Selling a Property with Tenants

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How do I sell a rental property with tenants?

When you decide it’s time to sell your rental property, there are two main courses of action you can take as a landlord: Waiting for the lease to expire before selling, or selling while your tenants are still living in the home. There are benefits and drawbacks to both options.

In many parts of the country, the real estate market is booming, which means that landlords who may have been holding onto a property while they waited for their equity to increase may now decide that it’s finally the right time to sell.

Of course, if you are a landlord selling a house, there are probably people living in it. Selling with tenants can be a challenge, and a tenant can make or break your sale. You’ll have to plan well in advance, communicate openly with your tenant, and make some compromises in order for your sale to be a success. Let’s explore the pros and cons of each option.

Option 1: Wait for the lease to expire


Allows time for updates: If you’re able to wait for your tenants to move out, you’ll be able to clean, do any cosmetic updates, and just generally spruce up the home before listing, which may help you snag a higher sale price.

Can alleviate timing issues with closing: In a hot real estate market, the home could sell quicker than you expect, and depending on the terms of the lease and regulations in your state, you may have trouble getting your tenants out in time. If the home is unoccupied when you list it, you can accept the best offer without having to worry about timing.


Mortgage carrying costs: Each month without tenants is a month when you’re on the hook for the mortgage payment. If it takes a few months to prepare your home for sale, list, accept an offer, and close, you’ll be responsible for the full carrying costs.

Landlord solution

Once the lease has expired, you’ll probably want to get the property sold as quickly as possible. Consider selling with Zillow Offers. You can have an all-cash offer in-hand before your tenants have even moved out. If you like the offer you receive, you can close quickly and reliably, on a date that works with your (and your tenant’s) timeline.

Option 2: Sell with tenants in the home


Built-in staging: When a home is furnished, buyers often have an easier time picturing themselves living there. If your tenant has taken good care of the home and decorated it nicely, it may be more desirable to potential buyers.

It’s attractive to investors: Having tenants already living in the property is a big selling point for anyone who might be looking to buy the home as an investment property — you’ll be saving them the hassle of finding a tenant!


Disgruntled tenants can make showings difficult: You’ve just told your tenant they have to move out. And now you expect them to keep the home showing-level clean and accommodate showings and open houses? This can be a difficult pill to swallow, and unpredictable tenants can have a big impact on how the house shows.

Landlord solution

In order to persuade your tenants to cooperate with your listing plans, consider offering them lower rent for a few months in exchange for an agreement to show a clean and well-kept home. Other incentives include offering a flexible move-out date or reimbursing moving costs.

Review lease agreement to determine legal options

Whichever path you choose, the first step you should always take is reviewing the lease agreement you have with your tenant. You should also look up laws in your state regarding how much notice to vacate you are required to give. Your real estate agent can be a great resource for local legal requirements, as well as offer tips for a successful sale with tenants in the home.

The actions you can take — and when — mostly depend on what type of lease agreement you have with your tenants.

Month-to-month lease

Send a letter to your tenants, letting them know the date their lease agreement will be canceled and the date they’ll need to move out. In most states, you need to give them either 30 or 60 days’ notice, but make sure to check your local laws. Whether you can show the property while they’re still living depends on your existing lease agreement.

Fixed-term lease

If the lease includes an early termination clause, you can vacate your tenants with proper notice. If not, you’ll just have to wait until their lease is up. There is one exception: If your tenant has failed to pay rent or violated any lease terms, you may be able to terminate the lease early.  

Give thought to the message and delivery

You can catch more flies with honey, so the old saying goes. And these important conversations with your tenants go a lot more smoothly when you consider not only what you’re saying, but how you’re saying it.

Be respectful and informative

Meeting in person is best, so ask your tenant to meet you for a cup of coffee. Make sure to allow enough time to address all of their questions.

landlord notifying tenant of home sale

When selling rental property, it’s best to be straightforward and open with your tenant.

Offer your tenant a chance to buy

If your tenant really loves where they live, they might be interested in buying the home. It’s fine to approach your tenant about this option directly, but if they’re interested in purchasing, you’ll definitely want to work with a real estate attorney. There are a few ways these transactions can happen:

  • A lease-to-own with a one-time, non-refundable option fee that allows tenants the right to purchase the home within the year, at a set price. In the meantime, they keep paying rent.
  • A lease-to-own agreement that is structured so a portion of the rent goes toward a down payment.
  • A seller-finance agreement. You, as the property owner, serve as the lender, instead of a bank. The tenant agrees to make payments to you over a period of a few years, often with one balloon payment. The biggest benefit for the seller is the money you’ll make in interest on the debt. In order to take advantage of this type of sale, you’ll need to own the home free and clear, without a mortgage.

Go over all the details

It’s best to agree in writing on things like how much notice you’ll give before showings (at least 24 hours is usually the legal minimum), what time of day the showings will happen, and what condition the home should be in.

All photos from Shutterstock.


Closing Day: What a Buyer Needs to Do and Bring

In school, it’s graduation. In romance, it’s the wedding. And in real estate, the magic day is closing. Unlike those other big life-changing moments, closing day (or settlement day) is short on ceremony and long on signing. Closing day can also seem mysterious and confusing, so here’s a rundown of what you should expect.

Your big day

Plan on spending at least two hours at the closing agent’s office. You might get out in one, but don’t bank on it. Have a snack first and don’t be shy if they offer you water or coffee. You’ll need to keep your mind alert because every one of those forms is actually kind of important. This may seem easy because you come into the room a little jazzed and nervous. But the process will wear you down and you’ll be tempted to just blindly sign every piece of paper they put in front of you. Don’t.

You may be wondering why you need to go in and sign in person at all. After all, we’re getting used to handling pretty much everything online. It’s allowed now by the federal government and someday it may become the norm. But for now, physical signatures are still preferred to ensure that everyone has been able to read and verify the documents.

Who’s going to be there?

In some parts of the country, the buyer and seller sit down together at closing. In other areas, you’ll never set eyes on your seller as you each have a separate appointment. The closing agent is usually a title officer, an escrow company officer or an attorney. The important thing is that the closing agent is a neutral third-party who as the knowledge and training to get everything completed correctly. You and the seller agree on the closing officer as part of the original offer on the home. In addition to the closing agent, you may also have your real estate agent or an attorney present, especially if it’s your first home. In a few states, an attorney must be present at closing.

What should you bring?

In addition to patience, you absolutely must have the following:

Photo ID: The closing agent has to verify that you are who you say you are. A driver’s license or current passport will do. A Costco membership card, not so much.

