, as long as:

  • You fulfilled the one-year occupancy requirement
  • You moved for a legitimate reason, like a work relocation or upsizing to a bigger house for a growing family

This would only work for refinancing a home you currently live in and plan to keep occupying for at least a year after the loan closes.

If you already moved and kept your previous home as a rental property, you would not be able to use the 203k rehab loan since the home is no longer your primary residence.

How does the lender know if it’s my primary residence?

Some people make good livings by buying fixer-uppers and then selling them after rehab — aka “flipping” them.

A few might be tempted to take advantage of the 203k program by lying about their intention to live in the home. After all, how can the FHA prove in court what your intentions were when you made the application?

The main argument against this strategy is that lying on a mortgage application can be a felony that could see you in federal court.

Even an email to a contractor mentioning that you don’t intend to live there or other indication of your plans could show up in the court case.

And, repeat FHA buying would not be a viable long-term strategy.

FHA only allows borrowers to have one active FHA loan at a time, except in rare circumstances (for instance, if your work required you to relocate and you needed to buy another home near your new job).

In other words, borrowers cannot move once a year and continue financing new homes with FHA loans.

If you see yourself as an entrepreneur with a rosy future in real estate investing, set yourself up for success by choosing a legitimate financing option that keeps your options open in the long run.

Check your investment property loan options (Feb 23rd, 2021)

About the FHA 203k rehab loan

The 203k rehabilitation loan is backed by the Federal Housing Administration (FHA), an arm of the U.S. Department of Housing and Urban Development.

This mortgage program lets you buy a rundown home — a fixer-upper — and then renovate it using a single loan that covers the purchase price and cost of repairs.

If that involves demolishing the existing structure down to the foundations and rebuilding, that’s fine under 203k loan rules, too.

203k renovation loans are only for necessary repairs to improve the structure or livability of the home. So the funds can’t be used to add luxuries like tennis courts or swimming pools.

And there’s one more important rule: You cannot do the construction or remodeling work yourself. The 203k loan requires you to hire a reputable, licensed contractor, unless you are one yourself and you work full-time as a contractor.

Limited vs. Standard 203k mortgage

There are two flavors of the 203k program: the “Limited 203k mortgage” and the “Standard 203k.”

The Limited 203k used to be called the “Streamline 203k.” As its new name implies, this version is more restrictive about the amount you can spend and the types of work you can do. But it’s also less complicated, hence its former “streamline” moniker.

The maximum repair budget for a Limited 203k loan is around $31,000 ($35,000 officially, but there are mandatory reserve accounts that eat into that sum). And you can’t make any structural renovations to the home.

On the plus side, these loans require much less paperwork and hassle.

The Limited 203k loan is typically best for current homeowners who want to make cosmetic repairs or renovations. It works a bit like a cash-out refinance, except you must spend the money on the home improvements you’ve listed.

A “Standard 203k loan,” by contrast, allows much higher budgets and would be better for home buyers purchasing serious fixer-uppers that need structural repairs.

FHA loan requirements

The basic requirements for 203k loans are similar to those for other FHA mortgages:

  • A 3.5% down payment — Based on your purchase price and rehab budget combined, subject to an independent appraisal
  • Minimum 580 credit score — It may be possible to dip below 580 if you have a 10% or higher down payment
  • Debt-to-income ratio of 43% or less — No more than 43% of your gross monthly income can normally be eaten up by housing costs, existing debt payments, and other inescapable monthly obligations such as child support

Although the FHA sets these minimum requirements, you’ll be borrowing from a private lender. And they’re free to impose their own standards.

For example, some mortgage lenders require a credit score of 620 or 640 for an FHA loan. If one lender has set the bar too high for you, shop around for other, more lenient ones.

Verify your FHA 203k loan eligibility (Feb 23rd, 2021)

What repairs can you do with a 203k loan?

The FHA is putting up taxpayers’ money to guarantee part of your mortgage. So it’s not in the business of writing loans for luxury upgrades.

There are strict rules about the types of home renovations you can do and the amount of money you can borrow.

In fact, the total amount you can borrow for your home purchase and renovation costs is governed by current FHA loan limits, which vary depending on local home prices.

You can find the loan limit where you wish to buy using this lookup tool.

Maximum rehabilitation loan budgets

We already mentioned that a Limited 203k loan gives you a cap of around $31,000 on your rehab budget.

A Standard 203k lets you have as big a rehab budget as you want, capped only by your local loan limit minus the home’s purchase price.

Your total loan amount can be up to 110% of the property’s future value when complete.

But an appraiser will pore over your plans to make sure the final value of the home — after your projects are completed — will match the amount FHA is lending you.

What you can spend your rehab budget on

The Limited 203k is mostly intended for refreshing a home that’s a bit tired. So you can do things like:

  • Replacing flooring and carpeting
  • Installing or replacing an HVAC system
  • Remodeling a kitchen or bathroom
  • Fixing anything that’s unsafe
  • Making the home more energy-efficient

But you can’t use the money to do structural work, such as moving loadbearing walls or adding rooms.

The Standard 203k is very different.

You can do all the above and almost everything else, including serious construction work. Heck, you can even move the house to a different site if you get the FHA to approve your plans.

The 203k loan process

Limited 203k loans are pretty straightforward. Indeed, they’re easier than most to qualify for and set up.

But a Standard 203k isn’t like that. It may be your best path to your dream home. But there will be some extra hoops to jump through compared to a traditional mortgage.

Here’s the basic process to apply for and close an FHA 203k loan.

  1. Find your best lender — You can save thousands just by comparison shopping among multiple lenders. They aren’t all the same! Make sure the ones you consider offer FHA 203k loans and are experienced in delivering them. You’ll want a lender familiar with the specifics of 203k loans to make sure the process goes smoothly
  2. Get pre-approved — Pre-approval shows you your exact budget as well as your future interest rate. And you’ll get a chance to resolve any issues that arise in your application
  3. Find the home you want — This is the fun bit. But download the Maximum Mortgage Worksheet PDF from HUD’s website because that will help you assess whether your plans are affordable
  4. Find a 203k consultant — A 203k loan consultant will visit the home site, inspect the building, and then prepare a document outlining the project’s scope and specifications, along with a detailed cost breakdown for each of the repair tasks. He or she also prepares lender packages and contractor bid packages, along with draw request forms for stage payments
  5. Find a licensed contractor — Some lenders maintain lists of approved contractors. And your consultant may help you find a reputable one. Make sure candidates have proven records for projects similar to yours and are familiar with FHA 203k jobs. Many contractors add serious delays to 203k approval because they can’t seem to complete the paperwork correctly
  6. Have the home and project appraised — The lender will set this up for you
  7. Begin work — Once the appraisal is approved, the lender should let you close. And your contractor can then begin work, drawing on funds in an escrow account

Limited 203k loans require the borrower to live in the home while repairs are completed. So if it’s a new home purchase, you’ll have to move in within 60 days, which is the norm for FHA loans.

