Uncommon Knowledge
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This just in: Houses are expensive. But some houses are really expensive. If you have your heart set on a luxurious oceanside mansion (or just a modest home in an ultra-high-cost city like New York or San Francisco), you may need to seek out a jumbo mortgage: one whose dollar amount surpasses the conforming loan limits set by the Federal Housing Finance Administration (FHFA) each year. In 2024, that limit is $766,550 in most cases, though in some high-cost areas the limit can range up to $1,149,825. Any mortgage that exceeds those amounts is considered a jumbo loan.
Jumbo loans are those in which the mortgage total surpasses the conforming loan limits set by the FHFA. The conforming loan limits change annually. As noted above, in 2024, a jumbo loan is one whose total is $766,550 or more in most areas, though in select high-cost areas, the limit goes up to $1,149,825.
Your mortgage total is the amount of money you borrow in order to purchase a house — an amount that can be calculated by subtracting your down payment from the agreed home purchase price. (Keep in mind, though, that this figure isn’t the same as how much you’ll pay in full over the lifetime of the loan, since you’ll also owe interest to the bank that provides the loan. Still have questions? Check out our mortgage payment calculator with interest.)
Conventional loans are offered privately through banks, credit unions, and other financial institutions, unlike other loans which are supported by a government agency such as the Federal Housing Administration (FHA) or USDA (U.S. Department of Agriculture). Conventional loans are easily the most common type of home loan.
Jumbo loans are a type of conventional loan. But whereas most conventional loans are also conforming loans and are available with a minimum down payment as low as 3% for first-time homebuyers, jumbo loans are considered nonconforming and typically require a larger down payment — usually at least 10%. You’ll also likely need a very high credit score in order to be eligible to take out a jumbo loan.
As we’ve seen above, the specific jumbo loan limits where you live (or where you’re planning to buy a home) will vary depending on the area’s cost of living. The FHFA offers a convenient conforming loan map that allows you to see what the conforming loan limits (otherwise known as jumbo loan limits) are in your area, broken down by county.
The jumbo loan limit is determined each year by the FHFA using current housing price data. That way, the limits are tied to real information in the world about how much it actually costs to buy a home in a given area. Conforming loan limits — also known as the jumbo loan limits — change each year; new limits for the coming year are typically announced in late November.
As mentioned above, in 2024, the jumbo loan limit for the vast majority of the U.S. is $766,550, and the highest conforming loan limit, in the most expensive places to live, is $1,149,825. To see exactly what the jumbo loan limits are in your area, visit the FHFA’s map.
Jumbo loans are, well, big — which means the qualification metrics for getting a home loan are pretty strict. (After all, that’s a whole lot of money the lender stands to lose if you default.) While every lender has its own specific algorithm for qualifying potential borrowers, here are some rules of thumb when it comes to qualifying for a jumbo loan:
While there’s no specific credit score that guarantees you’ll qualify for a jumbo loan, most lenders will likely require a high one — after all, it’s a fairly risky prospect to lend that much money to someone. Credit scores range from 300 to 850. Scores of 670 to 739 are considered good; scores of 740 to 799 are considered very good, and scores of 800 and above are considered exceptional.
We touched on this briefly, but jumbo loan lenders often require their borrowers to provide a more substantial down payment than conventional loan lenders do. While a minimum of 10% is a good rule of thumb, some lenders may ratchet up the minimum to 25% or 30%.
Considering how large jumbo loans are already, that means you’ll probably need a significant amount of cash lying around in order to successfully apply for one — 10% of $800,000, a relatively small jumbo loan, is already $80,000.
Your debt-to-income ratio, or DTI, is a measurement of your existing debt burden expressed as a percentage. It’s calculated by totalling all your monthly debt payments and dividing that figure by your gross monthly income.
Conventional loans usually required a DTI of 50% or lower — and that’s the absolute max. (Many lenders cut off qualification at lower percentages.) Again, while there’s no one advertised maximum DTI for a jumbo loan, you’ll likely want to have as little debt as possible in order to qualify — not to mention in order to have the money on hand each month to make that massive mortgage payment.
Jumbo loan lenders are, of course, primarily concerned with your ability to repay the loan. That means that, along with the above-mentioned factors, they’ll also want proof that you earn a reliable and high income — and in some cases that you’ve already stockpiled enough wealth that you’ll be able to make your payments for several months even if you lose your job. For this reason, qualifying for a jumbo loan can be especially challenging for a self-employed worker.
So, now that you understand them better, is a jumbo loan right for you? Like any financial decision, taking out a jumbo loan has both benefits and drawbacks to carefully consider. Here are some of the pros and cons of jumbo loans.
Jumbo loans offer those who qualify the opportunity to purchase a costly home that they might otherwise not have access to. They may also be available at similar interest rates to lower conforming loans, and both fixed and adjustable rates are available in 15- and 30-year terms.
On the other hand, jumbo loans are, well, jumbo-sized — which means the total amount you’ll pay over time is, too. Even a low interest rate can add up to a lot on a large principal balance, and jumbo loans also have more stringent qualification and down payment requirements than their conforming counterparts. Associated closing costs and fees can be higher, too.
If you find yourself having trouble qualifying for a jumbo loan, you could look into other nonqualifying mortgages, such as bank statement loans — or potentially borrow a significant amount of money from family or friends. However, if the home you’re vying for is that much of a stretch, it may make more financial sense to find something a bit more modest and apply for a conforming loan instead.