Cashier’s or certified check: This is to cover any down payment and closing costs you owe. Do not bring personal check or cash. You’ll know exactly how much to get the check made out for because federal law requires that you be told the amount you need to bring to closing at least one day before settlement. The closing agent will tell you whether you need one check or two and to whom they should be payable. If you want to wire the funds instead of getting a certified check, make sure you do it a couple of days in advance, to protect against any glitches at the bank that could delay your closing.

Proof of insurance: The closing agent needs to see proof that you have the insurance in effect on closing day and a receipt showing you’ve paid the policy for a year. They may have already collected that but it doesn’t hurt to bring your own copy just to ensure things go smoothly.

Final purchase and sales contract: Just in case you need to double-check a detail against closing costs.

What will you be asked?

If you haven’t already established this, you’ll need to tell the closing agent how you wish to take title of the home. You will likely decide between these three common selections:

Sole owner: An unmarried person buying a house alone has the easiest task. Title is taken as a sole owner in the individual’s name.

Joint tenancy: When a married or unmarried couple buy a house together, things get more complicated. If they choose to take title with joint tenancy, each has the right of survivorship. If the spouse or partner dies, full ownership goes to the survivor. There are tax advantages for the survivor as well, regardless of marital status.

Tenants-in-common: When two or more individuals buy a home together as tenants-in-common, they are partners who may own unequal shares and who can sell their shares of ownership independently.

Decide before you attend the closing how you wish to take title to the property. If you aren’t certain, consult an accountant, real estate attorney or estate planner to learn the advantages and disadvantages of each type of ownership.

How many papers will you sign?

More than you could ever have imagined. You’ll actually have two closings, one on your loan and one on the purchase of your house. The documents will vary based on where you live and the specifics of your home, but it could be up to 24 just for the loan and another dozen or so for the real estate transaction. Here are some documents you’ll likely encounter:

Documents related to closing your mortgage

Promissory note: Just as it sounds, when you sign this, you are promising to pay back the sum you’re borrowing. It also outlines the terms of the loan, including any prepayment penalties and interest rates. This may not be as sexy as saying “I do,” but it’s important. Check it over carefully before putting pen to paper.

Truth in lending statement: Prior to signing your mortgage contract, you will be given a federal “truth in lending” statement, also known as Regulation Z. This sheet of paper shows your interest rate, annual percentage rate, the amount being financed and the total cost of the loan over its life. You definitely should give this document a close look to make sure there are no surprises.

Mortgage or deed of trust: This is another big step. When you sign this document, you are putting your new home up as security for the debt you now owe. Technically, the lender puts a lien on the property.

Monthly payment letter: This paperwork breaks down your monthly mortgage payment showing how much goes to principal, interest, taxes, insurance and anything else you are paying as part of the payment.

Documents related to your closing

Closing disclosure: This multi-page behemoth replaces the old HUD-1 form. It itemizes the buyer’s and seller’s closing costs separately. By law, you are entitled to get this form three days before your closing meeting and should be in the same format as the Loan Estimate you got after applying for your mortgage. You should have had time to look this over before your meeting, but to err is human. Look it over carefully again. If you are closing electronically on a house in another part of the country, there is a chance you won’t see the settlement statement in advance. Review everything carefully before signing.

Warranty deed or title: This piece of paper transfers the title from the seller to the buyer. It also contains the legal description of the property.

Proration papers: These agreements explain how the buyer and seller are dividing up the property taxes, interest and perhaps homeowner association dues for the month in which the transaction is taking place. Buyer and seller might also sign an agreement stating how current utility bills are being split.

Statement of Information: This document may be called a statement of identity. The title company uses this personal information to eliminate any confusion between you and anyone with a similar name.

Declaration of Reports: An acknowledgment that the buyer has seen and signed off on all the inspection and survey reports done on the property.

Abstract of Title: The abstract lists all recorded documents affecting title to the property.

When does the fun begin?

You’ve signed the papers, paid the lender and read the contracts until your eyes turned blurry. It may not be as much fun as a graduation or a wedding, but you deserve to celebrate.


Can Your Landlord Legally Control Your Heat?

As a renter, you may have compromised some of your apartment “wants,” like a pool and clubhouse, for the more basic apartment “needs” like proximity to work, two bedrooms or affordability.

While some sacrifices can reasonably be made when choosing an apartment, basic needs like fair treatment, a secure door, leak-free roof and access to heating and hot water should be non-negotiable. Whether you live in an apartment, flat or duplex, you want your space to have livable conditions and feel like home. And you also want to have a reasonable amount of control to make that happen.

So, you may be wondering if your landlord can control the utilities, such as your heat. While it may seem like a no-brainer, the answer is complicated and depends on where you live. Let’s take a look at the rules and regulations for landlords and tenant rights when it comes to things like heat and hot water in apartment buildings.

What is my landlord required to provide?

Property owners are held accountable for the implied warranty of habitability. Simply put, this means that landlords are required to provide safe and livable conditions for their tenants, and renters have the right to a livable property.

While requirements can vary by city and state, landlords are generally responsible for:

  • Maintaining the structure of the building’s interior and exterior
  • Keeping hallways, stairways and common areas clean and well-maintained
  • Operating plumbing, sewage and ventilation
  • Checking for environmental hazards
  • Exterminating rodents and insects
  • Supplying cold and hot water in appropriate quantities and at reasonable times
  • Providing heat in appropriate quantities and during reasonable times

The “landlord must provide heat and hot water to tenants,” said Samuel Evan Goldberg of Goldberg & Lindenberg. “The hot water must be a minimum of 120 degrees Fahrenheit. Landlords are required to provide heat during the months of October 31 through May 31. If the outside temperature is 55 degrees or below between 6:00 AM and 10:00 PM it must be at least 68 degrees in the apartment building and between 10:00 PM. and 6 AM the inside temperature must be 62 degrees,” Goldberg explained.

Can my landlord control the heat?


So, under the implied warranty of habitability, landlords must provide access to heat. However, they can control it and they aren’t obligated to pay for it. Now that we’ve covered what landlords are required to provide, let’s discuss if they can control the heat.

David Resischer, Real Estate Attorney & CEO of said, “Some multiple dwelling units only have a single thermostat and state laws typically do not restrict the ability of a landlord to control the heat in any of the tenant units. However, most state laws do require a landlord to provide and also to maintain heat at a designated temperature, typically at least 68 degrees Fahrenheit.”

What are the laws?

