Mortgage Products Archives - Hanover Mortgages

March 3, 2021

What is a Conventional Mortgage Loan?

Owning real estate is expensive. Even for those with a solid savings account and a comfortable salary, it’s unlikely that you’ll be able to simply buy a home outright. That’s why most people, when they decide to invest in property and purchase a home, decide to take out a mortgage loan.

You’ve probably heard of mortgages at various points throughout your life, but you may not have ever arrived at answers to the questions, “what is a conventional loan?” or “how do mortgages work?” Don’t worry: we’re here to make it clear. Let’s start with a simple definition.

What is a conventional loan?

A conventional home loan is a large sum of money lent to a borrower by a bank, credit union, or lending agency—often referred to as a conventional mortgage when the loan is used to purchase property. The term conventional distinguishes this kind of financial product from other types of loan, like a jumbo loan, a VA loan, or an FHA loan.

In this article, we’ll walk you through the conventional loan basics you need to know to start your search with confidence. We’ve also included information on how to qualify for a mortgage and where to start looking for one when the time is right.

How do conventional loans work?

Conventional loans work like this: the bank (or credit union or lending agency) purchases property on your behalf and turns the title over to you—however, you promise to pay back the lender with interest.

Interest is the percentage rate you pay the bank for the trouble of lending you money, and it’s how the bank makes money from having lent you such a large sum. Interest rates are either fixed or adjustable; in the latter case, they typically change once per year depending on the state of the economy. The interest rate you receive on a conventional loan will also vary based on your own personal financial profile (more on that in a bit).

Interest rates and qualifications for a mortgage can vary significantly across the wide range of home loan products available to consumers, but conventional home loan terms tend to fall into a narrower set of categories. One distinction you’ll find between two types of mortgage products is conforming vs nonconforming loans.

Conventional mortgages are typically lent out with 15 or 30 year repayment periods; the one that’s right for you depends on your personal finances, your income, and the interest rate you can secure.

Conforming vs nonconforming

In the US, there are two federally run institutions that oversee a large portion of mortgage lending: Fannie Mae and Freddie Mac. The important takeaway is that conforming loans abide by lending standards put in place by Fannie Mae and Freddie Mac. Most importantly, these limits determine the possible size of the loan; In 2020, the conforming loan limit for a single-family home is $510,400. (Limites are higher in Hawaii, Alaska, Guam, and the US Virgin Islands.)

Nonconforming loans, sometimes called jumbo loans exceed these borrowing amounts. Nonconforming loans can vary more in their limits, rules, and conditions. Because they present a larger risk to lenders, they tend to come with higher interest rates. Non-conforming loans are not necessarily risky by default—though the Consumer Financial Protection Bureau warns they sometimes can be—but it’s still wise to read the fine print when shopping, and be sure to shop around before committing to any lender.

If you’re curious whether the homes you are interested in can be financed with a conforming loan, you can read more about the 2020 Federal Housing Finance Agency guidelines on FHFA.gov.

Who qualifies for a conventional loan?

Conventional home loans are more accessible to those with middle- to high-income, as they often necessitate a down payment and favorable financial profiles in order to secure a reasonable rate. This distinguishes them from government-backed loans, such as FHA loans, VA loans, and other products that are aimed at people with lower incomes, and make purchasing homes accessible to them.

In general, there are three areas that lenders care most about when assessing an applicant for a conventional loan: credit score, debt-to-income ratio, and down payment. Let’s take a look at each one of those qualifying criteria and what a lender might look for in a loan applicant.

Credit score

You may have often heard about people who want to improve their credit, or who want to gain access to certain financial benefits due to having good credit. Your credit score is essentially a measure of your trustworthiness as a borrower. It’s based on your past abilities to consistently pay off debts in a timely manner, as well as other factors like the number of accounts you have open. This includes debts like:

In fact, one reason many people work to improve their credit scores is to gain more favorable terms on a home loan they hope to apply for in the future. Credit scores are measured using a few different metrics. Two of the most common credit reports pulled by lenders are FICO and VantageScore. Both of these are measured from 300 to 850, with a score of 300 representing a very dubious borrowing history (likely with many late payments and defaults), and a score of 850 representing a strong and trustworthy history of borrowing.

Having high credit can mean the difference between a massive interest rate and one that’s much easier to manage. If you can, it’s smart to work on improving your credit before you seriously consider applying for a mortgage.

Debt-to-income ratio

The next mortgage lender consideration is your debt-to-income (DTI) ratio. This ratio is pretty much exactly what it sounds like: the total amount of money you spend on debt in a month divided by the amount of money that you bring in. Lenders consider this metric important because it indicates how well you may be able to keep up with payments. If your ratio is too high, it may suggest that there will be strain on your finances when adding a mortgage payment to the mix.

Check out the graphic below for instructions on how to calculate your own debt-to-income ratio.

If your DTI is too high, it may be worth taking steps to lower it before you apply for a conventional loan. This can be done by asking for a raise at work, following a debt repayment strategy, or consolidating outstanding debts to lower monthly payments. Waiting might feel frustrating, but facing a high interest rate for years or decades down the road will be more of a hassle in the long term.

Down payment

Your down payment is another significant factor that lenders closely consider when determining your eligibility for a conventional loan and the interest rate attached to it. A down payment is just a large lump-sum of money that you pay up front; it’s a percentage of the total cost of the home. For example, a 20% down payment on a home worth $500,000 would be $100,000; the remainder of the price could be financed through a conventional mortgage loan.

Many lenders may be more willing to approve you for a loan with a favorable interest rate if you’re able to put down a larger down payment.