Jumbo loans are large mortgages that don’t conform to the limits set by the FHFA — and therefore come with stricter qualification requirements. While jumbo loans can help those who qualify to access a high-value house, they can also be hard to keep up with unless your income is correspondingly high.
When you’re ready to take the next step, consider what SoFi Home Loans have to offer. Jumbo loans are offered with competitive interest rates, no private mortgage insurance, and down payments as low as 10%.
SoFi Mortgage Loans: We make the home loan process smart and simple.
Jumbo loans are those whose totals exceed the conforming loan limits set each year by the FHFA. For 2024, that limit is $766,550 in the vast majority of the U.S.; in some areas with a high cost of living, the conforming loan limit can be as high as $1,149,825.
Along with their extra-large monthly mortgage payments, jumbo loans also come with stricter eligibility requirements and higher minimum down payments. In most cases, you’ll need to pony up at least 10%, and some lenders may require as much as 30% up front.
Most mortgage loans issued in the U.S. are guaranteed by Fannie Mae and Freddie Mac, which helps reduce risk for lenders and ensure that loans are affordable and available to homebuyers. But the guarantee has to stop somewhere, and conforming loan limits draw that line. This is why jumbo loans have more stringent borrower requirements than conforming loans — lenders who make jumbo loans don’t have Fannie Mae and Freddie Mac to fall back on if a jumbo borrower defaults.
Photo credit: iStock/Wirestock
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: 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.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
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Source: sofi.com
The income needed for a $450,000 mortgage varies based on a few factors, but generally speaking, an income of $130,000 would put you in the position to afford a $450,000 mortgage. You can estimate how much you need to make by focusing on principal and interest. Together, these two factors account for a majority of a home’s monthly mortgage payment and reveal an approximate income you’ll want to bring in.
For a more accurate monthly payment estimate, you’ll need to know the home’s property taxes, home insurance costs, as well as which type of home loan you plan on using. Certain loans come with monthly fees that will increase your monthly housing costs.
If you’re thinking about borrowing $450,000 to buy a home, here’s what you need to know.
The income needed to qualify for a $450,000 mortgage varies on a few factors. However, the principal and interest (P&I) payment for a $450,000 mortgage would be $2,996 for a 30-year term with a 7.00% interest rate. For a 15-year term, the payment is $4,047. Keep in mind that these calculations do not include other fees that will increase how much you actually pay.
Many lenders want borrowers to stick to a 28% housing cost, meaning that they will not approve loans that take up more than 28% of the borrower’s gross monthly income. A mortgage calculator can do the math for you, but for a payment of $2,996 each month to equal 28% of your monthly income, you would need to earn about $10,800 per month, or about $130,000 per year. However, these calculations do not factor in other fees that contribute to your monthly mortgage payment.
To get a more accurate monthly payment, use a mortgage calculator with taxes and insurance included.
Recommended: First-Time Homebuyer Guide
The income needed for a $450,000 mortgage varies based on:
• Loan term
• Interest rate
• Property taxes
• Home insurance
• Loan-specific fees
However, the loan term and interest rate determine a majority of the costs for any monthly mortgage payment.
The maximum debt-to-income (DTI) ratio lenders often accept is 36%, with a maximum of 28% going toward housing costs. Some lenders have higher margins, and some are willing to work with borrowers who have unusually high incomes and amounts of debts.
The two biggest factors that determine how much house you can afford are your income and DTI ratio. Regardless of your debts, the mortgage payment cap is often 28% of the borrower’s gross income.
Mortgage lenders typically look for a low DTI ratio, a strong credit score, a history of stable employment, and a high income. All of these factors suggest you are not only responsible enough to take on a mortgage but are financially capable of repaying your debts.
When determining a home’s affordability, compare loan terms. A 30-year loan may enable you to buy a more expensive home, but increases the amount you pay in interest. For example, if you borrow $450,000 with a 30-year mortgage at 7.00%, over the life of the loan you will pay about $628,208 in interest in addition to the $450,000 principal. Borrow the same amount at the same rate but pay it back over 15 years and your interest charges shrink to around $278,236.
Remember, the above calculations do not include property taxes, home insurance, and loan-specific fees.
A $450,000 mortgage loan comes with its share of pros and cons. Here are a few things to consider:
Pros:
• You build equity with each monthly payment
• Equity can be used to secure a low rate loan
• Fixed housing costs
• Freedom to make changes to the property
Cons:
• Yearly home maintenance costs
• Large down payment
• Large closing costs
The minimum down payment a buyer can make for a conventional loan is 3%, and this low rate is often only available to first-time buyers. Assuming your mortgage is for $450,000, this means the purchase price must be $463,918. A 3% down payment would be $13,918.
It’s possible to buy a $450,000 home with no money down using a loan from the U.S. Department of Agriculture or the U.S. Veterans Administration (a VA loan). All other traditional mortgages require a down payment. However, other options do exist.
USDA and VA loans do not have down payment requirements. The lowest amount needed for a conventional loan for some buyers is 3% of the purchase price. FHA loans require a 3.5% down payment.
It certainly can be. For example, if you use a loan that doesn’t require a down payment, such as a USDA loan, you could use the money for something else. If you were to fix up the home and sell it after a few years, those renovations might bring in a good return on your investment.
Ultimately, however, it depends on the monthly payment. As long as you can comfortably afford the monthly payment, whether the mortgage requires a down payment or not doesn’t matter too much.