There are regulations and laws in place nation-wide to protect both landlords and tenants. But, since climate and temperature changes so drastically from one region to another, laws can vary by city and state. For instance, landlords are required to provide heat, but they’re not required to provide air conditioning in all states.

Arizona laws require landlords to provide, “reasonable heat and reasonable air-conditioning or cooling where such units are installed and offered, when required by seasonal weather conditions.” Because Arizona can reach dangerous temperatures in the summer, landlords are required to provide access to AC for tenant’s safety.

While that may be true in Arizona, it’s not the case in New York. Scott Stevensen, a New York City renter said, “Because there is no AC in some buildings, the tenant is left to buy an AC unit that fits in the old window frames where one lifts the window frame up and down — not sideways. The whole cost of electricity is almost always borne the tenant.”

To see what laws your state has in place, check out your state’s laws and regulations to see what landlords can and cannot do.

What to do if the landlord doesn’t follow through?

So, what happens if your landlord fails to provide heat, or controls it in such a way that isn’t livable? You have a few options:

  • Schedule a meeting with the landlord and try to discuss the problem in person
  • Write a formal complaint, make a copy and give it to your landlord to read
  • Contact your local code enforcement officer

“If the landlord fails to provide heat or hot water, the tenant should call 311 and schedule an inspection date for an HPD inspector to inspect,” Goldberg said. “Once HPD issues a heat and hot water violation, which would be considered a C violation, it must be repaired immediately. Any other C violations, the Landlord has 24 hours to make the repair. If the landlord still fails to bring back the heat and hot water, the tenant should bring an HPD proceeding in housing court. The proceeding is predicated upon the HPD violation report and the judge will tell the landlord to repair the defective conditions in the tenant’s apartment. If the landlord fails to make the repairs, the judge could order civil penalties and in some cases, even hold the landlord in contempt of court.”

Know your rights

Ideally, you’ll have great landlords who meet your basic needs (and more). While that’s the dream, it doesn’t always happen that way. So, it’s smart to know your rights and fully understand your lease as a renter and know what you’re entitled to.

At a minimum, renters should have a clean, safe, well-maintained apartment that meets their basic human needs.

The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional financial or legal advice as they may deem it necessary.




Elements of an Offer: Money, Timing and Waiting

So you’ve found a house you want and you’re ready to buy. It’s not as simple as knocking on the front door and announcing that you’ll take it. Your decision triggers the start of an intricate dance between you and the seller, typically with real estate agents guiding and advising you both. You’re about to make an offer, which can be daunting whether you’ve done it before or are a first-time buyer.

Purchase offers and the documents they entail vary in different parts of the country. In some regions, only attorneys can draw them up. In other regions, your real estate agent will fill out the standard forms. They are usually quite long and detailed. You can always have a real estate attorney look over the standard contract and explain the provisions to you. This isn’t overly expensive and provides you with a neutral third-party who won’t benefit from the sale to explain the contract. It’s worth it. But here’s a tip. In a competitive market, you aren’t going to want to take the time to consult an attorney once you’re ready to make an offer. In that case, get your agent to provide you a copy of the standard contract for your area and have an attorney explain it to you and red-flag any areas of concern before you even find a house.

Elements of the offer

When you make an offer you are telling the seller not just what you’re willing to pay, but how you’re going to do it. You’re also going to put an expiration date on your offer and either give yourself an escape route if you find out something about the house that the seller won’t fix, or you are going to handcuff yourself to the house no matter what.

Set your price

The seller set their price when they listed the home. But that’s just a starting point. Your agent should do a comparative market analysis, looking at what similar homes have sold for and helping you reach a price. You can also do your own research by looking at market “comps” on Zillow. In fact, you have quick access to more reliable information about real estate pricing than any time in history, so use it. With your agent’s help and your own research, you are an informed consumer. So now’s the part where you set your price. If the market’s hot, and the house just came up, you may actually offer more than what the seller was asking. If it’s been languishing on the market, maybe you offer less than asking. You won’t know what to offer until you do your homework and talk with your agent.

Explain yourself

If your offer is much different from the asking price, you should consider “loading” it. Essentially, that means including a letter that recaps your offer in simple terms as well as the information you got from doing a comparative market analysis. If you offer less than what the seller listed the property for, it could be a shock to them. Or they could be offended. You can’t rely on their agent to present them the comps you found, but they are legally bound to provide anything you present in writing to the seller. So let them know how you reached your offer price and that it isn’t because you didn’t like their taste in window coverings. Your letter will both help them understand your offer and the market conditions that led you to make it.

The clock is ticking

Just like milk, an offer to buy a house has a shelf life, and you get to set it. How long your offer is good depends on what’s customary in your area and how hot the market is. It can range from hours to days. There are different strategies for setting this sell-by date, depending on how competitive the housing market is and your real estate agent will help you decide that.

In a hot market, you want a short window for the seller to consider your offer to prevent someone else from sneaking in another offer and getting the house. (In a really hot market, you may want to consider an escalation clause.) And in some cases where the seller is already gathering multiple offers, they may set a specific time that they will open and consider all offers.

Your offer will also include a closing date for when you want the deal to be finished and the house to be yours.

Show them the money

In addition to how much you’re willing to pay for the home, the offer will also include details about how you’re going to do that. The seller is going to want to know that you have financing in order and that it’s solid. A pre-approval letter, which is often required by sellers, can help give the seller confidence to accept your offer. It will demonstrate that you are working with a lender and that the lender is willing to loan you the money needed to finance the home. The seller doesn’t want to accept your offer, take the house off the market and then discover in three weeks that you can’t get a home loan.

No, really, show them the money

You’ll likely be asked to write a good faith “earnest money” check or money order. If the seller accepts your offer, the check will be placed into an escrow account and used as part of your down payment. Earnest money is essentially a deposit and shows the seller that you are serious. Without it, you could be making offers on several houses at the same time, costing sellers precious days on the market. How much should you put down? Your agent should help advise you what’s customary for the market. It can range from 1 percent of the purchase price to 10 percent or more in a particularly hot market. It’s the money you are putting at risk if you back out for reasons not outlined in the offer.

An escape route

Depending on your jurisdiction, you may have a specified amount of time to just back out without giving a reason. But those “cool-down” laws are actually quite rare. So you may want to create your own escape route so you don’t lose your earnest money if you find something wrong with the house or your financing falls through. The way to do that is with contingencies. The most common are inspection and financing contingencies. With an inspection contingency, your offer will specify that the seller has to make the home available within a certain number of days for you to bring in a professional inspector. The offer will also outline what happens if the inspection unearths any problems you’d like to have addressed.