You may have heard that you need a 20% down payment in order to afford a home. The average house costs around $250,000 according to Zillow, so it’s understandable if you don’t have $50,000 on hand. While that 20% number is definitely still a great option if you can comfortably afford it, you don’t need to panic if you don’t have that kind of cash laying around. Some lenders may allow you to make a down payment as low as 3%.

However, it’s important to note that if you do make such a low down payment, you may have to purchase private mortgage insurance, or PMI. The cost of PMI is added to your monthly mortgage payments, usually until you’ve paid 20% or more of the balance on the loan. For this reason, it’s generally a good idea to put 20% down if you can; this way, you wave PMI fees, lowering your monthly payments.

How to apply for a conventional loan

Applying for a conventional loan can be a nerve-racking process, but by making the right preparations and taking the right steps, it’s totally doable. If you’re considering applying for a conventional loan in the near future, here are some steps that you may want to take.

Consider your financial profile

Before you start seriously inquiring about a mortgage, it’s smart to get your personal finances in the best shape you can. That means repairing bad credit if your score is less than ideal, paying down existing debts and working on increasing your monthly income, and saving for a down payment as large as you can comfortably make.

Research lenders

From local credit unions, to large multinational banks, and consumer-friendly lending agencies to less-than-reputable ones, there are tons of places where you might apply for a mortgage. Some offer more preferable terms than others, and some make it easier to apply—but might come with greater risk.

These are all factors you should consider as you seek out the right lender for your mortgage. It’s smart to compare several lenders before you settle on the right fit for your needs.

Apply for your mortgage

Once you’ve decided on which lender best suits your needs, you can apply for your mortgage. At this point, your house hunt can begin! The application process can take some time—sometimes more than a month—and involves heavy documentation so it’s smart to start this early, preferably before you’ve started house hunting in earnest.

Conventional home loans can feel confusing and stressful, especially because there is so much money at stake. However, by learning the ins and outs of mortgages prior to applying, you can give yourself a leg up in the game, and the resources you need to find the financial product that’s right for you.

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Source: mint.intuit.com

March 3, 2021

Fulton Bank Mortgage Reviews

Fulton Bank was established in 1882 by local merchants and farmers who wanted to service the banking needs of residents and businesses in the Lancaster, Pennsylvania, region. The bank began acquiring smaller financial institutions in 1948 and quickly grew to the largest banking firm in the Lancaster County.

Shortly after celebrating its 100th anniversary, Fulton Bank formed a holding company and became the flagship bank of the Fulton Financial Corporation.

Among its wide array of products and services, Fulton offers a variety of home lending options such as fixed-rate and adjustable-rate loans, mortgages backed by the Federal Housing Administration, and the U.S. Department of Agriculture, as well as specialized loans designed for first-time homebuyers.

Table of Contents:

Fulton Bank Overview

Since 1882, Fulton Bank has supplied reliable financial services to residents and businesses in the Mid-Atlantic region of the U.S. The bank’s diverse selection of mortgage options is designed to meet the unique needs of homebuyers at every income level, especially low-to-moderate income residents.

Program eligibility is determined through a host of financial criteria, including credit scores and histories, debt-to-income ratio, and a government-issued ID.

To help lower-income Americans, Fulton offers a range of government-backed mortgages, including FHA, USDA and PHFA loans. The bank also assists these borrowers through closing cost and down payment assistance programs, which can drastically reduce the back-end administrative costs.

First-time homebuyers can benefit from Fulton’s exclusive Homebuyer Advantage Plus® Mortgage product and its First Front Door Program. These products/services were designed to support families in their search for a safe and comfortable environment.

As such, they require no private mortgage insurance and allow for up to 97 percent financing on new purchases.

Fulton Bank Mortgage Rates

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Fulton Bank Mortgage Options

Fulton Bank provides a diverse selection of mortgage offerings that are uniquely tailored to suit the individual needs of its customers. In addition to conventional fixed-rate and adjustable-rate loans, Fulton also offers government-backed mortgage programs like FHA, VA, USDA, and PHFA loans.

This lender is particularly dedicated to helping low- to moderate-income homebuyers find affordable lending solutions within its service region. Fulton’s down payment assistance programs ensure that residents of Delaware, Maryland, New Jersey, Pennsylvania, and Virginia have access to plenty of financially viable options to choose from.

Fixed-Rate Loans

This popular mortgage option offers consistent monthly payments by locking in a fixed interest rate for the entire length of the loan. Fulton Bank allows borrowers to select a loan term between 10 and 30 years, even for multi-unit residential homes. This lender accepts down payments as low as zero percent of the purchase price for qualified applicants.

Adjustable-Rate Loans

For homebuyers unsure about their long-term plans, an adjustable-rate mortgage allows for increased flexibility and lower initial monthly payments. After the set fixed-rate period, the interest rate and payment amounts may increase or decrease based on how the financial index fluctuates.

It offers borrowers a choice between 1-, 3-, 5-, 7-, 10-, or 15-year fixed-rate periods before the interest rate begins adjusting to market conditions.

Homebuyer Advantage Plus® Loans

This loan option is only available to first-time homebuyers and was specifically designed to meet the needs of new families and borrowers with low-to-moderate incomes. It offers these loans with low down payments, flexible credit requirements and the ability to finance up to 97 percent.

Borrowers are not required to obtain private mortgage insurance, though household income restrictions may apply.

HomeReady® Mortgage Plus Loans

To help meet a diverse range of financial and family needs, Fulton Bank provides this flexible mortgage option designed to support homebuyers who cannot afford large down payments. Borrowers can finance up to 97 percent of the purchase amount and co-borrowers are not required to live in the home.