You may want to consider lowering your maximum purchase price if you can’t afford the P&I payment.
If housing prices are high where you live, another thing you may want to consider is looking in another area. Consider looking at the cost of living by state with data that rates the most affordable states. You may find moving to a new location deserves some consideration.
You may also consider the following tips.
Debts like student loans, credit cards, and car loans eat up your monthly income. As they are paid off, three things happen:
• You free up cash
• You lower your DTI ratio
• You cultivate a better credit score
Once you do this, you may be approved for a higher loan amount or the monthly payment on a $450K mortgage will become more manageable.
First-time homebuyer programs help homebuyers with down payments and closing costs. They often come in the form of grants, forgivable loans, or low interest loans. Many programs can be found through HUD and are first-come-first-served. Apply early if you’re interested.
The stronger your credit score, the more confidence lenders have in you. This will likely result in a lower rate, and may also result in a higher loan limit. However, your lender will still likely want you to stick to a 28% DTI for housing costs.
Create a monthly budget to intentionally track how much you spend and save. See if there are places where you can cut back to help save up for a larger down payment.
There are alternatives to conventional mortgage loans, but they involve working with a seller who is open to nontraditional financing methods. Some nontraditional methods include seller financing and lease-to-own options.
Another option is a portfolio loan, which some banking institutions offer. A portfolio loan is a loan lenders don’t sell to another institution. Instead, they keep it in their own books, which enables them to allow for looser eligibility requirements.
Recommended: Home Loan Help Center
Here are a few quick tips to qualify for a mortgage:
1. Get preapproved as early as possible: The mortgage preapproval process helps with a lot of things, and it will tell you how much house you can afford.
2. Use a mortgage calculator when shopping online: This will help you quickly crunch some numbers. There are many types of mortgage calculators online, including home affordability calculators.
3. Compare loan types: There are many different types of mortgage loans, each of which comes with different requirements and different fees.
4. Pay down your debts: The fewer debts you have, the more room in your budget you’ll have for a higher mortgage.
5. Know that you can always refinance in the future: A mortgage refinance will take a fresh look at your credit score and income, and will also include your existing home equity when determining your new rate.
You’ll need an annual income of around $130,000 if you want to be in a good position to make payments on a $450,000 home mortgage loan. Remember that your payments will likely include principal and interest, but also homeowners insurance and property taxes. Getting preapproved by a lender can help make your search less stressful.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
Just considering the P&I payment of a $450K mortgage, the minimum you would need to make is around $130K a year. This is for a 30 year mortgage with a 7.00% interest rate.
How much money you would have to borrow to buy a $450,000 house would depend on the size of your down payment. First-time homebuyers can sometimes put down as little as 3% ($13,500). In this case, you would need a home mortgage loan for $436,500. If you put down 20% ($90,000), you would need a mortgage loan for $360,000.
Yes, but it depends on the purchase price of the home. The gross monthly income is $3,333, which means the maximum amount spent on housing should be $933. This puts the purchase price around $140,000.
Photo credit: iStock/FreshSplash
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: 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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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Source: sofi.com
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You might think having a medical degree makes getting a home loan a snap. Not necessarily. Traditional home loans penalize you for having a high debt-to-income ratio, something medical professionals, especially recent graduates, typically have because of student loans. Other negatives for physicians include little to no savings, and in many cases, no permanent job yet.
On the other hand, doctors are among the most financially stable professionals in the workplace. Once established, they tend to have higher incomes, less overall debt, and, importantly, very low default rates when it comes to home loans. Realizing this, banks and other mortgage lenders have come up with a special type of loan tailored to medical professionals called a physician mortgage loan, or doctor loan.
A physician mortgage loan is a specialized loan offered only to medical and certain other professionals. They essentially ignore high student loan debt and low or no savings, especially early in the borrower’s career.
The reason these negatives are temporarily overlooked is because doctors and other professionals typically become high net-worth individuals, with little debt, substantial savings, and very rarely lose their homes to foreclosure.
Physician mortgage loans can do a lot for helping medical professionals hoping to buy a home. They come with:
With a physician mortgage, you can buy a home with as little as no money down. This may allow you to borrow more and afford a higher-priced house without worrying about a big down payment. It can also help you buy a home sooner if you have little in savings.
Private mortgage insurance (PMI) is typically required if you make a down payment of 20% or less, but that’s not the case with physician loans. According to Freddie Mac, this typically adds anywhere from $30 to $70 to your monthly payment for every $100,000 you borrow.
Physician loans typically require a debt-to-income ratio of 45% or less, which is higher than some other loan programs. It also won’t take student loans into account when calculating this number (more on this below).
Another feature of physician mortgages is that they typically ignore the total owed on student loans and only consider the amount of the mortgage’s monthly payment when looking at your debts. This can be helpful for physicians, who often have to take out very large loans to pay for their advanced education.
Although the name suggests these loans are only available to doctors, many lenders offer the same loans to other high-income professionals. Eligibility for physician mortgage loans typically extends to:
Beyond being in one of these professionals you’ll also need to:
A signed employment contract is often accepted as proof of income, as long as it indicates the amount of your current or expected future salary. Most traditional borrowers have to supply pay stubs or two years of tax returns. You’ll also need proof of your medical or other degree.
While physician mortgage loan requirements tend to be more flexible than other loan programs, that’s not the case when it comes to credit scores. Though the exact number varies by lender, you’ll usually need a credit score of 700 or higher to get a physician mortgage. This is higher than most other loan programs (FHA loans allow down to 500 credit scores in some cases).