Another common contingency is based on financing. If you can’t secure a loan, a financing contingency will let you get out of the sale without losing your earnest money. This is rarely a problem if you’re truly pre-approved and it won’t help you if you simply decide you don’t like the interest rate you’re getting.

Beware! In a seller’s market, each one of these escape routes is going to count against you and you’ll be tempted to avoid them, especially if you’ve lost out on houses before. But think very hard about making an offer with no contingencies. Sometimes it can’t be avoided but it’s usually a bad idea. Instead of eliminating an inspection contingency altogether, consider shortening the amount of time you give yourself to complete it.

Keeping a poker face

Once you’ve completed the offer, your agent will meet with the seller’s agent to “present the offer.” Neither you nor the seller has to worry about any emotional “tells” destroying your negotiating leverage. This may be the house you’ve dreamed of all your life, but the seller won’t see that on your face because the seller won’t see your face. It’s all business for the agents.

Waiting for the phone to ring

Now you wait to hear back. Once again, you’ll hear from your agent, not directly from the seller. The seller will have either accepted your offer as-is, rejected it outright or made a counter-offer. If they accept within the time frame you allotted, you are now legally bound by its terms.

If they reject it, they either accepted another offer or yours was so far from what they want that there’s not much point in continuing the discussion.

The last scenario is a counteroffer. Maybe they want a little more money. Or you asked to include appliances in the purchase and the washer and dryer have sentimental value so they can’t part with them. (This has happened. Actually, pretty much everything you can imagine has happened in the world of real estate.) Or they need a couple more weeks to get into their new place so they want a later closing date. Essentially, unless you nailed everything exactly as they wanted it in your offer, you’ll get a counter. And then the clock starts ticking for you. The counter is technically a rejection of your offer accompanied by their new offer to you. Just as you gave them a time limit, they will outline how long you have to respond. This back-and-forth can go on for a few hours or a few days until you’ve reached an agreement you can both live with. And, with an inspection contingency you’ll likely have a miniature version of it once you complete your inspection and have a list of repairs you’d like the seller to address. If you can’t come to an agreement, the contract is cancelled and you get your earnest money back.

Full disclosure

There is one last possible escape route. Once you have a contract signed by all parties, the seller has a certain number of days within which to make a full disclosure of anything he knows to be defective on the property. Once you get it, you have a certain amount of time review it and to modify or rescind your offer if you wish. The rescission must be in writing and presented to the seller or the seller’s agent. If this happens in a timely manner, you will get your earnest money deposit back.


I Found an Old Lien on My Home From a Past Refinance. How Do I Get Rid of It?

Dear MarketWatch,

I have a home that I purchased in 1983, and I have refinanced and taken out equity lines of credit (ELOCs) multiple times. I now have about 13 payments left on the primary mortgage. When I signed papers on my last ELOC, I found out there is an old title lien from a past refinance. So it is probably greater than 10 years old. I think it is from a mortgage company that went bankrupt. Do I need a real estate attorney? Will this thing age out? How do I get rid of it?

Thank you,

Retired 67-year-old in California

Dear Retired,

You’re right to want to get this situation resolved. A forgotten lien can become quite the headache when trying to sell a home or refinance a mortgage. It looks like you’ve managed to be lucky so far, and the old lien you’re dealing with hasn’t prevented you from being able to refinance thus far. But if you ever need a new loan in the future or want to sell your house, this old lien could became a major roadblock.

Situations like yours are rather common, particularly if the mortgage was paid off between 2000 and 2012, said Nicki Compary, general counsel and director of title operations at Click n’ Close Title. That’s because of “the frequent selling of loans before the real estate bubble burst and the consolidation of lenders and banks after,” Compary said.

The good news is that the law’s on your side, so long as the mortgage related to the lien was paid off when you refinanced. “Every state has a law mandating that the lender either send you a document proving the mortgage is paid off (called a satisfaction) or file it themselves with the local land records,” Steve Gottheim, general counsel at the American Land Title Association, told The Big Move in an e-mail. “If they didn’t do that in this case, you will need to go to that lender to have them file the satisfaction.”

Here’s what you need to do:

  • First, locate the records from the refinance in question. You’ll want to look for the payoff statement and the settlement statement or HUD-1 form. If you have trouble finding those documents, the title company that worked with you during the refinance should be able to assist, Gottheim said. (Word of warning though, most states only require the companies to maintain these records for seven to 10 years after the closing, he added.)
  • Next, find the current contact information for the lender with the lien. Contact them to request to have the release of lien executed and filed.

You mentioned that the mortgage company may now be bankrupt, but not all hope is lost. If the company doesn’t exist, the title company that paid off the lien should have a copy of the documents you need that show the lien was paid and that the title was insured without the lien listed as an exception, Compary said. “If the title company no longer exists, the underwriter of the title policy should have a copy,” Compary added.

When a mortgage company goes out of business, other lenders and servicers will step in and acquire their loans. If you find the old mortgage documents, look to see if there is a Mortgage Electronic Registration Systems (MERS) ID Number listed on the first page of the mortgage. You can look this number up in the registry to find the current contact information for the lender, Gottheim noted.

In a worst case scenario where you can’t reach the old mortgage company or title insurer, your current title company can help. “Many title companies have the ability to rely on the affidavit or indemnification from the title company that paid off the previous loan as good proof that it was paid off (even if it’s still of record),” Gottheim said. “These indemnities can help you and your lender address that old loan if it pops up on your next refinance or when you go to sell your home.”

Plus, every lien has terms, and there are statutes of limitations in place at the local level. These do vary, but if they’ve run out, title companies can help remove the lien.

For more smart financial news and advice, head over to MarketWatch.


Preparing To Buy a House in 8 Simple Steps

In life there are some situations a person simply can’t prepare for, like locking the keys in a car full of groceries or having a head full of shampoo when the smoke alarm goes off. Luckily, purchasing a home doesn’t have to be one of those moments.

Buying a house is probably one of the biggest financial decisions many people will make in their lifetime, and the process can be lengthy and complex. From getting a bird’s-eye view of their overall financial picture to calculating housing costs and securing loan pre-approval, there are many actions for home buyers to take as they get ready to purchase a home.

With the right resources and a solid strategy, however, purchasing a house can be a smooth process.

8 Steps to Prepare for a Home Purchase

1. Determining Credit Score

A home buyer’s credit score can impact their ability to secure a mortgage loan with a desirable rate. It can also affect how much they’ll be required to pay as a down payment when it’s time to close.