Standard 203k loans, on the other hand, might include structural repairs that render the home unlivable while construction is going on. In this case, the home buyer is not required to move in right away.

Rehab loan alternatives for investment properties

FHA 203k loans aren’t the only way to buy and renovate a home with one loan. Fannie Mae’s HomeStyle Renovation and Freddie Mac’s CHOICERenovation products can do much the same thing.

Since the HomeStyle and CHOICERenovation loans are conventional mortgage loans, they won’t charge for private mortgage insurance (PMI) if you put at least 20% down. This can save home buyers a lot of money on their monthly mortgage payments.

However, like the 203k loan, these programs are only available for primary residences.

If you’re buying a ‘true’ investment property — meaning you won’t live in one of the units yourself — these loans aren’t an option.

But investors have other renovation loans to choose from.

Traditionally, you would buy a home with a mortgage and then borrow separately — perhaps with a home equity line of credit or home equity loan — to make improvements. Then you could potentially refinance both loans into one later on.

Another option is using a cash-out refinance on your investment property or primary residence and putting the cashed-out funds toward repairs or upgrades.

Of course, all these types of loans require you to have enough equity built up to cover the cost of repairs.

And if you choose to draw from the equity in an existing investment property, you’ll pay higher interest rates.

But the upside is that there are no rules about how the funds can be spent. So if luxury upgrades are on your agenda, this could be the way to go.

Explore all your options

FHA 203k loans are only available to a select group of investors: Those who will buy a multi-unit property and live in one unit themselves.

For real estate investors looking to fix-and-flip or build a large portfolio of investment properties, an FHA loan isn’t the right answer. But there are plenty of other financing options out there.

Be sure to explore all your loan options before buying or renovating a home. Choosing the right program and lender can help you achieve your goals and save money on your project.

Verify your new rate (Feb 23rd, 2021)

Compare top lenders

Source: themortgagereports.com

IT Jobs; VOE, CRM, Non-QM Products; Conventional Conforming News; CPI: No Inflation Worries

IT Jobs; VOE, CRM, Non-QM Products; Conventional Conforming News; CPI: No Inflation Worries

Here we are in the seemingly 58th week of 2020. What’s new? The podcast of today’s commentary features thoughts from the Millennial host on how lenders can address that market, and it can be heard via Apple, Spotify, or Google: subscribe and download. In terms of news, the FHFA extended forbearance protection past March. (More below on that.) And rating agency Moody’s view is that the CFPB’s recent changes to the QM rules would “allow lenders to qualify more types of loans as QM, resulting in a non-QM market with loans of lower credit quality, since most of today’s higher-quality non-QM loans would qualify as QM under the new rules, making future non-QM more synonymous with non-prime… the rule, if implemented could incentivize some lenders to price riskier loans lower than their true risk in an effort to fall within the new QM rule’s APR threshold. QM status conveys potential benefits to lenders and securitization issuers, such as protection against legal challenges and exemption from securitization risk retention.” More on this below as well, remember, the mandatory compliance date for the revised general QM and seasoned QM definitions is July 1.

Lender and Broker Services and Products

As the rush of mortgages and refis continues to flood the industry, it’s no secret that everyone’s feeling the deluge and leaving valuable loans on the table. At Truework, we know you’re feeling overwhelmed. Here are three things you can do to stop leaving valuable loans on the table, and take advantage of the market so you can come out on top. Truework is a US-based company with an expansive and ever-growing network and a dedicated team of mortgage professionals that are committed to tackling and completing any and all VOE/VOI requests. Additionally, we are the market leader for coverage for small and mid-sized companies. Start a verification on Truework now. Furthermore, with Truework, you can reverify employment for any request within 90 days of the original, receive up-to-date statuses on all verification reports, and get fast turnaround times. And for a limited time, Rob Chrisman readers get 6 free Verifications ($240 value). Let us do the heavy lifting so you can focus on what matters. Reach out to Zackary Green now for questions and to claim this offer.

Attention ClosingCorp and Reggora customers! If you use either of these platforms, you can now order appraisals and check the status of reports directly from within these systems – no need for yet another login. Triserv is fully integrated with both ClosingCorp and Reggora, as well as many other LOS and other technology providers. Triserv is a 50-state AMC that has client-specific, dedicated teams on both coasts offering high-touch, personalized service. To find out more, contact Triserv Appraisal Management Solutions.

Mortgage demand among self-employed and credit-challenged borrowers is still growing, according to Verus Mortgage Capital, the industry’s largest purchaser of Non-QM loan products. Largely ignored by lenders since COVID struck, the consumers demand has not changed. Fortunately, Non-QM guidelines are back to pre-COVID levels and some pricing is actually better, attracting more originators to this business. It’s time to help borrowers who don’t fit into the GSE credit box and who need the flexibility offered by the leading Non-QM investor. For more information about adding Non-QM products to your menu contact Jeff Schaefer, EVP of Correspondent Sales (202-534-1821).

One month into 2021 and Stearns Wholesale is already kicking the new year into high gear with exciting new tech developments! This week, Stearns has reduced its minimum lock duration from 60 to 45 days, reduced the minimum credit score to 620 now allowing up to 90% LTV on its Accelerator program, and removed the COVID cash out adjustment of .375. Stearns has also enhanced its Jumbo Loan Guidelines, which now allows 2nd homes, a max loan amount of $2 million and a minimum credit score down to 700. If you want to learn more about these exciting new product updates or partner with Stearns, click here to be contacted.

It’s a well-known fact that 2020 was a banner year for the mortgage industry. As you look over your 2020 numbers, ask yourself, “is this the best we could have done?” If you’re not working with Sales Boomerang to maximize borrower retention, the answer to that question is, “Nope. You definitely could have done better.” Sales Boomerang notifies lenders when someone in their database is ready for a loan. And the numbers speak for themselves: up to 65% borrower retention and 20-40% average lift to loan volume, all for around $299 per acquired loan — an average 20x ROI. Want more proof? With a loan loss report, Sales Boomerang can show you which competitor took your deal, the loan amount, type of loan, the term and much more. Request yours from Sales Boomerang today to learn how you can keep more of your borrowers.

As industry experts, TMS anticipates 2021 should see a steady rise in mortgage rates, and consequently, the refi faucet slowly turning off (eventually). The purchase market will once again be lenders’ bread and butter, although with slightly modified, post-COVID conditions. TMS CAREspondent has compiled some great tips in its new blog to help lenders prepare for this impending shift. Partner with TMS today.