If you’re a medical professional, a physician mortgage might help you buy a home. Follow these steps if you’re interested in applying for a physician mortgage loan:
Many banks and traditional lenders offer physician mortgage loans. Wrenne Financial Planning has compiled one list of such lenders, but the easiest way to find out is to call or visit the website of lenders in your area to determine if they offer this product.
You usually won’t need as much documentation with a physician mortgage as you would with another kind of loan. You won’t need tax returns or W-2s, but instead, a signed employment contract indicating your current and future income, proof of your degree, and student loan statements showing you’re current on your payments.
Once you find a lender, you’ll fill out their application, agree to a credit check, and submit the required documents. Once your loan moves through underwriting, you will pay your closing costs and sign your loan documents.
Closing costs typically include lender fees, attorney fees, title insurance, and taxes, and they average about 3% of the mortgage amount.
Physician mortgage loans are structured similarly to conventional loans but are much more accommodating to doctors and other high-income individuals given their uncommon financial circumstances. For that reason, most of the accommodations have to do with getting approved.
Here’s a look at how physician mortgage loans vs. conventional loans measure up:
Physician mortgages often require no down payment, and they come with no PMI either. With conventional loans, you’ll owe PMI if you make a down payment of less than 20%.
You’ll also need lots more documentation with conventional loans, including W-2s, tax returns, pay stubs, bank statements, and more. On the bright side, you may be allowed to have a lower credit score and still qualify.
Physician loans also treat student loans differently, often excluding them from your total debt-to-income ratio. This can make it easier for medical professionals to qualify, despite high student loan balances.
We’ve already touched on the benefits of physician mortgage loans, but there are drawbacks to weigh, too.
First, consider the advantage of putting no money down versus the downside. Not only can this put you at risk of buying more house than you can afford, it can also immediately put you “underwater,” meaning you owe more on your home than you could get if you sold it.
Additionally, an average credit score requirement of 700 may preclude you from the home of your dreams before the amount of the down payment even comes up. Another factor that is often overlooked is that most physician mortgage loans usually have an adjustable interest rate instead of a fixed rate.
A physician mortgage loan is a special type of mortgage designed for doctors and medical professionals. They often have low (or no) down payment requirements, no PMI, and exclude student loans from debt-to-income ratio calculations. This can make it easier for doctors to qualify for a mortgage.
Medical doctors, dentists, and other healthcare professionals with an MD, DO, DDS, or DMD degree are usually eligible for physician mortgages.
Low down payments, no PMI, flexible debt-to-income ratios, and special consideration of student loan debt are just a few of the benefits of physician mortgage loans for doctors.
You’ll need to look for lenders specializing in physician mortgage loans, as not all companies offer these. They can guide you through the application process and required documentation.
Physician mortgage loans often have more favorable terms for doctors, but may have higher interest rates compared to conventional loans. They also may require higher credit scores.
Source: businessinsider.com
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Between rising home prices and today’s high mortgage rates, buying a home has gotten very expensive. “Today’s home affordability is the worst we’ve seen since the early ’80s,” says Neil Christiansen, branch manager and certified mortgage advisor at Churchill Mortgage.
Meanwhile, inflation and high interest rates have made it difficult for many prospective buyers to save up for a down payment. If you were putting down 20% on the average US home, you’d need nearly $88,000, according to Redfin data.
However, you don’t always need to put down 20% on a home purchase. You might not even need to pay any money upfront. While not as widespread as traditional mortgages, no-down-payment mortgages do exist and could be helpful for some prospective buyers. However, these types of mortgage loans may not make sense in every situation.
Ready to buy a home? Compare your top mortgage loan options now.
Those who are eligible for a no-down-payment mortgage and can afford the monthly payments might benefit from not having to set aside so much money upfront.
“A no-down payment mortgage can be a great option for qualified borrowers who may not have the means to save for a down payment but have a stable income. This path could make sense when a homebuyer has limited liquidity but can comfortably afford the monthly payments and other homeownership costs, such as insurance, property taxes, and maintenance,” says Chris Birk, vice president of mortgage insight at Veterans United Home Loans.
A no-down-payment mortgage can also make sense if you want more money to invest aside from putting money into real estate.
“Although there are a few loan programs offering zero down payment, in today’s high interest rate and elevated-price environment, it can be a challenge for buyers to get approved,” says Christiansen.
But if you can qualify for one, Christiansen says, then you could potentially grow your net worth by investing the money that would have gone toward the down payment into stocks, bonds or other assets.
One option for a no-down-payment mortgage could be a Department of Veteran’s Affairs (VA) loan.
“For many veterans and service members, VA loans offer a secure path to homeownership with no down payment required. About three-quarters of VA buyers bought a home last year without making a down payment,” says Birk.
“Another route is the USDA loan, which is available in eligible rural and suburban areas and offers a no-down payment mortgage option,” he adds.
It’s also possible to find a private mortgage lender offering a no-down-payment mortgage, though that could involve structures like a government-backed, low-down-payment mortgage paired with another loan to cover the remaining down payment amount.
Regardless of the source, if you’re comfortable with the mortgage terms, having no down payment could help some buyers. For example, it can be a smart choice if you have a stable income, good credit and a low debt-to-income ratio, experts say.