In a recent report from the National Association of Realtors , home buyers who had debt said it hindered their ability to set aside funds for a down payment by a median of four years.

Credit score can be influenced by a variety of factors, from payment history to amount of debt (a.k.a. credit utilization ratio) to age of credit accounts, mix of credit accounts, and new credit inquiries.

Payment history is the main factor that affects a person’s credit score, accounting for 35% of an overall FICO® score. Missing a payment on any credit account—from unpaid student loans to credit cards, auto loans, and mortgages—can negatively impact a person’s credit score.

By making on-time payments, limiting the number of new inquiries on their credit file, and working to pay down outstanding balances, home buyers could potentially boost their credit score and qualify for a lower mortgage rate.

Is There a Credit Score “Sweet Spot?”

Many buyers wonder whether there’s a desired credit score range or “sweet spot” to obtain a mortgage. The 2020 Q1 Federal Reserve Report on Household Debt and Credit found that the median credit score of newly originating borrowers increased to 773 in the first quarter for mortgages—up 14 points from 2019.

That’s not necessarily to say a credit score of 773 is a must for securing a mortgage, but the difference between a credit score in the 600 range and one in the 700 range could amount to about half a percent less interest on a mortgage loan and add up to a lot of money over time.

Credit scores can also affect the amount of the down payment itself. Many mortgage lenders require at least 20% of the house’s sale price be put down, but might offer more flexibility if the buyer’s credit score is in the higher range. A lower credit score, on the other hand, could call for a larger down payment.

Whether home buyers have debt or not, checking credit reports is still a recommended first step to applying for a mortgage. Understanding the information on credit reports is invaluable in knowing whether time is needed to repair credit, which could potentially lead to a higher credit score and possibly lower mortgage loan rate.

2. Deciding how Much To Spend

Deciding how much to pay for a new home can be based on a variety of factors including expected and unexpected housing costs, up-front payments and closing costs, and how it all fits into the buyer’s overall budget.

Calculating Housing Costs

There are several housing costs for home purchasers to consider that might affect how much they can afford to offer for the house itself. The costs of ongoing fees like property taxes, homeowner’s insurance, and interest—if the loan does not have a fixed rate—can all lead to an increase in the monthly mortgage payment.

Closing costs are fees associated with the final real estate transaction that go above and beyond the price of the property itself. These costs might include an origination fee paid to the bank or lender for their services in creating the loan (typically amounting to 0.5% to 1% of the mortgage), real estate attorney fees, escrow fees, title insurance fees, home inspection and appraisal fees and recording fees, to name a few. To get an idea on how this can impact your budget, use this home affordability calculator to estimate total purchase cost.

Last year, the average closing costs for a single-family property were $5,749 including taxes, and $3,339 excluding taxes, according to a recent report from ClosingCorp .

In addition to closing costs, expenses that potential home buyers might want to consider are repairs and updates they might want to make to a home, new furniture, moving costs, or even commuting costs.

Finally, unforeseen costs of a major life event like a layoff or the birth of a new child might not be the first expenses that come to mind, but some buyers could find themselves making a potential home buying mistake by not getting their finances in order to prepare for the unexpected.

Making a list of these estimated expenses can help home buyers calculate how much they can feasibly afford and create a budget that could help them avoid being overextended on housing costs, especially if they might be paying other debt or saving for other financial goals.

3. Saving for a Down Payment

Saving money for a house is one of the biggest financial goals many people will have in their lifetime. And how much they’re able to offer as a down payment can significantly impact the amount of their monthly mortgage payment.

A larger down payment can also be convincing to sellers who see it as evidence of solid finances, sometimes beating out other offers in a competitive housing market.

The average down payment on a house varies depending on the type of buyer, loan, location, and housing prices, but, according to Zillow’s 2019 Consumer Housing Trends Report , 56% of buyers put down less than the typical 20% down payment, 19% put down 20%, and 20% of home buyers put down more than 20%.

For first-time home buyers, 20% of the price of the home can seem like a daunting figure. Many buyers find that cutting spending on luxury or non-essential items and entertainment can help them save up the funds.

Other tactics could include getting gifts and loans from family members, applying for low-down-payment mortgages, withdrawing funds from retirement, or receiving assistance from state and local agencies.

For buyers who were also sellers, proceeds from another property could also fund the down payment.

4. Shopping for a Mortgage Lender

There are many mortgage lenders competing for the business of the 86% of home buyers who finance their home purchases. These lenders offer a variety of mortgages to apply for, with a few of the most common being conventional/fixed rate, adjustable rate, FHA loans, and VA loans.

Buyers might not realize they can—and should—shop around for a lender before selecting one to work with. Different lenders offer different variations in interest rates, terms, and closing costs, so it can be helpful to conduct adequate research before landing on a particular lender.

Mortgage lenders must provide a loan estimate within three business days of receiving a mortgage application. The form is standard—all lenders are required to use the same form, which makes it easier for the applicant to compare information from different lenders and make sure they are getting the best loan for their financial situation.

5. Getting Pre-Approved for a Loan

While it might seem like a bit of a nuance, getting prequalified for a loan versus pre-approved for a loan are two different things.

When a buyer is prequalified for a loan, their mortgage lender estimates—but does not guarantee—the loan rate, based on finances provided by the buyer.

When a buyer is pre-approved, the lender conducts a thorough investigation into their finances that includes income verification, assets, and credit rating. This pre-approval gives a guarantee to the buyer that they will be able to obtain the loan and breaks down exactly what the bank is willing to lend.

Having a pre-approval letter in hand can help some buyers get ahead by appealing to the seller as a serious intention of purchase and a lender’s guarantee to back that purchase up.

6. Finding the Right Real Estate Agent

According to the National Association of Realtors 2020 Generational Trends Report :

•  89% of all buyers purchased their homes through a real estate agent.
•  The primary method most used to find that agent was referral.
•  All generations of buyers continued to utilize a real estate agent as their top resource for helping them buy a home.

While the internet and popular real estate search websites have made it easier for home buyers to hunt for a house online, most buyers still solicit the help of a real estate agent to find the right home and negotiate the price and purchase.

Also, many realtors are experts in their particular housing market, so for buyers who are searching in a specific location, a real estate agent may be able to offer valuable insights that might not be revealed online.

7. Exploring Different Neighborhoods

By researching neighborhoods where they might want to purchase a property (both in-person and online), home buyers can get a better sense of what living in their future community could look like.