Private mortgage insurance is not required, but homeownership counseling from a HUD-approved agency is mandatory.

FHA Loans

These government-backed mortgages are sponsored by the Federal Housing Administration and can be negotiated as either fixed or adjustable-rate loans. This option is available to borrowers with credit scores of 580 or higher and requires little to no down payment, making it a good choice for lower-income residents.

VA Loans

The U.S. Department of Veterans Affairs backs this mortgage offering and extends up to 100 percent financing options to eligible veterans and service members. VA loans can be set up as either fixed or adjustable-rate, without requiring a down payment or mortgage insurance to qualify. Minimum credit score criteria may apply.

USDA Loans

The U.S. Department of Agriculture established this mortgage program in 1991 to help medium-income Americans purchase homes in rural and suburban communities. Qualified borrowers can obtain 100 percent financing for properties within eligible areas, but they must occupy the house as a primary residence.

PHFA Loans

This loan option was created by The Pennsylvania Housing Finance Agency and is only available to qualified in-state homebuyers. These mortgages come with a fully amortized 30 year fixed rate term and offer competitive interest rates and lower-than-market monthly payments.

Fulton Bank Mortgage Customer Experience

Fulton Bank operates over 250 branches and specialty offices throughout its multi-state service region. The bank provides online users with a massive amount of free informational resources, including home buying tips, mortgage checklists, timely articles on the housing market, and even a complimentary Homebuying 101 course.

Through Fulton’s Framework® resource, borrowers can learn which properties they can afford and which mortgages best suits their long-term goals; it’s also an accepted form of education for most first-time homebuyer incentive programs.

Interested borrowers can obtain a rate quote on the Fulton website by submitting their personal information, but this will require entering a social security number. In addition to rate quotes, Fulton’s site allows homebuyers to initiate a pre-qualification check that helps speed up the mortgage application process.

Once a suitable mortgage has been found, users can immediately start filling out an online application or contact a Fulton lending specialist directly over the phone.

Fulton Bank’s commitment to helping first-time and lower-income homebuyers is reflected in its diverse payment assistance programs. In partnership with Operation HOPE, Fulton established a closing cost assistance program that provides eligible borrowers with up to $2,500 for closing costs and $1,000 toward mortgage down payments.

Through its First Front Door Program, the bank supplies qualified first-time homebuyers with a grant of up to $5,000 to help with a down payment and closing costs, but some restrictions apply.

Fulton Bank Grades

Over its 137 years of operation in the U.S., Fulton Bank has been considered one of the most trusted banking and lending institutions in the Mid-Atlantic region, earning accreditation as an Equal Housing Lender and a member of the FDIC.

While the Better Business Bureau does not formally accredit Fulton, it currently holds an A+ rating via the BBB website. Since 2016, less than 20 customer complaints have been reported to the BBB, few of which reference the company’s mortgage lending products or services.

According to the Consumer Financial Protection Bureau website, no enforcement action has ever been taken against this lender.

Information collected on Jan. 3, 2019

Fulton Bank Mortgage Qualifications

Loan Type	Interest Rate Type	Down Payment Requirement
Fixed-Rate Loans	Fixed-rate	No
Adjustable-Rate Loans	Variable-rate	Yes
Homebuyer Advantage Plus® Loans	Fixed-rate	Yes
HomeReady® Mortgage Plus Loans	Fixed or Variable rate	No
FHA Loans	Fixed or Variable rate	Yes
VA Loans	Fixed or Variable rate	No
USDA Loans	Fixed-rate	No
PHFA Loans	Fixed-rate	Yes

Unlike most lenders, this bank does not require substantial down payments for most of its loans, making it a solid choice for first-time homebuyers or borrowers without significant credit histories.

Each of Fulton Bank’s mortgage products has different qualification guidelines, in part because of the specialized nature of many of its offerings. Most of Fulton’s income-based programs have earning limits that ensure low-to-moderate income applicants have the best chance of securing an affordable mortgage.

Fulton Bank considers its applicants’ credit scores and credit histories when determining what interest rates it can offer, though options like the FHA loan are open to borrowers with scores as low as 580. This information helps lending experts understand the degree of risk involved.

According to FICO, the industry-standard credit score is 740, but homebuyers with lower scores should still apply or speak with a lending representative to learn more about their options.

Fulton Bank Phone Number & Additional Details

Homepage URL: https://www.fultonbank.com/
Company Phone: 1-800-220-9034
Headquarters Address: 1 Penn Square, PO Box 4887, Lancaster, PA-17602

Source: goodfinancialcents.com

February 10, 2021

What Is Private Mortgage Insurance?

You’ve spent weeks preparing paperwork for your mortgage application. Now that you’re pre-approved for a loan, it’s time to talk numbers. At first glance of the document detailing the breakdown of your monthly mortgage payments, the term PMI catches your eye. It’s a little over $100 per month and you have no idea what it means.

From what you’ve read, it’s common on loans if the borrower puts little or no money down. But before you dive into panic mode, take a deep breath and read on to learn more about PMI and how it works:

What is private mortgage insurance (PMI)?

What happens when your down payment is less than 20 percent of the cost of your new home? You may get approved for a loan, but you’ll pose more risk to the mortgage lender since you’re starting with no equity in your home. And if you fall behind on payments and the lender forecloses on the home, they could stand to lose on the sale.

But the down payment of 20 percent is a way to create instant home equity. It also provides a layer of protection for the lender if they have to sell at a discounted price to recoup losses.

So, how does the lender protect themselves if you make little to no down payment? That’s where private mortgage insurance (PMI) comes in.

PMI is a type of mortgage insurance that protects the lender from taking a huge loss if you default on the loan. If the lender is unable to recover the outstanding balance of the loan from the sale, PMI will kick in and pay out the difference.