That’s because, in today’s tight housing market, you may not have the opportunity to save for a down payment, as buying sooner rather than later can be advantageous. However, you’ll typically need a solid borrower profile and a good credit history to obtain a no-down-payment mortgage.
Explore the top mortgage loan rates available to you here.
Despite the upside of no-down-payment mortgages, there are some possible disadvantages to weigh first.
“The no-down-payment talk seems to have run rampant on the internet. This is not a new product, and it’s not widely available,” says Kevin Leibowitz, founder, mortgage broker at Grayton Mortgage, Inc. And the terms of these loans can be a bit much, he adds.
For example, you might end up with higher monthly payments compared to a regular mortgage, aside from just the difference in the loan amount. That’s because no-down-payment mortgages often come with higher interest rates and require private mortgage insurance (PMI), both of which can lead to higher monthly payments.
And, having no equity in your home can be risky. If the property values decrease in your area, you could end up upside down on your home. Owing more than your property’s worth could cause issues like making it difficult for you to move or refinance your mortgage. So, you might not want to take on the risk.
“It may not be the best choice if the homebuyer’s financial situation is unstable, or if they are not prepared for the long-term financial commitment of owning a home. Would-be homebuyers who are struggling with high debt levels or inconsistent income may find that the added financial responsibility of a mortgage without an equity cushion is too much to handle,” says Birk.
“Additionally, in some competitive markets, sellers might prefer offers with a down payment, as they see them as more financially secure,” he adds.
No-down-payment mortgages have their appeal, but there are other ways to buy a home without a big down payment.
“Both conventional and FHA loans offer low down payment loans, anywhere from 3% for first-time buyers with a conventional loan and 3.5% on FHA for first-time and existing buyers. To use conventional financing and be an existing buyer, a 5% down payment loan is available,” says Christiansen.
Some of these loans still have relatively narrow eligibility requirements, but they can still be more widespread than no-down-payment options.
“Lenders may offer conventional mortgage products with 3% down payments through programs like Fannie Mae’s HomeReady and Freddie Mac’s Home Possible, which are designed to help low- to moderate-income buyers,” says Birk.
You also might qualify for programs that help you afford your down payment in the first place. For example, down payment assistance programs can provide grants for your down payment. And, that can help new or lower-income buyers get into their first homes.
No-down-payment mortgages can be helpful for some buyers, such as those with plenty of income and solid credit but who lack the savings for a down payment. However, these mortgages can also increase costs and come with higher risk. As such, other options like low-down-payment mortgages or down payment assistance programs could be worth exploring.
Source: cbsnews.com
Ken Kahan makes a living building homes.
A specialty? Luxury apartment complexes in Los Angeles neighborhoods such as Palms and Silver Lake filled with mostly market rate units, but with a handful of income-restricted affordable ones as well.
It can be a good business, but lately less so.
“We have pulled back,” said Kahan, the president of California Landmark Group. “The metrics don’t work.”
Across California and the nation, developers moved to start fewer homes in 2023, a decline some experts say could eventually send home prices and rents even higher as supply shortages worsen.
Developers cite several reasons for delaying new projects. There’s high labor and material costs, as well as new local regulations that together make it harder to turn a profit.
Perhaps the biggest factor — and one hitting across the country — is the high cost of borrowing. Rising interest rates not only make it more expensive for Americans to buy a home, but they add additional costs for developers who must shell out more money to build and manage their projects.
As a result, fewer projects make financial sense to build and fewer homes are built.
“More than anything it is debt costs,” said Ryan Patap, an analyst for real estate research firm CoStar.
In all, preliminary data from the US. Census Bureau show building permits for new homes nationwide fell 12% in 2023 from the prior year and 7% in California. Drops were recorded in both single-family homes — most of which tend to be for sale — as well as multifamily homes — which are chiefly rentals.
Dan Dunmoyer, president of the California Building Industry Assn., said one major reason for the decline is that many for-sale home builders foresaw “a massive downturn” and stopped buying lots to develop when mortgage rates soared in 2022.
Then a funny thing happened. Demand for their product didn’t crater as much as expected, in large part because existing homeowners didn’t want to sell and rid themselves of ultra-low mortgage rates.
“Builders kind of woke up and realized ‘Oh, it’s just us [selling homes],‘” Dunmoyer said. “But we don’t turn on a dime.”
As for-sale builders restart their engines to take advantage of a shortage of listings, there are signs of improvement. During the first two months of this year, builders in California pulled 35% more permits for single-family homes than during the same period a year earlier, according to census data.
Permits for multifamily continued to decline — dropping 33%.
The diverging paths are probably due to several factors, said Rick Palacios Jr., director of research for John Burns Research and Consulting.
On a whole, single-family home builders have access to a wider source of debt that isn’t as vulnerable to rising interest rates. In the single-family market, the supply shortage has also worsened and home prices are climbing.
Meanwhile, rents in many places — including Los Angeles — have dropped slightly as vacancies have risen, in part because apartment construction has been relatively robust in recent years.
“Single-family solid, multifamily weak is a pretty consistent theme across most of the country,” Palacios said. “You’re hard pressed to find a market where developers and investors are gung ho on apartments.”
In the city of Los Angeles, developers must contend with another factor — Measure ULA.
The citywide property transfer tax took effect last year to fund affordable housing and has drawn the ire of the real estate industry.
Though it’s known as the “mansion tax,” except for rare exceptions it applies to all properties sold for more than $5 million, no matter if they are gas stations, strip malls, apartment buildings or actual mansions. Under the measure, a seller is charged 4% of the sales price for properties sold above $5 million and below $10 million.