Many real estate websites provide comparable listings to help determine a reasonable offer amount in a given neighborhood.

Check out housing market
trends, hot neighborhoods,
and demographics by city.

They may also highlight nearby school ratings, price and tax history, commute times, and neighborhood stats like home value fluctuations or predictions, and walkability ratings.

All of this information can help paint a picture of life in the area a home buyer chooses to settle in. Doing a deep dive into a desired neighborhood can help inform a more realistic decision on where to buy a house.

8. Kicking off the House Hunt

Once the neighborhoods are whittled down, the loan is secured, the real estate agent has been signed, and the savings are set aside, the official house hunt can begin.

For 55% of buyers, the most difficult step in the home buying process was finding the right property. Some had to undergo a considerable process before making the final purchase, with most searching for 10 weeks and seeing a median of nine homes first.

With the help of a trusted real estate agent and a housing market with adequate inventory, most home buyers can begin to book showings, attend open houses, and formally put down an offer on a house they like.

In particularly “hot” markets, houses could receive several offers, so home buyers might want to be prepared to go through the bidding process with a few properties before they get to that glorious final sale.

Home buyers might wish they could snap their fingers and move into their dream house as quickly and painlessly as possible. While that is not realistic, SoFi can help simplify the mortgage loan process.

Without any hidden fees or prepayment penalties, a SoFi home loan could be the right option for many homebuyers. For questions about buying a home, SoFi offers home loan resources, guides, and tips to steer future homeowners through the process. There are a lot of steps, but managing them can be easier with a helping hand.

Learn more about how SoFi home loans make the mortgage process as quick and painless as possible.

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3 Things You Should Know About Preliminary Title Reports

This helpful document contains a wealth of information.

Among the dozens of records that serve to inform or disclose to the buyer significant knowledge about the property, the title report is one of the most important. It documents ownership, vesting, and detail regarding anything recorded against the home, such as liens, encroachments, or easements.

The title company compiles the report from a search of county records to issue title insurance, and any liens against the property are listed as “exceptions” to a title policy.

Here are three important pieces of the title report you should review carefully.

The legal description

The legal description is everything you won’t see in any real estate agent marketing or advertising. It’s the written description of the property’s location and the boundaries of the property in relation to the nearby streets and intersections.

In the case of a condominium or planned unit development (PUD), the legal description will include the property’s interest in any common areas, exclusive or non-exclusive easements, and details on any parking or storage that conveys with the property.

Here’s an example of a legal description from a preliminary title report of a property:

“Beginning at a point on the Westerly line of Fifth Avenue, distant thereon 250 feet Southerly from the Southerly line of Balboa Street; running thence Southerly along the Westerly line of Fifth Avenue 25 feet; thence at a right angle Westerly 120 feet,” and so on.

Legalese? Absolutely. But it’s precise, and necessary.


Property taxes always show up as the primary “lien” on a title report. A property cannot be transferred to a new owner with outstanding property taxes due.

As the top lien, the report will indicate whether taxes are due or paid in full. Taxes must be settled before any debt holder gets paid.

Mortgage liens

Mortgage liens are generally listed directly below property taxes, and they’re always ordered first, second, and third. The largest lien holder generally takes first position.

When a sale closes, the liens must be paid in the order that they appear on the title report. In the case of a short sale, there are not enough proceeds from the sale to pay off the property taxes and all of the lien holders. So one or more lenders will get “shorted” by the amount they’re owed. In order for the sale to close, the lender must agree to the short payoff.

Though this list is in no way exclusive, there are a variety of other items that could show up on a title report outside of taxes and loans.

Easements. If another property owner has access to the property via an easement, it would be recorded on the title report. This stays on the report until both parties agree to remove it. The title company can pull the original easement agreement for review.

CC&Rs. In the case of a condo or PUD, there are Covenants, Conditions and Restrictions (CC&Rs), recorded against the property. Any new buyer purchases subject to the rules and regulations documented in the CC&Rs. This is why it’s important for potential buyers to pull these from the report and review them. Once you’re the owner, you’re subject to those rules.

Restrictions, historic oversights, planning requirements. From time to time, there will be items on the preliminary title report that aren’t run of the mill. If the home is located in a historic district and therefore subject to the rules and restrictions of that community, it will show up on the title. In this case, if there are restrictions about changing the facade of a house or requirements that facade alterations comply with a local historical oversight committee led by the local planning department, a potential buyer needs to know this.

The last word

As a potential buyer, you and your agent or real estate attorney should scrutinize the preliminary title report. You want the title to be delivered as clean as possible.

If the property is subject to special items, or there are issues on the title that would affect your homeownership, you need to know and understand them thoroughly before you close.

Check out our Home Buyers Guide for more home shopping tips and tools.


Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Originally published March 22, 2012


Here’s How To Refinance A Mortgage (And Know If It’s Right For You)

Over the past decade, mortgage refinancing has grown in popularity. Not that big of a surprise, considering we’ve seen a sizable drop in mortgage rates during this time. At the height of the housing crisis in 2008, rates averaged about 6% for a 30-year fixed-rate mortgage .

Currently, the average rate for a 30-year fixed mortgage is about 3.26% , which gives some folks the opportunity to save some serious moola by lowering their interest payments. If you signed on for a higher rate years ago or your financial situation has improved, refinancing is worth considering.

Refinancing a mortgage might not be right for every homeowner, but starting to look at rates and terms could be the first step to being able to save for other financial goals. Here’s everything you need to know about refinancing a mortgage from how to start the process, to figuring out if it’s right for you.

How much does it cost to refinance a mortgage?

Since you’re essentially applying for a new loan, there will most likely be fees if you choose to refinance. Because of this, it’s important to consider those costs compared to the potential savings. A good rule of thumb is to be certain you can recoup the cost of the refinance in two to three years—which means you shouldn’t have immediate plans to move.

Refinancing will generally cost from 3% to 6% of your loan’s principal value, though you should be sure to shop around to make sure you’re getting the best deal.

There are helpful online calculators for determining approximate costs for a mortgage refinance. Of course, this is only an estimate and all lenders are different. The lender will provide final closing cost information alongside a quote for your new mortgage rate.
When you refinance, you also have to consider closing costs. Some lenders may not have origination fees, but instead charge the borrower a higher interest rate.

If you have a great borrowing history and a strong financial position, there are some lenders, like SoFi, that reward such borrowers by offering competitive rates and no hidden fees.

Mortgage RefinancingMortgage Refinancing

What are the steps in the mortgage refinancing process?