Who pays for private mortgage insurance?

This protection comes at a cost to borrowers. But it allows those with a down payment of less than 20 percent to buy the home of their dreams. It also minimizes risk so lenders can extend these types of mortgage loans to consumers.

Does it cover private and public lenders?

PMI is only available to private lenders. Government agencies and other public lenders have their own form of mortgage insurance.

When is private mortgage insurance required?

Lenders use the loan-to-value (LTV) ratio to determine whether a borrower has to pay PMI. Typically, you’ll only have to pay PMI premiums if your loan-to-value ratio exceeds 80 percent. To calculate the mortgage loan-to-value, the lender divides the amount of the mortgage by the home value.

There are other circumstances that may cause the lender to require PMI coverage. This includes past foreclosures, less than perfect credit or any other factors the lender thinks will increase your chances of defaulting on the loan.

A few scenarios:

	SCENARIO 1	SCENARIO 2	SCENARIO 3
Home Value ^[1]	$100,000	$200,000	$250,000
Down Payment	$10,000	$50,000	$25,000
Mortgage Amount	$90,000	$50,000	$25,000
Loan to Value Ratio	90%	75%	90%
PMI Required	Yes	No ^[2]	Yes

[1]: Equivalent to sales price at the time of purchase
[2]: This may change if the lender determines the borrower is riskier than normal

Private Mortgage Insurance vs Mortgage Insurance Premiums

As mentioned earlier, mortgage insurance comes in a few variations:

Private Mortgage Insurance (PMI): protects private lenders who offer conventional loans. In most instances, PMI only applies until your LTV reaches 80 percent. But there are situations where the lender will require a higher percentage for the coverage to be lifted from the loan.
Mortgage Insurance Premium (MIP): protects government-backed VA and FHA loans. It applies for the duration of the loan, even once LTV is below 80 percent.

The LTV ratio is computed in the same manner for both private and government-backed mortgage products.

How much is private mortgage insurance?

Premiums vary by loan. On average, you can expect to pay between 0.5 and 1 percent of the loan amount on an annual basis. So, if your mortgage is $350,000 and the PMI rate is 0.8 percent, your annual premiums will be around $2,800, or $233.33 per month.

The insurer will analyze your profile, including your credit score and down payment, to determine your interest rate.

The type of mortgage could also impact your premium. For example, if you are taking out an Adjustable Rate Mortgage (ARM) with floating interest, your premium may be higher. Why so? If the interest rate increases, your mortgage payments will rise. And there’s a possibility you’ll default on the loan.

The condition of the real estate market in your area could also impact your PMI premiums. If projections state home values will plummet in the future, your premiums may be higher. This is due to the likelihood of you walking away once you’re upside down on the loan.

How are PMI premiums paid?

There are three ways to make PMI premium payments:

Borrower-Paid PMI: Most lenders make it easy to manage premiums by rolling the monthly obligation into the amount you already pay for your home. This is the method used by most borrowers.
Single Premium PMI: You can also make a single lump-sum payment at the start of the loan by paying cash or rolling sum of the premiums into the loan.
Lender Paid PMI: If you wish to lower the monthly mortgage payment, Lender Paid PMI is also an option. The lender will pay premiums on your behalf. But keep in mind that the costs will be recouped in interest. And premiums don’t automatically go away when the mortgage LTV reaches 80 percent.

How to Avoid Paying Private Mortgage Insurance

The easiest way to avoid paying PMI is by making a larger down payment. If you can’t afford to put 20 percent down, it reduces your LTV ratio. Plus, you’ll be able to drop coverage quicker.

1. Take out a second mortgage or piggyback loan

To use this strategy effectively, you’ll need to take out a mortgage for the home’s purchase price, minus 20 percent. The remaining balance, minus the down payment, is then rolled into a second mortgage or piggyback loan.

So, if you buy a home for $200,000 and make a down payment of $15,000, the first mortgage will amount to $160,000. The second mortgage will amount to $25,000 since you are making a down payment of $15,000.

With this method, you avoid PMI since the LTV ratio on the first mortgage is 80 percent. But keep in mind that a second mortgage comes with a higher interest rate. So, you’ll want to pay it off sooner than later to avoid spending a fortune in interest.

2. Monitor the loan-to-value ratio

When you took out the mortgage loan, your lender used the home’s purchase price to determine the LTV ratio. However, an increase in the market value of your home could mean you are no longer obligated to pay for PMI.

By law, under the Homeowner’s Protection Act, PMI has to come off once the outstanding principal reaches 78 percent of the original loan amount.

Prepare to provide a professional appraisal to the lender to substantiate your claim. You may spend a few hundred dollars to get it done, but the cost savings will be worth it.

3. Request an earlier removal of private mortgage insurance

If you’re nearing the 80 percent mark, the lender may be willing to remove the private mortgage insurance from your loan. There’s also a possibility that you’ve already met some other criteria that warrant the removal of PMI coverage.

4. Refinance your mortgage

Perhaps your credit score was in shambles and you were forced to take out a government-backed loan that requires you to carry PMI for the duration of the loan. Or maybe you got stuck with a conventional loan from a private lender that requires PMI until the LTV ratio reaches 70 percent.

Either way, refinancing your loan with laxer PMI restrictions may be a better option. But be sure to run the numbers to confirm that the new loan will not cost you more over time. (Remember, extending or resetting the loan term will give the lender more time to collect interest from you).

5. Do your research

Some lenders offer mortgage products that allow you to make a small down-payment and not have to pay for PMI. Bank of America’s “Affordable Loan Solution” mortgage product is a great example.