At $10 million and above, the tax is 5.5%.
Apartment developers and real estate brokers said additional costs from ULA make it even harder to earn a reasonable profit in what can be a risky business.
That’s because when building apartments, developers often sell their finished product, which would probably trigger the ULA tax for any building over 15 units, according to Greg Harris, a real estate broker with Marcus and Millichap. Even developers who hold onto their properties typically need to take out a mortgage on the finished building — and Harris said lenders are willing to give less because they too would need to pay the tax if they foreclose and sell the property.
“ULA is like the last nail in the coffin,” said Robert Green, a Los Angeles developer. “It couldn’t have come at a worse time.”
Many apartment projects got their start under different economic circumstances and have opened in recent years or will soon. That supply should help keep rents down for a while, but not forever, said Richard Green, executive director of the USC Lusk Center for Real Estate.
In two or three years, as fewer apartments are finished “we will see rent start to go up again,” he said.
That would be a hit for Californians struggling to find housing in an expensive state where thousands sleep on the streets.
Economic cycles, of course, ebb and flow and construction may rebound.
The Federal Reserve plans to cut interest rates later this year, which may help more projects make sense financially, as could rising rents.
Land sellers could also drop their asking prices to adjust for rising developer costs, including ULA in Los Angeles.
Normally, real estate analyst Patap said he’d expect apartment construction to rebound as land costs adjust downward. But he noted developers say they are also cautious about building in L.A. because of a broader political shift in the city that’s more supportive of restrictions on landlords and more supportive of protections for tenants.
In the city of Los Angeles, multifamily permits dropped 24% in 2023 compared with 19% in Los Angeles County, census data show. (Data from the Construction Industry Research Board show even larger drops: 49% in the city and 39% in the county.)
Laurie Lustig-Bower, a commercial real estate broker with CBRE, said some L.A. landowners have reduced their prices to sell, but “if they don’t have a gun to their head” they are waiting until developers can pay more.
In recent years, state lawmakers have taken action to make it easier to build housing, in part by eroding local control over land use decisions.
Los Angeles Mayor Karen Bass has also fast-tracked 100% affordable buildings under her Executive Directive 1, while the city recently exempted smaller projects from some storm water capture requirements.
Mott Smith, chairman of the Council of Infill Builders, said more must be done to increase the number of new homes in Los Angeles and cited the storm water decision as the kind of steps government should take.
“The city has no influence over interest rates … [but] what it controls is the process to get a project approved,” Smith said. “There are so many opportunities.”
For now, developers say it’s tough to find opportunities.
Kahan said his company runs the numbers on potential land purchases constantly and at least once a week finds it doesn’t make sense to buy and build.
He expects to purchase some land in Southern California by year’s end, though mostly outside of the city of Los Angeles where Kahan said he’s increasingly looking because of costs from ULA, which unlike current interest rates aren’t expected to change.
So far, Kahan said he’s yet to find a deal that will work — within or outside city borders.
Source: latimes.com
The homebuying process can seem confusing and overwhelming, especially since there are so many moving parts to consider.
Making a down payment is just one part of the process. While it has long been a notion that you needed to put at least 20% down in order to buy a home, findings from a National Association of Realtors report indicate that the average down payment on a home or condo in 2021 was actually 12% — for homebuyers under the age of 30, the average down payment was just 6%.
It’s important to note that if you make a down payment of less than 20%, you’ll typically be charged Private Mortgage Insurance, or PMI, until you build 20% equity in the home. That said, making a lower down payment can present some advantages. For one, doing so allows you to reserve more of your savings upfront for closing costs, lender fees, renovations that may need to be done in the home and other moving expenses.
CNBC Select rounded up five mortgage lenders that do not require a large down payment, evaluating lenders based on the types of loans offered, customer support and minimum down payment amount, among other factors (see our methodology below.) As always, do your homework ahead of time so you can be sure you’re choosing the lender that best suits your needs, whether you’re a first-time homebuyer or purchasing an investment property.
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Conventional loans, FHA loans, VA loans, DreaMaker℠ loans and Jumbo loans
10 – 30 years
3% if moving forward with a DreaMaker℠ loan
Terms apply.
Who’s this for? Chase Bank offers down payment options as low as 3% if you apply for the DreaMaker home loan — for comparison, an FHA loan requires borrowers to make a 3.5% down payment.
While the DreaMaker loan is designed especially for those who can only afford to make a small down payment, it also comes with stricter income requirements compared to some of the other available loans. According to Chase, the annual income used to qualify customers must not exceed 80% of the Area Median Income, or AMI, for instance.
In addition to the DreaMaker loan, Chase also offers a conventional loan, FHA loan, VA loan and jumbo loan — USDA loans and home equity lines of credit, or HELOCs, are not offered by this lender. The VA loan requires a down payment minimum of 0%, which tends to be the standard rate for these types of loans. Much like other lenders, Chase has a minimum credit score requirement of 620 for its mortgage options.
Chase offers mortgage terms that range from 10 years to 30 years, as well as fixed rate and adjustable-rate mortgages, or ARM. Discounts are also offered for existing customers, although the requirements are rather high: To receive $500 off your mortgage processing fee, you’ll need to have $150,000 to $499,999 between Chase deposit accounts and Chase investment accounts, while having $500,000 or more in these accounts can result in up to $1,150 being taken off the processing fee.