While there’s no crystal ball capable of showing the industry’s future, MBA Chief Economist Dr. Mike Fratantoni is the next best thing. Join LBA Ware for the first of its quarterly webinar series More Insights, Better Decisions: Michael Fratantoni’s 2021 Mortgage Industry Outlook for a data-packed discussion on the state of the mortgage industry. Drawing on the latest stats, Mike will help you take a data-driven approach to your business decisions this year. Register for the free webinar, which takes place tomorrow, Thursday, February 11, from 1-2 pm ET.

“When people and robotic processes work together, loans get completed faster, error free.” If Elon Musk chose the mortgage industry, that’s how he’d do it. It’s how modern assembly lines achieve maximum efficiency. Yet many loan teams still handle loan files the old-fashioned way with tedious data entry, error-prone, time-consuming communications, and no way to get visibility into what may be at risk of missing critical deadlines. Now imagine an online, ultra-productive, “loan assembly line” that coordinates every step for every loan, actively prioritizes everyone’s tasks and eliminates tedious, routine work in your CRM+POS+LOS. That’s what TeamworkIQ does for $24/user/mo. It makes sure things get done right and get done on time while tracking each loan’s details, documents, deadlines and turn times. Loans get done faster and error free. What if you could 4x your efficiency in under 30 days? See how American Pacific Mortgage did and test-drive TeamworkIQ for free.

Leverage your existing technology ecosystem… it’s paid for!  Service 1st is integrated with multiple LOS and point of sale systems for TRV, SSV, VOE and credit reporting, with more added each year. Keep your team safely engaged and instantly cascade through S1 solutions within your IT environment. Additionally, many originators and lenders experienced significant VOE and credit reporting cost increases as we entered 2021. Have you contacted S1? S1 creates significant value via loan manufacturing efficiencies: Results (verifications and tradeline updates delivered 50% faster than industry benchmarks) without the hefty price tag. No signup fees or minimums.  Get started today with a no obligation price proposal at srv1st.com.

There’s still time to register for XINNIX’s upcoming quarterly Leadership Lessons Webinar: “Beyond the Daily Commentary 2021: A Live Q&A with Rob Chrisman” happening today at 1 PM ET. XINNIX Founder & CEO, Casey Cunningham, will be hosting this live Q&A session likely on topics focusing on exactly what is important to you. Reserve your seat today!

FHFA, Freddie, Fannie News Impacting Borrowers Everywhere

Huh? Freddie and Fannie operated like utilities? Let’s see how that is working out for PG&E and California. Seriously, what if the Administration left the two of them under conservatorship? It would certainly leave industry pundits less to talk about, right?

The Federal Housing Finance Agency (FHFA) extended the forbearance period to 15 months for GSE borrowers. This is an additional three months beyond the previous 12-month limit. Black Knight had reported that nearly 25% of all (not just GSE) active forbearance plans were scheduled to reach their 12-month expiration in March, and another nearly 15% in April. This extension should provide support for troubled borrowers through the difficult winter and early spring months. We view this announcement positively for mortgage credit broadly. In our coverage universe this primarily benefits mortgage insurers and mortgage REITs.

Fannie Mae issued Selling Guide Announcement SEL-2021-01 which includes update information on the verification requirements related to seasonal and secondary income, the seller/servicer post-purchase adjustment (PPA) process to require the use of the PPA form, and the removal of references to lenders authorizing release of MI data.

A recent Compliance Update from First American Docutech discussed Freddie Mac’s announcements in Bulletin 2021-4  regarding CMT-indexed ARM, IRS Form 4506-C, and

authorized change for the uniform Oklahoma Mortgage (Form 3037). And Fannie Mae is retiring CMT Arm Products per FNMA LL-2021-05; more information in Compliance News.

loanDepot’s Weekly Announcement includes the Fannie Mae Appraisal Risk Management Policy Reminders and Resources and updates on FHA Loan Limits 2021. loanDepot has new programs available, smart Term Conforming and High Balance. Information on these programs and updates to its Conventional Lending Guide are discussed in this Announcement.

PRMG announced the expiration of QM Points and Fees Cure Provision on covered transactions with consummation dates after January 10. Impacted loan programs include Conventional (Fannie Mae and Freddie Mac), FHA and USDA. Lenders or assignees will no longer be allowed the option to cure the transaction and bring it into QM compliance when the total points and fees exceed the applicable limits.

Plaza Home Mortgage offers Fannie Mae HomeStyle® and Freddie Mac CHOICERenovation® loan programs. Download Plaza’s flyer for more information. In alignment with Freddie Mac Bulletin 2020-45, Plaza has updated the Home Possible® program guidelines, effective for all loans purchased on or after March 1, 2021. Specifically, this update reduces the maximum LTV from 95% to 85% for certain Home Possible Mortgages secured by 2-4-unit properties.

COVID tolerances have been extended on Flagstar Bank Conventional Products. Read Memo 21011 for details.

MQMR addressed how internal audit policies and procedures can meet federal and agency requirements. It discussed Fannie Mae’s release of several checklists as part of their Seller/Servicer Risk Self-Assessments, including the Internal Audit checklist. Internal audits are an important risk mitigation tool that uncover operational inefficiencies and potential areas of risk within a lender’s organization. For that reason, it is important for sellers/servicers to know that their Internal Audit policies and procedures satisfy federal and agency requirements and are effective for identifying risk. The article provides a list of requirements for an internal audit self-assessment checklist.

MQMR also spoke to the best practice of requiring outsourced service providers, such as contract underwriters and processors, to be checked against exclusionary lists. While the practice may not always be feasible to do, particularly if the lender is not made aware of the individual contract underwriter’s/processor’s name by the third party service provider that employs them, the article provided a summary of Agency guidelines on this issue from Fannie Mae Selling Guide Chapter A3-3, HUD Handbook 4000.1, Chapter II, A, 1, iii, and Freddie Mac Seller/Servicer Guide Chapter 3101.

Capital Markets

Our economy is driven by jobs and housing, and it is worthwhile to take another look at the employment numbers last week to keep things in perspective. After falling 227,000 in December, nonfarm payrolls increased a mere 49,000 in January disappointing many analysts who were expecting a more robust number. But thanks in part to a drop in the labor force, the unemployment rate fell from 6.7 to 6.3 percent. The U-6 unemployment rate, which includes those marginally attached to the labor force as well as those who are working part-time but prefer to be working full-time, declined. And initial claims for unemployment have been slowly declining and February’s outlook remains positive. Claims are still well above pre-recession levels and still largely affecting those in their prime working years. On top of that, U.S. manufacturing continues to improve according to the latest ISM Manufacturing Index. Inflation? Commodity prices rose nearly across the board for the month. Services also continued to expand but arts/entertainment/recreation, education services, and retail trade continue to struggle in the face of the ongoing pandemic.