6. Ask about exemptions

If you’re a physician or veteran, you could also be exempt from PMI, even if you don’t put down 20 percent. Ask your lender for more details to determine if you qualify.

7. Consult with the lender

Still no luck? Reach out to the lender to inquire about other ways to stop paying PMI. They may know of tips and tricks that may not be obvious to the average borrower.

Finally, if you still have questions or don’t understand how private mortgage insurance works, seek clarification before signing on the dotted line. That way, you won’t be in for any surprises later on down the line.

Source: crediful.com

February 6, 2021

Originators predict more outsourcing and consolidation in 2021

Managing costs and creating operational efficiencies are foremost on the minds of the mortgage lenders, with the ongoing pandemic creating pressure on their profit margins.

Outsourcing was the leading choice for producing those efficiencies, by 41% of those surveyed for Altisource Portfolio Solution’s latest the State of the Originations Industry report.

That edged out using more technology and digital services to reduce the need for staff, cited by 39% of the respondents to the survey of 200 people conducted between Aug. 17 and Aug. 29, 2020. Those shares were unchanged compared with the previous year’s survey.

“With costs rising and revenues down in many cases due to the pandemic, it makes sense. Rather than spending time and money hiring and training full-time staff, service providers can support and strengthen an originator’s workforce by handling a portion of the lender’s volume,” the report said. “In this way, an originator can avoid the typical hiring/firing cycles that significantly distract an organization from closing more loans.”

When asked what they predict for the mortgage business over the next two-to-three years, 80% of the respondents — up from 79% the previous year — said originators will outsource more to third-party vendors to better deal with market fluctuation, especially as total volume is expected to shrink due to lower refinance activity.

That was the third most-cited prediction, with the No. 1 being that growing costs will drive smaller lenders out of the business or into merging with other lenders. That was cited by 84% of respondents, up four percentage points from the previous year’s survey.

Sandwiched between those two choices was the return of private money into the mortgage securitization market, predicted by 82% of the respondents. That share was unchanged from the previous year, but it was the most cited answer for that period.

Ranked fourth among the predictions cited by the respondents was the likelihood of a market crash in the next 24 months, at 68%, while fifth, at 64%, was a new option for the latest survey, nonbanks will dominate the originations business over the next two-to-three years.

Prior surveys gave respondents the option that big banks will come back in and dominate the mortgage business; in the previous year’s survey, that was the second most cited response at 81%.

Regulatory constraints was the most-cited challenge in today’s mortgage market, by 27% of respondents. This was followed by technology at 24%; staff retention, 21%; margin compression — which is why many lenders are worried about costs — 19%; capacity, 10%; and other, 1%

When asked to rank the initiatives that are most important in differentiating their individual business compared with their competition, technology enhancements edged out customer service, 21% to 20%. Pricing was third at 19%, followed by marketing at 11%, quickest timeline at 10% and artificial intelligence at 9%.

In terms of what makes mortgage products more attractive to consumers, 38% said improved customer experience was key. Lower loan costs was cited by 23%, followed by fully digital closings at 22% and fasting closings at 18%.

“While the road ahead is still unclear, as always, mortgage companies that are ready for whatever comes will have the best chance of thriving in the market,” Brian Simon, president of three Altisource subsidiaries including the Lenders One cooperative, said in a press release.

Source: nationalmortgagenews.com

February 5, 2021

BBVA Reviews for [year] (Checking, Savings, CDs, & More)

BBVA USA (formerly BBVA Compass) has physical locations in seven states, but their online banking features make them available to anyone in the entire country. BBVA is known for a number of financial products and services, including their second chance checking accounts.

BBVA

Even if you don’t need a non-ChexSystems bank, you can benefit from BBVA’s digital-friendly services. In fact, their mobile banking app has won a national Javelin award for three years in a row.

Are you in the market for more personalized service?

All checking account holders get access to a team of remote personal bankers — for free. You get to avoid the hassle of going to a branch and can instead call, text, email, or chat with one of your bankers to take care of your business.

BBVA USA has a lot going for it, so learn about some of the most popular bank accounts and programs to see how you can most benefit from working with this leading bank.

BBVA Checking Accounts

There are a few different checking accounts available from BBVA so that just about anyone can find a good fit.

Here are the highlights of each one:

Online Checking

With no monthly service charge and just a $25 minimum opening deposit, this is an incredibly accessible account.

When you open an account, you get access to all the benefits like online and mobile banking and can opt-in for online statements instead of paper statements to avoid monthly service charges. Plus, you don’t have to worry about ATM fees at both BBVA and Allpoint ATMs.

You get a Visa debit card that’s personalized with a photo of your choice. Plus, you can opt-in for overdraft protection if you’d like. You’ll have to pay a fee if you use it, but you might prefer that over have a declined purchase due to a temporary shortage of funds in your account.

As a second chance bank account, you can also use your account as a way to rebuild your banking history.

Apply for a BBVA Online Checking Account

Free Checking

Like the Online Checking account, the Free Checking account comes with no monthly service charge and just a $25 opening deposit minimum. As an added bonus, you get unlimited check writing with this account, which is helpful if you still mail in certain bills like your rent.

You get free statements of your choosing, either paper or digital and no ATM fees. Additionally, you can customize text alerts for free so you’re always up to date on your account status.

There’s also the opportunity to earn free cash back:

All you have to do is enroll in the Simple Cash Bank Rewards program and shop at eligible retailers. The neat thing is that the offers are based on places where you’re already spending money, so you can participate without making purchases that are out of the ordinary.

Apply for a BBVA Free Checking Account

Interest Checking

If you’re ready to have your money start working for you, then take a look at this checking account.