Who’s this for? Navy Federal Credit Union provides the most benefits to current or retired members of the Armed Forces who have signed up for a Navy Federal Credit Union membership (immediate family members are also eligible).
This lender offers VA loans with the option to pay 0% down and contribute up to 4% of the home’s value toward closing costs. Another option, the Military Choice mortgage, has similar guidelines to the VA loan, such as no PMI and a 0% minimum down payment, but allows sellers to contribute up to 6% of the home’s value toward closing costs.
Homebuyers can also use the RealtyPlus program to buy a home and receive up to $9,000 in cash back. Private mortgage insurance, or PMI, is also not a requirement for a low down payment on a mortgage through this particular lender.
While this lender doesn’t disclose its required minimum credit score, it does work with members to analyze their circumstances and find the right mortgage fit for them, making Navy Federal Credit Union a potentially more flexible lender if your credit score is on the lower side.
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Conventional loans, HomeReady loan and Jumbo loans
15 – 30 years
3% if moving forward with a HomeReady loan
Terms apply.
Who’s this for? Ally Bank offers a HomeReady mortgage program that is geared toward low- to mid-income homebuyers regardless of whether it’s their first time or if they’re a repeat buyer, allowing you to put down as little as 3% for a down payment. Applicants must have a debt-to-income ratio of no more than 50%, their income must be equal to or less than 80% of the area’s median income and at least one borrower must take a homeowner education course.
It’s common for lenders to charge several fees during the mortgage application process, including an application fee, an origination fee, a processing fee and an underwriting fee, which can end up costing a significant amount during the homebuying process. While Ally doesn’t charge any of those fees, you may still have to deal with appraisal fees and recording fees, or pay for title searches and insurance.
It’s possible to get pre-approved for a loan in as little as three minutes online and submit your application in just 15 minutes, as long as you have all the necessary documents handy.
While Ally also offers a jumbo loan option, note that FHA loans, VA and USDA loans are not available through this lender. Customers can also choose between fixed rate and adjustable rate mortgages, and 15-year, 20-year and 30-year loan terms.
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Conventional loans, FHA loans, VA loans, USDA loans, jumbo loans, HELOCs, Community Loan and Medical Professional Loan
10 – 30 years
0% if moving forward with a USDA loan
Terms apply.
Who’s this for? USDA loans allow homebuyers to make a 0% down payment to purchase their home. It’s sometimes tough to find lenders that offer these types of loans in addition to other standard mortgage options, but PNC Bank does include USDA loans in its lineup.
To apply for a USDA loan with PNC Bank, you must be purchasing a home in a qualifying rural area. If you’re not interested in a USDA loan, this particular lender also offers conventional loans, FHA loans, VA loans, jumbo loans and a PNC Bank Community Loan, a special program that allows homebuyers to put down as little as 3% (without paying private mortgage insurance) and choose between fixed-rate and adjustable-rate mortgage terms.
This lender also offers a special loan option geared toward medical professionals who are looking to buy a primary residence only. With this loan, medical professionals can apply for as much as $1 million and won’t have to pay private mortgage insurance regardless of their down payment amount. They can also choose between fixed-rate and adjustable-rate terms.
It’s possible to get online pre-approval in as little as 30 minutes as long as you have all the documentation available on hand.
Apply online for personalized rates
Conventional loans, FHA loans, VA loans and Jumbo loans
15 – 30 years
Terms apply.
Who’s this for? Private Mortgage Insurance, or PMI, is typically a required monthly charge if you make a down payment of less than 20% for your home. While it can eventually be waived once you’ve made enough payments to build up 20% equity in your home, PMI can still easily eat into your monthly budget before that point.
Those who apply for a mortgage through Citi’s HomeRun program can make down payments as low as 3% without having to pay monthly PMI. HomeRun mortgages also allow you to lock in a fixed rate on your loan so you won’t have to worry about potentially being charged even more interest down the line. This mortgage option is also ideal for those who need to borrow up to $726,200 — or up to $1,089,300 if you reside in Hawaii or Alaska. If you’re looking for a jumbo loan, here are four mortgage lenders you should consider.
Aside from the HomeRun program, Citi also offers discounts for anyone interested in its other mortgage loans. Citi is currently offering a $500 credit toward your closing costs when you apply for a Citibank Mortgage Account.
Pre-approval is a statement or letter from a lender that details how much money you can borrow to purchase a home and what your interest rate might be. To get pre-approved, you may have to provide bank statements, pay stubs, tax forms and employment verification, among other documents. Once you’re pre-approved, you’ll receive a mortgage pre-approval letter, which you can use to begin viewing homes and making offers. It’s best to get pre-approved at the start of your home-buying journey before you start looking at homes.
A mortgage is a type of loan you can use to purchase a home. It’s also an agreement between you and the lender that essentially says you can purchase a home without paying for it in-full upfront — you’ll just put some of the money as a down payment upfront (usually between 3% and 20% of the home price) and pay smaller, fixed equal monthly payments for a certain number of years plus interest.
For example, you probably don’t want to pay $400,000 for a home upfront, however, maybe you can afford to pay $30,000 upfront. A mortgage would allow you to make that $30,000 payment — a lender would provide you with a loan for the remaining amount of $370,000 and you’d agree to repay it plus interest to the lender over the course of 15 or 30 years.
Keep in mind that if you choose to put down less than 20%, you’ll be subject to private mortgage insurance, or PMI, payments in addition to your monthly mortgage payments. However, you can usually have the PMI waived after you’ve made enough payments to build 20% equity in your home.