Looking at rates Tuesday, Treasuries yields rose marginally across longer durations and the MBS basis ended Tuesday tighter, particularly on higher coupons as investors weighed the latest on stimulus, earnings, and vaccination efforts, trying to determine whether letting the economy run hot will spark destabilizing inflation. The day’s $58 billion 3-year note auction was met with solid demand ahead of today’s $41 billion 10-year Treasury note auction results.

Today’s economic calendar is already underway. Mortgage applications decreased 4.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending February 5. 30-year mortgage rates remained near their cycles lows during the reporting period (2 7/8). We’ve also had January Consumer Price Index (+.3 percent, as forecast, much of the gain due to gasoline, the core rate was unchanged). Coming up are December wholesale inventories and sales, remarks from Fed Chairman Powell on the “State of the US Labor Market” before the Economics Club of New York, and the January budget deficit from the Congressional Budget Office. Today’s Desk purchase schedule is the largest of the week at $8.8 billion over three operations, including over $7.3 billion in UMBS30s. We begin the day with Agency MBS prices unchanged and the 10-year yielding 1.15 after closing yesterday at 1.16 percent after the CPI data reminded us that inflation is currently not an issue.

 

Employment

“OpenClose continues to experience record setting growth while bank, credit union, and mortgage lender demand for our award-winning digital lending ecosystem is booming. This success makes available exciting opportunities for experienced mortgage banking and innovative software professionals to join the OpenClose family. We are seeking qualified and energetic professionals to join our implementation team as a Mortgage Software Implementation Specialist. The specialist will be responsible for the implementation of new customers and work with existing customers providing business + channel + user analysis, workflow evaluation, application setup and optimization of installations of our Web-based, enterprise-level mortgage software platform. Notable is that OpenClose is a 100% browser-based platform and can largely be implemented remotely. Minimal travel, if any, is involved in this position. Come see why OpenClose has received the Top Mortgage Employer award four years running. This and other opportunities can be accessed at Join the OpenClose Family!”

STRATMOR Group is anticipating a significant uptick in Merger and Acquisition activity in 2021. As a follow up to its recent open-position post, STRATMOR is seeking a professional with at least two years of hands-on M&A or Private Equity experience. This is a junior level position that will benefit from STRATMOR’s extensive experience in this industry. Employees of STRATMOR enjoy working at a company that has successfully managed remote work for decades and continues to grow in importance in the market. Specifically, this new hire will assist the STRATMOR team with tracking the M&A deal pipeline, generating interest with new M&A candidates, and creating Confidential Information Memorandums (CIMs), and financial models. If you are looking for an exciting new position with a highly respected mortgage consulting firm, then drop STRATMOR a note.

 

Source: mortgagenewsdaily.com

Triumph Lending Review: A Near Perfect 5-Star Rated Lender

Posted on February 2nd, 2021

One of the highest-rated mortgage companies on LendingTree goes by the name “Triumph Lending,” which is a division of its larger parent company Network Funding, LP.

The Texas-based direct lender boasts an incredible 5-star rating out of 5 from more than 1,100 customer reviews, meaning they must be doing something right.

They also feature an elephant in their logo, which explains the choice of image above.

Much of their lending appears to take place in The Lone Star State, so if you live in Texas, they could be a good choice if customer service is important to you.

Triumph Lending Fast Facts

  • Direct-to-consumer mortgage lender
  • Founded in 1998, headquartered in Houston, TX
  • A division of parent company Network Funding, LP
  • Offer home purchase loans and mortgage refinances
  • A LendingTree Certified Lender (top-10 in customer satisfaction)
  • Licensed to do business in six states (most active in Texas)

Triumph Lending a direct-to-consumer mortgage lender that seems to live online, meaning you can apply for a home loan remotely from their website.

The Houston-based company actually got its start as a wholesale mortgage lender, meaning they worked exclusively with mortgage brokers, as opposed to the general public.

Later, Triumph transformed into what they describe as a “hybrid retail mortgage origination company,” meaning they likely have both a retail and wholesale lending division, and/or can broker out loans when necessary.

What this means to homeowners and prospective home buyers is you can work with them directly to obtain a mortgage by calling them up or visiting their website.

They were founded in 1998 by Rex Chamberlain (current CEO) and Greg “Buzz Baker (president), who also run parent company Network Funding, LP.

At the moment, they appear to be licensed to do business in the following states: Arizona, Colorado, Florida, Illinois, Texas, and Virginia.

How to Apply with Triumph Lending

  • You can call, request a quote online, or simply apply immediately via their website
  • Their digital application allows you to apply in either English or Spanish
  • They embrace the latest technology but believe there’s no substitute for one-on-one interaction
  • Borrowers can manage their loan from start to finish via the online portal

You’ve basically got three options here. You can simply call them up on the phone to speak with a licensed loan officer and obtain pricing and loan options.

Or you can fill out a short quote request form on their website and wait for a loan officer to call you back.

Alternatively, you can visit their website and click on “Apply Now” and begin immediately by creating an account.

My recommendation is to always get pricing first, then decide if the company is competitive enough to follow through with the application. After all, you don’t want to waste your time or theirs.

Triumph says they offer an “all-online mortgage application,” which I assume means they use a digital platform that allows you to link financial accounts, scan/upload documents, and eSign disclosures.

You also get paired with a dedicated loan officer, processor, and closing team who will guide you step-by-step from start to finish.

Applicants can manage their loan 24/7 via the secure online borrower portal, which provides real-time updates and current loan status.

Based on their many positive testimonials, it sounds like they make it super easy to apply for a home loan.

Loan Programs Available at Triumph Lending

  • Home purchase loans
  • Home renovation loans
  • Refinance loans: rate and term and cash out
  • Conforming loan backed by Fannie Mae and Freddie Mac
  • Jumbo home loans
  • FHA loans
  • VA loans
  • USDA loans

Triumph Lending offers both home purchase loans and mortgage refinance loans, including rate and term refis and cash out refis.

If you’re buying or currently own a fixer-upper, you can also apply for a home renovation loan.

You can get a conforming loan backed by Fannie Mae and Freddie Mac, or a jumbo loan if your loan amount exceeds local loan limits.

They have the full slate of government-backed loan programs available, including FHA loans, USDA loans, and VA loans.