The first (and arguably most important) step is to determine what you want to get out of your mortgage loan refinance. There are several mortgage loan types, but “rate and term” and “cash out” are the two most common.

Just as the name implies, a “rate and term” refinance updates the interest rate, the term (or duration) of the loan, or both. You can also switch from an adjustable rate to a fixed rate and vice versa.

It is important to understand that not every refinance will save you money on interest. For example, if you extend the loan terms, you may end up paying more money over the course of your loan.

to boost your credit score. 1
2. Research your home’s approximate value. Check comparable sale prices—not just listing prices—in your neighborhood to get an idea of what your house is worth. If the value of your home has gone up significantly and improves your loan-to-value ratio (LTV), this will be helpful in securing the best refinancing rate.
3. Compare refinance rates online. Don’t forget to ask about all costs involved. Most financial institutions should be able to give you an estimate, but the accuracy can depend on how well you know your credit score and LTV ratio.
4. Get your paperwork together. The process will move faster if you have your pay stubs, bank statements, tax filings, and other pertinent financial information ready to go.
5. Have cash on hand. You may have to pay some up-front costs, like property taxes and insurance.
6. The lender will (mostly) take it from here. They will send an appraiser for a home inspection. After the loan documentation and appraisal are submitted, loan officers determine the interest rate and create the loan closing documents. The closing is then scheduled with the refinancing company, mortgage broker, and real estate attorney.

How long does a mortgage refinance take?

The process can take anywhere from 30 to 90 days, depending on your diligence, the complexity of the loan, and the efficiency of the lender or broker.

If you want the process to move fast, look for mortgage lenders who are looking to disrupt the traditional mortgage process by offering a more streamlined service and a better customer experience.

If you’re like most people, you’ve got a life to live and don’t want your mortgage refinance to drag on for months. Keep this in mind while looking for a lender to refinance with.

Ready to check out your mortgage refinance rates with a competitive lender that values your time? SoFi can give you a quote (that won’t affect your credit score! 2) in as little as two minutes.

1. Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit.
2. To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.

SoFi Lending Corp. is licensed by the Department of Business Oversight under the California Financing Law, license number 6054612. NMLS #1121636.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Mortgages not available in all states. Products and terms may vary from those advertised on this site. See for details.



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

Trouble paying your mortgage? You have options

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

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

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

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

Check your refinance eligibility (Feb 17th, 2021)

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What is loan modification?

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

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

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

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

How mortgage loan modification works

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

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

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

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

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

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

Loan modification vs. refinance

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

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

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

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

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

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

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

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

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

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

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

Check your refinance eligibility (Feb 17th, 2021)

Loan modification vs. forbearance

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

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

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

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

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

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

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

Who is eligible for a loan modification?

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

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

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

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

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

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

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

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

How to request a loan modification

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

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

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

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

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

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

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

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

Mortgage loan modification programs

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

Conventional loan modification

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

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

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

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

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

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

Unemployment is typically not an eligible reason for Flex Modification.

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

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

FHA loan modification

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

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

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

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

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

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

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

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

VA loan modification

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

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

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

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

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

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

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

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

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

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

USDA loan modification

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

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

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

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

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

Is mortgage loan modification a good idea?

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

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

But caveats apply.

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

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

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

Refinancing and other alternatives to modification

Loan modification isn’t your only option, thankfully.

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


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

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

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

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

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

Streamline refinancing

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

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

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

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

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

Other mortgage relief options

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

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

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

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

What should you do?

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

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

Mortgage loan modification FAQ

What happens when you get a loan modification?

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

How do I get a mortgage loan modification?

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

How long does loan modification last?

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

Does loan modification hurt your credit?

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

Can you be denied a loan modification?

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

How much does mortgage modification cost?

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

Do you have to pay back a loan modification?

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

Understand your options

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

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

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

Verify your new rate (Feb 17th, 2021)


Should you buy a house sight unseen? Here’s what you need to know

A smart way to speed up your house hunt?

Many home buyers these days have to move quickly. That’s because demand outweighs supply, and appealing homes that hit the market often generate bidding wars and sell fast.

Some buyers eager to move fast will buy a home ‘sight unseen,’ without ever touring the place in person.

This can be a good strategy in a competitive real estate market. But sight-unseen homes aren’t without risk. Here’s what you should know before making an offer.

Verify your home buying eligibility (Feb 2nd, 2021)

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What does it mean to buy a house ‘sight unseen’?

Purchasing a home ‘sight unseen’ means buying it without having toured the property in person first.

Typically, someone buying a home sight-unseen will have looked at pictures and videos online and likely taken a virtual tour.

While it might sound odd to buy a home without having set foot in it, more and more home buyers are choosing to do so.

According to recent research by Redfin, a surprising 63% of those who purchased a home in 2020 made an offer on a property they hadn’t viewed in person.

Why remote home buying is increasing

There are several reasons why more buyers are opting to purchase a home sight unseen lately.

“Given the ongoing [coronavirus] pandemic, it makes sense that people make offers on properties without actually physically touring them,” says Rajeh Saadeh, a real estate attorney, investor, and professor.

“After all, people are trying to limit physical contact and going into places where they do not know if any occupants have COVID-19.”

“In hot markets, you must submit offers in minutes or hours, not days” –Bruce Ailion, Realtor and attorney

Bruce Ailion, a Realtor and attorney, agrees.

“The market has changed. People need to move quickly, and touring a home in person before an offer may not be possible. In hot markets, you must submit offers in minutes or hours, not days,” he says.

He points out, “Today, photos and videos are of better quality. And a smart buyer should be able to rely on a high-quality agent or broker to act as their eyes, ears, nose, and fiduciary.”

How to buy a house sight unseen

The process of buying a home sight unseen isn’t too different from a traditional home purchase. You’re simply using online photos, videos, and tours in place of an in-person tour or open house.

Saadeh says the following steps are involved for the buyer:

  1. Evaluate the property remotely using photos, facetime or video tours, and descriptions provided by your real estate agent or broker
  2. Get pre-approved for a mortgage to show the seller you can afford to finance the home
  3. Make an official offer to the seller to purchase the property
  4. If the seller likes the offer and accepts it, you and the seller prepare a contract
  5. Both parties sign the contract
  6. You make an earnest money deposit (or ‘good faith money’) in cash
  7. You have the property professionally inspected (optional but strongly recommended, especially for a sight-unseen offer). If you are satisfied with the inspector’s findings, the deal continues
  8. You order a title report. If the title is clear or clearable at closing, the deal continues
  9. You choose a mortgage lender, finalize the terms of your home loan, and lock an interest rate

Then, as with any purchase, you’ll schedule a closing date to sign your final loan documents.