There’s a $25 monthly service charge. However, you can avoid paying it with one of these options:

Hold an average daily collected balance of at least $5,000
Have at least $25,000 across your checking account and money market account
Enroll in the Premier Personal Banking Program
Maintain BBVA Global Wealth client status

You also get to avoid the charges on one money market account from BBVA USA.

Apply for BBVA Online Checking

BBVA Savings Accounts

BBVA, Member FDIC, also offers standard savings accounts with a few different distinctions. Here’s how they stack up.

BBVA Online Savings Account

This is a great starter option because you earn interest on your entire balance and it only has a minimum opening deposit of $25. There’s a quarterly service charge of $15 but you can have it waived in one of two ways.

The first is to set up an automatic, recurring transfer each month of at least $25 from any BBVA checking account. The second option is to maintain at least $500 as your daily balance in your account.

Apply for BBVA Savings

BBVA Money Market Accounts

If you have a bit more money to place in a savings account and want to increase your interest returns, consider a BBVA money market account. You only need that low $25 opening deposit.

The catch?

There’s a $15 monthly service charge so make sure your earnings at least cover that amount, otherwise, it’s not worth it. You can also waive the charge by either:

Maintaining $10,000 as your minimum daily balance
Set up a recurring $25 transfer from your BBVA checking account each month

Apply for BBVA Money Market Account

BBVA Certificates of Deposit

With a minimum deposit of $500, a CD is a more sophisticated savings account. But with no maintenance fees, it can help build your savings over time.

Rates vary based on your geographic location and the term length you choose. They offer 11 to 36 month CDs.

Their CD rates are better compared to some other savings accounts, but you won’t be able to access your cash until the term ends — unless you want to incur a penalty.

So while a CD can be a great part of your savings plan, make sure it fits in with your overall strategy so that you have easy to access cash as well.

Apply for a BBVA CD

BBVA Credit Cards

In addition to checking and savings accounts, BBVA offers a variety of credit products as well. Whether you’re already a customer or looking for a new bank, check out what they offer.

BBVA USA has three different credit cards to choose from:

ClearPoints Card

This is a straightforward card that is fee-free and earns you cashback on purchases you choose from certain categories. You may also qualify for a low introductory APR period (which can be as little as 0%).

After the period is over, rates range between 12.24% and 30.24% APR. BBVA USA also runs promotional offers such as giving new cardholders a $100 statement credit when you spend $1,500 in the first 90 days.

Apply for a BBVA ClearPoints Credit Card

Select Card

A strong option for frequent travelers, this card comes with a hefty $125 annual fee — although it’s waived for the first year. Make sure the benefits you receive outweigh the cost.

You can earn 3x points in your select categories and also get your foreign transaction fees waived. Plus, you get concierge service that includes perks like roadside assistance, lost luggage reimbursement, and travel assistance services.

Apply for a BBVA Select Credit Card

Optimizer Card

If you’re looking to rebuild your credit score, this secured credit card gives you the chance you need. You’ll have to place cash in a savings account as collateral and can then use it just as you would any other credit card. You can increase your credit line whenever you’d like by depositing more money into that savings account.

Apply for a BBVA Optimizer Credit Card

BBVA Loans

You also have a couple of different loan options available through BBVA Bank whenever you need funds for a major purchase.

Express Personal Loans

If you need a personal loan quickly, BBVA can provide funding as fast as the same day. You don’t need to provide any collateral and can get a loan for as little as $2,000 or as much as $35,000 when you apply online.

Loan limits are much higher at branches:

You can borrow up to $100,000 if you apply in person. To save money on your interest rate, consider setting up automatic payments each month from your BBVA checking account. You’ll get a 1.00% discount on your interest rate, which can add up to significant savings over time.

APRs start at 6.07% and go up to 35.06% so depending on your credit and other factors, you could spend a lot less on interest compared to using a credit card. Plus, you typically have a much higher limit with a fixed timeline for repayment.

Auto Loans

Need to buy a new car? BBVA also provides auto loans with fixed interest rates. Terms can be as fast as 12 months or go all the way up to 72 months, giving you the flexibility you need to pay back the loan.

Auto loans can be as small as $5,000 but you’ll get a better interest rate if you borrow $15,000 or more. Rates start as low as 3.49% APR and vary depending on your credit, loan amount, term length, and type of car purchased (new or used).

BBVA Mortgages

BBVA also has you covered when it comes to a selection of mortgage products. New purchase mortgage options include both conventional and jumbo home loans. You can also select either a fixed rate or adjustable rate mortgage or get a loan for new construction properties as well.

Are you an existing homeowner with equity in your home?

You can tap into that equity a few different ways with BBVA USA. One option is to open a home equity line of credit (HELOC). These typically offer extremely low interest rates and you can simply borrow what you need, when you need it. Alternatively, you can get a home equity loan for $10,000 or more.

Both options provide tons of flexibility in how you use your funds and mortgage rates across the board are still at near historic lows.

BBVA Self-Directed and Full-Service Investments

No matter how savvy you are with the stock market, BBVA has two types of investment platforms to meet your needs.

Ready to do some hands-on investing?

Consider their self-directed investments. You can open an account in just a few minutes and then perform your own trades. Available investments include:

Equities
ETFs
Mutual funds
Options
Margin accounts

Fees vary for each type of trade, so review the terms carefully before getting started. Some types, like ETFs, have a flat fee of $9.95 per trade. Others trades, like options, charge a flat fee (in this case, $9.95), plus an additional fee. So on top of the per-trade fee for options, you’d also pay $0.75 per contract.