With regard to loan types, you can get a fixed-rate mortgage such as a 30-year or 15-year fixed, or a hybrid adjustable-rate mortgage, including a 5/1 ARM or 7/1 ARM.

They lend on all the usual property types, including single-family residences, condos/townhomes, and 1-4 unit investment properties.

Triumph Lending Mortgage Rates

While they do say they’ve got the “most competitive rates and terms on the market” right on their website, they don’t actually reveal their mortgage rates anywhere.

Some of the bigger banks and lenders will show you daily mortgage rates just to give you an idea of pricing, which is a nice touch.

Unfortunately, this isn’t the case with Triumph Lending. So if you want to get pricing, you’ll either need to call or submit a free rate quote request on their website.

This is probably the best way to get started as you can determine how their pricing stacks up to other mortgage companies out there.

As always, be sure to compare both the interest rate offered along with the closing costs, since you need to get an apples-to-apples comparison, and cannot do so without both.

Triumph Lending Reviews

Where Triumph Lending really seems to shine is in customer satisfaction. In fact, they’re nearly perfect based on their reviews.

Per LendingTree, they’ve got a 5-star rating out of 5 from over 1,100 reviews, with all 5-star reviews expect for two, which are 4-star reviews. That’s pretty impressive.

Additionally, they are a “Certified Lender,” which is defined as having demonstrated organizational commitment to employee development while providing “exemplary service” to LendingTree customers.

They also landed in the top-10 for customer satisfaction on the LT platform in both the second and third quarter of 2020.

On Zillow, it’s the same story – a near-perfect 4.99-star rating out of 5 from more than 350 reviews.

As I scanned through the reviews, I noticed that many of them highlighted the fact that the interest rate received was lower than expected, as were the closing costs in a lot of cases.

They’ve also got a 4.5-star rating on Google from about 15 reviews and a 5-star rating on Yelp from about 25 reviews.

While they’re not an accredited company with the Better Business Bureau, they do have an ‘A+’ rating based on their complaint history.

This means they’re generally good about resolving any customer issues that may come up quickly and competently.

Triumph Lending Pros and Cons

The Good

  • You can get started directly from their website
  • Offer a digital mortgage application using the latest tech
  • Can apply for a mortgage in both English or Spanish
  • Plenty of loan programs to choose from
  • Amazing customer reviews (nearly perfect ratings)
  • A+ BBB rating
  • Free mortgage calculator on their website

The Not

  • Do not publicize mortgage rates or lender fees
  • Not licensed in all states

(photo: Neil Ransom)

Source: thetruthaboutmortgage.com

Where to find bank statement loans for self-employed mortgage borrowers

Bank statement loans are harder to find

The home loan process looks a little different when you have self-employed income.

Self-employed borrowers sometimes have to consider bank statement loans, which let you qualify based on bank statements rather than tax returns.

This is a great way to get approved for a loan if you don’t have traditionally-documentable income. But not all lenders offer bank statement mortgages — and it can be harder to find a low mortgage rate.

There are still good deals to be had for self-employed mortgage borrowers. You just might need to search a little harder to find them.

Find a bank statement loan (Feb 1st, 2021)


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How to find bank statement loans

Not all lenders offer bank statement loans. So your options might be narrower than someone applying for a ‘traditional’ mortgage or refinance.

Below we list a few mortgage lenders that explicitly offer bank statement loans.

However, you shouldn’t limit your search to these companies.

A lender might be perfectly happy to approve loan applications based on bank statements — even if it doesn’t advertise ‘bank statement loans’ or ‘non-QM loans’ on its website.

So if there’s a mortgage lender you’re interested in, it’s worth reaching out to ask about its lending requirements.

You’re likely to have more luck with a non-bank mortgage lender or a credit union. Big-name banks are typically less keen to offer non-QM products.

The wider you cast your net, the more options you’ll have for comparing loan terms and interest rates.

Just because you’re self-employed, doesn’t mean you can’t shop around and find a great mortgage deal like everyone else.

Find a low-rate bank statement loan (Feb 1st, 2021)

A few bank statement loan lenders

If you’re already eyeing some mortgage lenders, ask whether they can approve you based on your bank statements. As we said, not all lenders advertise the fact that this is an option.

If you’re not sure where to start looking, we’ve compiled a list of lenders that do explicitly state they’ll approve bank statement loans.

As always, you should compare at least 3-5 loan offers to make sure you’re getting the best terms and lowest mortgage interest rate available to you.

Each self-employed mortgage lender is listed next to its Better Business Bureau (BBB) rating, which run from F to A+.

  • A & D Mortgage — A+
  • Athas Capital Group — A+
  • First National Bank of America — A+
  • Griffin Funding — A+
  • HomeLife Mortgage — A+
  • Luxury Mortgage — A+
  • New American Funding — A+
  • NewRez — A+
  • North American Savings Bank — A+
  • NorthStar Funding — A+
  • NP, Inc — A+
  • Paramount Residential Mortgage Group (PRMG) — A+
  • Caliber Home Loans* — A
  • Fidelity Home Group — A
  • Mortgage Equity Partners — A
  • AmeriSave — B+
  • Sprout mortgage — B

*Caliber Home Loans doesn’t include bank statement loans in its official portfolio. But at least one of its loan officers says they can originate them

If none of those is able to help you, cast your net wider. There are plenty of other lenders of bank statement loans that didn’t make our list.

Do your due diligence as a mortgage shopper

Understand that this is not a list of the ‘best’ mortgage lenders. Rather, it’s a list of lenders that definitely do bank statement loans — a place to get started.

It’s up to you to check out the companies that make your shortlist.

Run internet searches for regulator actions and customer reviews to get a pulse on how reputable a lender is.

Federal regulator the Consumer Financial Protection Bureau also maintains a consumer complaint database that you can search by company name to see if any official complaints have been filed.

Note, most companies have at least a few complaints, so this shouldn’t be a deal-breaker. But look at the reasons for the complaints to see if there are serious red flags.

Remember, you can always walk away

Bank statement loans are a type of ‘non-qualified’ or ‘non-QM’ mortgage.

‘Non-QM’ means a loan doesn’t meet the ‘qualified mortgage’ standards for most conventional loans. Since bank statement loans do not use traditional income verification, they fall into this category.

Non-qualified mortgages are less regulated than most other mortgage loan programs. So you won’t get some of the consumer protections that apply to other loan types. 

That means you need to make sure the lender you choose is reputable and that you fully understand the mortgage agreement you sign.

If you’re in any doubt over any issue, keep looking or seek professional advice.

Remember, a home loan agreement is not binding until you sign the final closing papers. So if anything seems amiss at any point in the mortgage process, you can always walk away.