Once the mortgage is finalized, your lender pays the home seller and the home title transfers to you. You’re now the official owner.

Start your mortgage pre-approval (Feb 2nd, 2021)

Is buying a home sight unseen a bad idea?

There are pros and cons to purchasing a home sight unseen.

“On the positive side, you may get to purchase the property for a bit less because you moved quickly and avoided a bidding war,” notes Caleb Parr, vice president of Sales and Acquisitions at Renshaw Company Realtors.

Virtual home tours can also be helpful for long-distance purchases, like buying a home out of state.

“Most people end up visiting a home multiple times during the purchase phase. This can cost a lot of money if you are having to travel out of state to tour the home,” says Nathaniel Hovsepian investor and owner of The Expert Home Buyers.

“You may get to purchase the property for a bit less because you moved quickly and avoided a bidding war” –Caleb Parr, VP of Sales and Acquisition, Renshaw Company Realtors

On the other hand, with a sight-unseen offer, you won’t have the benefit of previewing the property in person.

You’ll have to rely on photos, video, virtual tours, and the descriptions and opinions provided by your real estate agent and home inspector.

“Given that a home purchase is likely the most expensive transaction of your life, it’s important to adequately ‘kick the tires’ and determine the true condition of the property,” cautions real estate attorney Charles R. Gallagher.

“There is great risk in failing to see defects to the property with a sight-unseen purchase, particularly if you choose not to have the home professionally inspected.”

Even when you’re in a rush, real estate experts recommend getting a home inspection to make sure there aren’t any major issues the seller neglected to disclose. An inspection is your one chance to get the seller to cover repair costs — or walk away if the problem is a deal-breaker.

Precautions to take with sight unseen homes

Again, there are risks involved with committing to a sight-unseen home. To minimize these risks, it pays to take special precautions.

“Try to have someone you trust at least drive-by the home and take fresh videos and pictures so that you know what you are getting. It’s possible that these images may more accurately reflect the property’s current condition than the images displayed on a website,” says Parr.

A friend or family member in the area you hope to buy could be a big help in this regard.

Additionally, consider placing a home inspection contingency in your offer.

“A buyer does not have a trained eye to notice or even look for issues and concerns with a home. It’s always prudent to have the property professionally inspected, whether or not the buyer did a walk-through or simply viewed pictures and video before making the offer,” advises Saadeh.

Also — using your agent as your representative — be sure to ask the homeowner about any aspects you aren’t sure about based on the listing photos and video tours; including home features, appliances, systems, design aspects, or potential renovations.

Buying a house sight unseen FAQ

Can you put in an offer on a home without viewing it?

It’s perfectly legal to make an offer on a home ‘sight unseen,’ meaning you haven’t viewed it in person. Sight-unseen offers are becoming more popular as home inventory remains low and COVID prevents home buyers from touring propreties.

What is a sight unseen addendum?

A sight unseen addendum is part of a home purchase agreement. It indicates the buyer has not seen the property in person, and accepts the purchase terms without an in-person viewing and without walk-through contractual entitlements, per real estate attorney Charles Gallagher.

Can you buy a house virtually?

It’s possible to buy a home virtually. But it has more to do with how your mortgage closes than how you view the home. “Some may define a sight-unseen purchase and a virtual purchase as the same thing. However, a remote or video closing doesn’t involve closing in person, which can happen even if the property is being purchased sight-unseen,” says Rajeh Saadeh, real estate attorney.

How quickly can you buy a house?

The time it takes to buy a home can vary a lot, depending on whether there are competing offers or multiple negotiation stages between the seller and buyer. If everything else goes smoothly, though, the longest stage of the home buying process is closing the mortgage. This usually takes around 30 days.

Do I need a real estate agent to buy a home sight unseen?

No, you don’t need a real estate agent to purchase a home sight unseen. “But it is prudent to use an agent to purchase a home. You can benefit from this person’s expertise in terms of valuation, deal points, and guidance through the entire transaction,” recommends Charles Gallagher, real estate attorney.

It’s especially helpful to have a professional on your side if you can’t see the home in person, or if you’re a first time home buyer without much experience in real estate.

Should I buy a home sight unseen?

The answer depends on your risk tolerance and the degree to which you perform due diligence on the property.

Purchasing a home sight unseen can help you avoid a bidding war and buy your new home more quickly.

“But a sight-unseen purchase increases the odds of an unfavorable outcome for the buyer. You may be saddled with some undisclosed defect that can cost you upwards of tens of thousands of dollars,” says real estate attorney Charles Gallagher.

So take certain precautions. You should have the home professionally inspected, make sure you’re satisfied with the inspection results, and consult closely with your real estate agent or broker throughout the process.

Can I buy a house as-is?

Anyone can purchase a home as-is. This simply means the “seller has no obligation to improve the property or make it better for the buyer,” Rajeh Saadeh explains. If you’re considering a home listed ‘as-is,’ you should be sure to have it inspected before you buy to make sure there are no major issues you’ll end up paying to repair.

Do I have to be physically present at closing?

The answer depends on the state you live in. Some states require in-person notarization. And some lenders require that a buyer sign documents in the presence of a notary.

If you choose a lender that offers ‘e-closings,’ and live in a state that allows remote mortgage closings, then you do not need to be physically present on closing day.

If there is no loan because you’re buying the home with cash, there is no obligation for a buyer, a seller or a closing agent to be in the same room or even building to conclude a closing. “Everything can be done by mail, email, and wire transfer,” real estate attorney Rajeh Saadeh explains.

What can go wrong at closing?

Issues can occur at closing if you no longer qualify for the mortgage you were pre-approved for. This might be the case if you lost your job or had a negative change to your income or credit score between applying and closing. In this case, you’ll need to re-apply and see if you still qualify for financing. If not, the deal can fall through.

Other potential issues at closing include problems discovered with the property’s title, a bank transfer of funds that falls through, or document errors. Consult closely with your mortgage lender, real estate agent, title company, and attorney to avoid these and other problems.

The first step to buying a home

Whether you’re buying a home sight unseen or touring homes the traditional way, the first step in the process remains the same.

You need to get approved for mortgage financing before you can make an offer on any home.

A pre-approval letter verifies your loan amount and your mortgage rate — and it shows the seller your offer is serious. If you hope to move quickly on a home purchase, getting pre-approved first is a must.

Verify your new rate (Feb 2nd, 2021)

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