BBVA’s self-directed accounts also charge an inactivity fee, an annual fee for retirement accounts, and a termination fee. Bottom line: compare your options before you choose an investment platform.

If performing your own trades doesn’t sound right for you, BBVA also has a full-service investment program. You can select both retirement plans and personal investment opportunities. To prepare for your future retirement, you can select accounts such as IRAs, fixed annuities, and variable annuities.

Additionally, you can choose shorter-term investments like:

Mutual funds
Universal investment funds
Equity-linked CDs
Mutual fund portfolios
College savings programs (like 529)
Fixed income securities

BBVA’s investment arm also helps you choose comprehensive insurance plans as well as retirement solutions for business owners.

BBVA Reviews

One of the best ways to find a great bank is by reading third-party reviews. You can discover what actual customers are saying about them before you choose to do business with them. The Better Business Bureau (BBB) currently gives BBVA an ‘A+’. The account is listed under their old name BBVA Compass. You will find many 4- and 5-star BBVA Compass reviews at several other customer review sites as well.

BBVA Customer Service

BBVA’s customer service team can be contacted via phone, mobile app, or at a local branch. They have over 600 physical branches in the states of Alabama, Arizona, California, Colorado, Florida, New Mexico, and Texas.

BBVA Customer Service Phone Number: (844) BBVA-USA

Bottom Line

When looking for a full-service bank with great customer service that provides plenty of online solutions, BBVA really offers a slew of options. Perhaps most attractive are the bank’s opportunities for second chance accounts and secured card.

But even if you’re well on your way to saving, there are a lot of smart ways to manage your money through BBVA.

Source: crediful.com

February 2, 2021

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)

In this article (Skip to…)

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:

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
Estimated closing costs — How much you’ll pay in loan costs
Estimated cash to close — The amount you’ll need on closing day: closing costs plus down payment and any other liabilities
The total amount you’ll have paid after five years — A good way to compare the intial cost of two different loans
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

January 25, 2021

What is a home equity loan and how does it work?

Make the most of your home equity

As home values increase, so does the amount of equity available to homeowners.

But home equity isn’t liquid wealth; the money is tied up in your home. To access your home’s value, you either need to sell or take out a loan against the property.

One option is a cash-out refinance, which lets you tap equity and refinance your existing loan, sometimes to a lower rate.

But what if you’re happy with your current mortgage? Another option is a home equity loan, or ‘second mortgage,’ which lets you cash-out without a full refinance. Here’s what you need to know.

Check your home equity financing options (Jan 24th, 2021)

In this article (Skip to…)

What is a home
equity loan?

A home equity loan or ‘HEL’ is
a type of mortgage, often called a ‘second mortgage,’ that lets you draw on
your home equity by borrowing against the home’s value.

Unlike a cash-out refinance, a home equity loan lets you cash-out without touching your primary mortgage loan. So if you already have a great interest rate, or you’re almost finished repaying the original loan, you can leave its terms intact.

A home equity loan can also help homeowners who own their homes outright and don’t want to refinance the entire home value just to access equity.

How home
equity loans work

Home equity loans are mortgages just like your original home loan. They
are secured by your property, and if you don’t make your loan payments,
you can lose your house to foreclosure. Just like you can with a “regular”
mortgage.

A home equity loan can be
structured to deliver a lump sum of cash at closing, or as a line
of credit that can be tapped and repaid, kind of like a credit card. The second type is known as a
home equity line of credit (HELOC).

If your interest rate is fixed
(this is the norm), you’ll make equal monthly payments over the loan’s term
until it’s paid off.

The fixed rate and payment make
the HEL easier to include in your budget than a HELOC, whose rate and
payments can change over the course of the loan.

A home equity loan can be a good idea when
you need the full loan amount at once and want a fixed interest
rate.

For example, if you wanted to
consolidate several credit card accounts into a single loan, or if you needed to
pay a contractor upfront for a major renovation, a HEL could be a
great choice.

Check your home equity financing options (Jan 24th, 2021)

How much
can you borrow on a home equity loan?

How much cash you can borrow through a home equity loan
depends on your creditworthiness and the value of your home.

To find your possible loan amount, start by subtracting the
amount you owe on your existing mortgage from the market value of your home. For
example, if your home is valued at $300,000 and you owe $150,000 on your
existing mortgage, you own the remaining $150,000 in home equity.

Most of the time you can’t borrow the full amount of equity,
but you may be able to tap 75-90% of it.

In the example above, that means you could likely borrow between
$112,500 and $135,000, minus closing costs.

You could use this money for home improvements, debt consolidation, or to make a down payment on a vacation home or investment property.

Home equity
loan interest rates

When you apply for home equity
financing, expect higher interest rates than you’d get on a first mortgage due
to the extra risk these loans pose for lenders.

Fixed home equity interest rates for borrowers with excellent credit are about 1.5% higher than current 15-year fixed mortgage rates.

Home equity interest rates vary
more widely than mainstream first mortgage rates, and your credit score has
more impact on the rate you pay.

For example, an 80-point difference in FICO
scores can create a 6% difference in a home equity
interest rate.

Home equity lines of credit
(HELOCs) have variable interest rates. This means your monthly payment depends
on your loan balance and the current interest rate. Your payment and rate can
change from month to month.

Home equity loans can have
variable interest rates, but most of the time the rate and payment are fixed.

About home equity lines of credit (HELOCs)

The home equity line of credit, or
HELOC, offers more flexibility than a home equity loan. But it makes
budgeting harder.

HELOCs have a ‘draw period’
in which you’re allowed to tap the loan amount up to your
credit limit. You can withdraw and repay funds as needed during
these first years.