What is a bank statement loan?

Roughly 44 million Americans are self-employed, including freelancers and contract workers, according to a 2020 Gallup report.

So it’s no surprise that there special mortgage programs to help self-employed people buy a home or refinance their current home.

Bank statement loans are a popular option. These don’t require W2s or previous years’ tax returns.

Instead, underwriters verify your monthly income by looking at deposits on your recent bank statements.

You’ll typically need to provide the past 12-24 months’ bank statements, along with other supporting documentation.

Pros and cons of bank statement loans

Many business owners, contract workers, and others in the gig economy minimize their tax liabilities by maximizing their deductibles for business expenses.

These write-offs can make their income look much smaller than it really is.

Some self-employed mortgage borrowers use bank statement loans to get around this obstacle, by counting most or all their income while ignoring expenses.

Bank statement loans come in several flavors. We found self-employed mortgage lenders offering:

  • 30-year fixed-rate mortgages
  • 5/1 adjustable-rate mortgages (ARMs)
  • 7/1 and 10/1 ARMs
  • Jumbo loans with loan limits in the millions

As an added benefit, many bank statement loans require no mortgage insurance.

Since non-QM loans can’t be sold to Fannie Mae or Freddie Mac, lenders aren’t required to charge the (borrower-paid) private mortgage insurance that so many home buyers try to avoid.

Disadvantages of bank statement loans

Non-QM loans aren’t regulated like other mortgage programs. That means each lender sets its own criteria or “underwriting standards” for approving these loans.

And, interest rates are typically higher on these mortgages. So you should expect to have to shop around even more than usual for a good deal.

Don’t be put off if you’re turned down by one or more lenders. Keep looking, and you may well find one that’s eager to help you.

Some experts recommend that you find at least five self-employed mortgage lenders for your shortlist and then compare their offers side by side.

Do you need a bank statement mortgage?

As a self-employed borrower, you’re not required to use a bank statement mortgage.

You have the option to apply for mainstream loan programs just like everyone else, including conventional, FHA, VA, and USDA loans.

These major loan programs can be easier to qualify for and typically offer lower rates than non-QM mortgages.

However, you’ll have to verify income using your tax returns rather than your bank statements. This could reduce your “qualifying” income since you have to use your after-expenses income for the year.

Many self-employed people write off most of their income in expenses. A great strategy for paying less taxes, but not for getting a mortgage.

For example

  • $100,000 gross income
  • $60,000 in claimed expenses on tax returns
  • $40,000 taxable income and the only portion usable for mortgage qualifying

Write-offs can put a huge dent in your income as a lender sees it. But if you can qualify using the lower amount, you’ll get a better deal on your mortgage through a traditional program.

Think about your home buying or refinancing goals: Do you want the lowest rate? The biggest loan amount? The cheapest monthly payment?

Knowing your goals will help you compare options and find the best loan program for you.

Check your mortgage loan options (Feb 1st, 2021)

Bank statement mortgage requirements

Because these are non-qualified mortgages, every lender gets to make up its own rules. And sometimes a lender will tailor the rules it applies to the applicant.

For example, a lender may normally ask for only 12 months of bank statements. But, if you’re borderline in some way (perhaps you have a low credit score), it may ask you for statements going back 24 months. Others want two years of bank statements for all applications.

The following common requirements are just a rough guide of what you might need to qualify as a self-employed mortgage borrower:

  • Bank statements — Typically for the past 12 or 24 months
  • A worthwhile down payment — Often 10% of the purchase price or more
  • Cash reserves — Enough savings or quickly accessible assets to cover several months of mortgage payments. Expect to have to document these
  • A decent credit score and clean credit report — Some lenders will approve FICO scores as low as 580. But you’ll likely need a score of 620 or higher. And remember, the higher your credit score is, the lower your rate will likely be
  • A debt-to-income ratio (DTI) below 55% — Many non-QM mortgage lenders have more lenient DTI requirements than those doing conforming loans
  • A profit & loss statement (P&L) — Typically for your business’s last 12 months of trading, prepared by your licensed tax professional. Most often required if you mix your personal and professional finances
  • A business license — Only if one is required in your line of work

You will also need a letter from your accountant or licensed tax professional that confirms that you file your taxes in an appropriate self-employed category. He or she may also have to confirm that your expense deductibles are in order.

Don’t be put off if you’re worried you’ll fall short on one or two of these. Some lenders are more flexible than others.

Bank statement loan rates

Bank statement loan rates are higher than traditional mortgage rates, since non-QM loans are considered a bigger risk.

For entrepreneurs and many in the gig economy (the ones most likely to choose bank statement loans), financial life can be precarious.

So lenders have to expect more loans to go bad. And the only way they can cover that additional risk is to charge higher interest rates.

Every lender assesses risk in its own way. So it’s hard to come up with a helpful average for how much higher bank statement rates really are.

But when we sampled a few bank statement loans on the day this was written, we found a number quoting rates of around 4.5% for a 30-year fixed-rate mortgage (FRM).

Compare that with an average rate of 2.8% for mainstream 30-year FRMs on that same day. Bank statement mortgage rates were nearly 2% higher.

That’s not to say you can’t find a good deal. But it should underscore the importance of shopping around for your best offer.

You might see a wide variety in the rates you’re offered, and you want to be sure you’re getting the most affordable loan you can.

How to choose the best mortgage lender for you

Mortgage pros and financial advisers are forever urging mortgage seekers to comparison shop for their loans. And they’re right.

Borrowers can easily save thousands or tens-of-thousands of dollars over the lifetimes of their loans, simply by investing a few hours in getting and comparing quotes from several lenders.

These quotes come in the form of “Loan Estimates.” And they’re all in the same format. So they’re very easy to compare side by side.

You’re obviously looking for a low mortgage rate. But don’t forget to also compare the following information, which will be on every quote:

  1. Annual percentage rate (APR) — This is a better guide to the actual cost of a loan than a raw mortgage rate. It includes the total loan cost spread over the life of your mortgage
  2. Estimated closing costs — How much you’ll pay in loan costs
  3. Estimated cash to close — The amount you’ll need on closing day: closing costs plus down payment and any other liabilities
  4. The total amount you’ll have paid after five years — A good way to compare the intial cost of two different loans
  5. The amount by which you’ll have reduced your debt (the “principal” you’ll have paid off) after five years — A key indicator of value for money

This is vital stuff. And it’s your opportunity to select the loan that suits you best.

Remember, you’re likely to see a wider range of loan types, loan terms, and interest rates from bank statement mortgage lenders. So it’s really in your own interest to spend some time shopping around.

Verify your new rate (Feb 1st, 2021)

Source: themortgagereports.com

What to Know Before Taking Out a Subsidized Loan

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Disclaimer

Attending college or university is a dream for a ton of people. Yet higher education can be expensive, seemingly putting that dream out of reach for many students and families.

Tuition at American schools has steadily increased for decades, so it can be hard for your average student to afford it. But it’s not only tuition costs that you need to consider: fees, room and board, off-campus living, meal plans, textbooks, living essentials and other supplies all cost money.

Fortunately, there are many different types of financial aid available to help you meet the total costs of attending school.

Grants, scholarships and government programs can all be used to aid your pursuit of higher education. Student loans, including private and federal loans, are also commonly used to fund college. But taking on debt requires more financial planning than other types of aid.

If you’re ready to find the right loan for you and your unique financial situation, we’ve got you covered. We’ll go over everything and anything we think you need to know about subsidized student loans—the basics, how they’re different from unsubsidized loans and much more. 

Student Loans and Rising Education Costs

Having a plan for how you’ll pay for college is pretty important. That’s mostly because the tuition continues rise: 

  • According to The College Board, tuition and fees for a public four-year institution in the academic year of 1989–90 were $3,510, in 2019 dollars. 
  • For the academic year 2019–2020, those costs exceeded $10,000. In the same time span, tuition and fees for a private four-year institution rose from $17,860 to nearly $37,000. 
  • In the last 10 years alone, tuition and fees for four-year public schools have increased $2,020, while costs for four-year private schools have grown $6,210. 

But as we mentioned, total costs include a lot more than tuition, and these other cost items have shown the same upward trend:

  • Data from the U.S. Bureau of Labor Statistics (BLS) shows college textbooks costs increased 88% from 2006 to 2016.
  • Average dorm costs at all postsecondary institutions were $6,106 in 2017, per data from the National Center for Education Statistics (NCES). Boarding costs, including meal plans, were $4,765. A decade earlier those costs, respectively, were $4,777 and $4,009.
  • Costs rose 24% for students living off-campus at public four-year universities between 2000 and 2017, according to The Hechinger Report.

The growth in college costs has occurred rapidly, outpacing wagegrowth. This has made a degree unaffordable for many. That’s where student loans come in.

The biggest source of these loans is the federal government. According to Sallie Mae, more than 90% of student loan debt today is tied to federal student loans. While the government offers several loan types, often based on financial need, private lenders such as banks and credit unions also make student loans available.

What is a Subsidized Loan?

To better understand your loan options, let’s explore the specifics of one of the government’s most popular offers: the subsidized student loan.

Officially, a subsidized loan is a type of federal loan offered through the U.S. Department of Education’s Direct Loan Program and referred to as a Direct Subsidized Loan. They are made exclusively to undergraduate students who demonstrate financial need and can be used to pay for college, university or a career school.

Subsidized loans work like most other student loans. They allow college goers to borrow money as they learn, paying the principal and interest back later. Most loans don’t require repayment while you attend school, and provide a grace period of six months after graduation for you to find a job. 

The most notable feature of subsidized loans is that the government pays the interest while you attend school at least part time. This is a quality that’s pretty much unique to federal subsidized loans. 

The government will also pay the interest during the grace period and during periods of loan deferment. You eventually assume responsibility for paying the interest, and principal, once you enter the repayment plan. 

The bottom line for subsidized loans is they carry a lower lifetime cost, because the government pays interest while you’re at school.

Who’s Eligible to Take Out a Subsidized Loan?

Subsidized loans aren’t available to everyone, however. In addition to meeting basic requirements for getting a loan from the federal Direct Loan Program, applicants for subsidized loans must:

  • Demonstrate financial need.
  • Be an undergraduate student.
  • Be enrolled at least half time.

Anyone considering a subsidized loan must fill out and submit the Free Application for Federal Student Aid (FAFSA) form. This is how the government will establish whether you demonstrate financial need that is sufficient for taking out a subsidized loan.

What Else Should You Know?

There are two other main points to discuss about subsidized loans—loan limits and time limits. Ultimately, your school will decide how much you can borrow. But there are annual limits to what you can borrow through subsidized loans, as well as a maximum for the entirety of your college career.

  • In your first undergrad year you can borrow up to $5,500 through federal loan, no more than $3,500 of that amount can be through subsidized loans.
  • In your second year you can borrow up to $6,500, no more than $4,500 through subsidized loans.
  • In your third year you can borrow up to $7,500, no more than $5,500 through subsidized loans.
  • The limits for your third year apply to your fourth year, and any year after that for which you are eligible to borrow through federal subsidized loans.

Factors influencing what you can borrow include what year you are in school and whether you are a dependent or independent student. 

Importantly, you can only receive subsidized loans for 150% of the published time of your degree program. That means if you attend a four-year bachelor’s program, you can only receive a subsidized loan for six years.

What’s the Difference Between Subsidized and Unsubsidized Loans?

Unsubsidized loans are the other type of loan the government offers. While unsubsidized loans and subsidized have some similarities, unsubsidized loans have some major differences.  

Interest rates for both subsidized and unsubsidized loans are controlled and set by Congress. This makes the interest rates for government student loans among the lowest you will be able to find.

While the federal government pays interest on subsidized loans, you’ll be solely responsible for paying interest on unsubsidized loans. You’ll have to pay interest while you’re in school and during the grace/deferment period.  Here are some other key differences:

  • Unsubsidized loans are available to undergraduate students, as well as graduate and professional students.
  • Students don’t need to demonstrate financial need to apply for an unsubsidized loan.
  • There is no maximum time limit for how long you can receive unsubsidized loans (compared to the 150% rule for subsidized loans).
  • Annual and aggregate loan limits are generally higher for unsubsidized loans.

Private Loans vs. Federal Student Loans

Interested in how private loans stack up to government loans? In a nutshell:

  • Private loans can have variable interest rates, which may make them lower in some cases than even fixed interest rates on government loans.
  • Annual loan limits don’t apply to private loans, as you and your lender will work out a package that is best for you.
  • Being approved for a private loan means submitting to a credit check, or having a parent as a consigner.
  • Often, private loans require payment while you attend school, and may not have the allowance for forbearance and forgiveness as government loans do.

Taking the Next Steps Toward Taking Out a Student Loan

If you or your child is nearing college age, it’s time to start thinking about how you’ll pay for higher education. It’s a good idea to look into a few options, including student loans, scholarships, grants and other sources. 

If you want to get started on applying for a subsidized loan, get started on your FAFSA form. And if you’re taking a closer look at private student loans, you can find help here.

Infographic outlining what to know about subsidized loans, including their structure, requirements, and qualifications.