There is a minimum payment —
usually the amount needed to cover the interest due that month. At any given
time, you pay interest only on the amount of the balance you
use.

When the draw period
ends, you can no longer tap the credit line and must repay it over a predetermined number of
years. With its variable
interest rate, your payment could change every month.

Some HELOCs allow
you to fix your interest rate when you enter the repayment period. These are
called “convertible” HELOCs.

HELOCs are ideal loan options for
expenses that will be spread over a longer period of time, or
as a source of emergency cash.

For instance, you might take a
HELOC to serve as an emergency fund for your business. Or you could use it to
pay college tuition twice a year. HELOCs are also great for home improvements
that take place in stages over an extended period of time.

How
second mortgages work

If you’re considering a home equity loan or home equity line of credit, it’s important to understand how these ‘second mortgages’ work.

One important point is that you keep your existing mortgage
intact. You continue making payments on it as you’ve always done.

The HEL or HELOC is a second, separate loan with additional
payments due each month. So you’d have two lenders and two loans to make
payments on.

Lenders consider second mortgages to be riskier than first
mortgages.

The primary mortgage lender gets paid first if a loan defaults and
the home is sold in a foreclosure. The second mortgage lender — which holds the
HEL or HELOC — may get paid less than it’s owed. Or it may not get paid at all.
(A second mortgage lender is also known as a “junior lien holder.”)

Due to this extra risk, home equity loans charge higher interest
rates than a primary mortgage. A cash-out refinance might come with lower rates.

Home equity loans are also a bit harder to qualify for. You’ll typically need a credit score of at least 680-700 for a home equity loan, as opposed to 600-620 for a cash-out refi.

More
differences between first and second mortgages

Besides the interest rate, there
are a few other distinctions between first and second mortgages. Second mortgages have:

Shorter loan terms — Home equity loans and lines of
credit can have terms ranging from 5 to 20 years, with 15
years being the most common. The shorter repayment time reduces risk to lenders
Smaller loan amounts —
Many first
mortgage programs allow you to finance 95%, 97%, or
even 100% of your home’s purchase price. Most home
equity lenders max out your loan-to-value at 80% to 90% of your equity
Lower fees — While some still charge origination fees, HELOC
lenders, for example, often absorb most or all of
the fees. Home equity loan fees for title insurance and escrow are usually much
lower than those for first mortgages.
Faster processing — Home
equity loans usually close much faster than first mortgages. You may get your
money in a couple of weeks, as opposed to 1-2 months

Also, your second mortgage lender may not require a full appraisal. This could save hundreds of dollars in closing costs compared to getting a first mortgage.

Cash-out refinance vs. home equity loan

Home equity loans and lines of
credit aren’t the only ways to borrow against the cash value of your home.

Some homeowners prefer a cash-out refinance loan, which has a few advantages:

One loan — Since cash-out refinancing replaces your existing mortgage while also unlocking equity, you’d have only one mortgage loan instead of two
Lower interest rates — Cash-out refinance rates are lower than home equity loan or HELOC rates. In addition, since you’d be replacing your existing mortgage with a new mortgage, all of your home debt could be re-cast at today’s lower interest rates
Opportunity to pay off the house early — Shorter loan terms require higher loan payments each month, but they can save a lot in interest charges over the life of your loan. A cash-out refinance offers an opportunity to shorten your current loan term from a 30-year fixed to a 15-year fixed mortgage, for example

Cash-out refinancing isn’t for everyone. If your first mortgage is
almost paid off, for example, you’re probably better off with a second
mortgage.

If your existing mortgage rate is already near today’s rates, your savings from refinancing might not eclipse the closing costs and other borrowing fees. In that case, a second mortgage is probably the way to go.

Check your cash-out refinance options (Jan 24th, 2021)

Other alternatives to home equity loans

If you recently bought or refinanced your home, you probably
don’t have enough equity built up to warrant a second mortgage or a cash-out
refinance just yet.

In this case, you’ll need to wait until your home’s market
value increases and your original mortgage balance decreases, generating enough
equity to qualify for a new loan from a bank or credit union.

But what if you need cash sooner? You may want to consider:

Personal loans

Personal loans do not require backing from home equity. They
are ‘unsecured’ loans, requiring only a high enough credit score and income to
pay back the loan.

Since the loan is not secured against your property as
collateral, interest rates are much higher.

You can find personal loan amounts up to $100,000, but if you
have bad credit or a high debt-to-income ratio, you’ll have limited options.

Applicants with excellent credit histories have more loan
options, but since personal loans require no collateral, they can’t compete
with the low interest rates you’d get on a secured mortgage.

And unlike a mortgage, the interest you pay on a personal loan
is not tax-deductible, even if you use the loan to fund home improvements.

Credit cards

With their annual fees and high
annual percentage rates, credit cards should be a last resort for long-term
borrowers — unless you can get a no-interest credit card and pay it off before
the promotional rate expires.

If a credit card offers a 0% APR
for 18 months, for example, you may be able to keep the card balance until
you’re able to get a second mortgage loan to pay off the card. If you time it
right, you’ll avoid the credit card’s punitive charges.

However, this is a risky strategy. If you don’t have enough equity or a sufficient credit score to qualify for a cash-out mortgage now, it could be difficult to improve your financial situation enough to get one before the credit card promotion expires. This could land you with high credit card debt and no good way to pay it off.

What are
today’s home equity mortgage rates?

As noted above, home equity loan
rates are more sensitive to your credit history than first
mortgages. Rates can also vary more between lenders, which makes it important
to shop for a good deal.

To get an accurate quote, you’ll
need to provide an estimate of your credit score and your property value.

Verify your new rate (Jan 24th, 2021)