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Source: credit.com

What Is a Jumbo Loan? Finance Your Property in a Competitive Market

After years of building a stellar credit history, you may have decided you’re finally ready to invest in that vacation home, but you don’t have quite enough in the bank for that eye-catching property just yet. Maybe you want to begin your investment journey early so you don’t have to spend years bulking up your life’s savings.

If an aspiring luxury homeowner can’t sufficiently invest in a property with a standard mortgage loan, there’s an alternative form of financing: a jumbo mortgage. This mortgage allows those with a strong financial history who may not necessarily be a billionaire to get in on the luxury property market. But what is a jumbo mortgage (commonly known as a jumbo loan), and how exactly does it work?

Jumbo Loan Definition

A jumbo loan is a mortgage loan whose value is greater than the maximum amount of a traditional conforming loan. This threshold is determined by government-sponsored enterprises (GSE), such as Fannie Mae (FHMA) and Freddie Mac (FHLMC). Jumbo loans are for high-valued properties, like mansions, luxury housing, and homes in high-income areas. Since jumbo loan limits fall above GSE standards, they aren’t guaranteed or secured by the government. As a result, jumbo loans are riskier for borrowers than conforming mortgage loans.

Jumbo loans are meant for those who may earn a high salary but aren’t necessarily “wealthy” yet. Lenders typically appreciate this specific group because they tend to have solid wealth management histories and make better use of financial services, ensuring less of a risk for the private investor.

Due to the uncertain nature of a jumbo loan, borrowers need to present an extensive, secure credit history, as well as undergo a more meticulous vetting process if they’re considering taking out a jumbo loan. Also, while jumbo loans can come in handy for those without millions in savings, potential borrowers must still present adequate income documentation and an up-front payment from their cash assets.

Like conforming loans, jumbo loans are available at fixed or adjustable rates. Interest rates on jumbo loans are traditionally much higher than those on conforming mortgage loans. This has slowly started shifting over the last few years, with some jumbo loan rates even leveling out with or falling below conforming loan rates. For example, Bank of America’s 2021 estimates for a 5/1 adjustable-rate jumbo loan were equivalent to the same rate for a 5/1 adjustable conforming loan.

The Federal Housing Finance Agency (FHFA) has set the new baseline limit for a conforming loan to $548,250 for 2021, which is an increase of nearly $40,000 since 2020. This new conforming loan limit provides the new minimum jumbo loan limits for 2021 for the majority of the United States. As the FHFA adjusts its estimates for median home values in the U.S., these limits adjust proportionally and apply to most counties in the U.S.

Certain U.S. counties and territories maintain jumbo loan limits that are even higher than the FHFA baseline, due to median home values that are higher than the baseline conforming loan limits. In states like Alaska and Hawaii, territories like Guam and the U.S. Virgin Islands, and counties in select states, the minimum jumbo loan limit is $822,375, which is 150 percent of the rest of the country’s loan limit.

Jumbo Loan Rates for 2021

Ultimately, your jumbo loan limits and rates will depend on home values and how competitive the housing market is in the area where you’re looking to invest.

Jumbo Loan vs. Conforming Loan: Pros and Cons

The biggest question you might be asking yourself is “do the risks of a jumbo loan outweigh the benefits?” While jumbo loans can be a useful home financing resource, sometimes it makes more sense to aim for a property that a conforming loan would cover instead. Here are some pros and cons of jumbo loans that might make your decision easier.
Pros:

  • Solid investment strategy: Jumbo loans allow the investor to get a solid jump-start in the luxury real estate market, which can serve as a beneficial long-term asset.
  • Escape GSE restrictions: Jumbo loan limits are set to exceed those decided by Freddie Mac and Fannie Mae, so borrowers have more flexibility regarding constraints they would deal with under a conforming loan.
  • Variety in rates (fixed, adjustable, etc.): Though jumbo loan rates differ from conforming loan rates in many ways, they still offer similar options for what kinds of rates you want. Both offer 30-year fixed, 15-year fixed, 5/1 adjustable, and numerous other options for rates.

Cons:

  • Usually higher interest rates: Though jumbo loans are known for their higher interest rates, the discrepancies between those and conforming loan rates are starting to lessen each year.
  • More meticulous approval process: To secure a jumbo loan, you must have a near air-tight financial history, including a good credit score and debt-to-income ratio.
  • Higher initial deposit: Even though jumbo loans exist for those who are not able to finance a luxury property from savings alone, they still require a higher cash advance than a conforming loan.

Jumbo Loan vs. Conforming Loan- Pros and Cons

How To Qualify for a Jumbo Loan

As we mentioned before, jumbo loans require quite a bit more from you in the application process than a conforming loan would.

First and foremost, most jumbo lenders require a FICO credit score of somewhere around 700 or higher, depending on the lender. This ensures your lender that your financial track record is stable and trustworthy and that you don’t have any history of late or missed payments.

In addition to the amount of cash you have sitting in the bank, jumbo lenders will also look for ample documentation of your income source(s). This could include tax returns, pay stubs, bank statements, and any documentation of secondary income. By requiring extensive documentation, lenders can determine your ability to make a sufficient down payment on your mortgage, as well as the likelihood that you will be able to make your payments on time. Usually lenders require enough cash assets to make around a 20 percent down payment.

Finally, and perhaps most importantly, lenders will also require that you have maintained a low level of debt compared to your gross monthly income. A low debt-to-income ratio, combined with a high credit score and sufficient assets, will have you on your way to securing that jumbo loan in no time.

Furthermore, you will also likely need to get an appraisal to verify the value of the desired property, in order to ensure that the property is valued highly enough that you will actually qualify for a jumbo loan.

Key Takeaways:

  • Jumbo loans provide a solid alternative to those with a steady financial history who want to invest in luxury properties but don’t have enough in the bank yet.
  • A jumbo loan qualifies as any amount exceeding the FHFA’s baseline conforming loan limit: $548,250 in 2021.
  • Jumbo loan rates are typically higher than those of conforming loans, although the gap between the two has begun to close within the last decade.
  • To secure a jumbo loan, one must meet stringent financial criteria, including a high credit score, a low DTI, and the ability to make a sizable down payment.

For any financially responsible individual, it’s important to always maintain that responsibility in any investment. Each decision made should be carefully thought out, and you should keep in mind any future implications.

While jumbo loans can be a valuable stepping stone to success in competitive real estate, always make sure your income and budget are in a secure position before deciding to invest. You always want to stay realistic, and if you aren’t interested in spending a few more years saving or financing through a conforming loan, then a jumbo loan may be for you!

Sources: Investopedia | Bank of America | Federal Housing Finance Agency

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