Conventional loans are funded by private lenders and sold to government enterprises such as Fannie Mae and Freddie Mac. It’s the most common type of loan and some lenders may require a down payment as low as 3% or 5%.
Federal Housing Administration loans, or FHA loans, typically allow you to purchase a home with looser requirements. For example, this type of loan might let you get approved with a lower credit score and applicants may be able to get away with having a higher debt-to-income ratio. You typically only need to make a 3.5% down payment with an FHA loan.
USDA loans are offered through the United States Department of Agriculture and are aimed at individuals who want to purchase a home in a rural area. A USDA loan requires a minimum down payment of 0% — in other words, you can use it to buy a rural home without making a down payment.
VA mortgage loans are provided through the U.S. Department of Veterans Affairs and are meant for service members, veterans and their spouses. They require a 0% down payment and no additional private mortgage insurance.
Mortgage rates change almost daily and can depend on market forces such as inflation and the overall economy. While the Federal Reserve doesn’t set mortgage rates, they tend to move in reaction to actions taken by the Federal Reserve on its interest rates.
While market forces may influence the general range of mortgage rates, your specific mortgage rate will depend on your location, credit report and credit score. The higher your credit score, the more likely you are to be qualified for a lower mortgage interest rate.
A 15-year mortgage gives homeowners 15 years to pay off their mortgage in fixed, equal amounts plus interest. By contrast, a 30-year mortgage gives homeowners 30 years to pay off their mortgage. With a 30-year mortgage, your monthly payments will be lower since you’ll have a longer period of time to pay off the loan. That said, you’ll wind up paying more in interest over the life of the loan since interest is charged monthly. A 15-year mortgage lets you save on interest but you’ll likely have a higher monthly payment.
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At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every mortgage lender review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of home loan products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best small down payment mortgages.
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To determine which mortgage lenders are the best, CNBC Select analyzed dozens of U.S. mortgages offered by both online and brick-and-mortar banks, including large credit unions, that come with fixed-rate APRs and flexible loan amounts and terms to suit an array of financing needs.
When narrowing down and ranking the best mortgages, we focused on the following features:
After reviewing the above features, we sorted our recommendations by best for overall financing needs, quick closing timeline, lower interest rates and flexible terms.
Note that the rates and fee structures advertised for mortgages are subject to fluctuate in accordance with the Federal Reserve rate. However, once you accept your mortgage agreement, a fixed-rate APR will guarantee your interest rate and monthly payment will remain consistent throughout the entire term of the loan, unless you choose to refinance your mortgage at a later date for a potentially lower APR. Your APR, monthly payment and loan amount depend on your credit history, creditworthiness, debt-to-income ratio and the desired loan term. To take out a mortgage, lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
Source: cnbc.com
Buying a home in Alaska is increasingly challenging for residents, as home prices are higher than during their 2022 and 2023 peaks and mortgage rates have risen by more than 50 percent in the past six years, according to a new study by the Alaska Housing Finance Corporation (AHFC).
Read more: What Is Mortgage Refinancing? How Does It Work?
Between 2018 and 2024, the average principal and interest payment for homes purchased in Alaska increased by 52 percent, the study released on June 19 found. Newsweek contacted AHFC for comment by phone on Wednesday morning.
Higher mortgage rates are likely to be another factor in making homes unaffordable for many aspiring buyers in the state, on top of relatively high home prices.
According to the latest Redfin data, the median sale price of a home in Alaska was $388,400 in May, up 2.2 percent compared to a year earlier. In May 2022, it was $363,000. Anchorage, the state’s largest city, was the number one metropolitan area in the state with the fastest-growing sale price, up 3.8 percent in May compared to a year earlier.
Read more: How to Calculate How Much House You Can Afford
Prices are still climbing despite inventory growing significantly in the past year, with 2,230 homes for sale in Alaska in May, up 19.8 percent year-over-year. Newly listed homes were up 21.3 percent compared to a year earlier. But the average month of supply is only two months—far from the six months that is considered enough for the market to turn in favor of buyers.
The situation isn’t any easier for people renting in the state. Since 2018, average rents have increased by 24 percent, reaching an average of $1,325 statewide in 2024, up from $1,250 a year earlier.
All seven communities analyzed by the AHFC experts saw rents increases, including the Municipality of Anchorage (+7.84 percent), Fairbanks North Star Borough (+4.17 percent), Juneau (+3.85 percent), Kenai Peninsula Borough (+4.71 percent), Ketchikan Gateway Borough (+8.41 percent), Kodiak (+20.83 percent), and Matanuska Susitna Borough (+6.38 percent).
Daniel Delfino, the director of planning and program development for AHFC, told Alaska News Source that the housing situation in Alaska is complicated, with “a lot of things moving at the same time.”
“We don’t have a ‘it’s this’ or ‘it’s that’ answer anymore to some of the housing challenges that people are facing,” Delfino said. “It’s an expensive place to build, Alaska. Most of our communities are expensive to build, and before the pandemic and the challenges after the pandemic, inflation and interest costs of land made those challenges harder.”
Are you an Alaska resident trying to get a mortgage, or struggling to buy a home? Have you been affected by the recent increases in mortgage rates? Tell us about your experience by contacting [email protected].
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
Borrowing against home equity can put cash in your hands when needed. But how soon can you pull equity out of your home after purchasing it?
You might be surprised to learn that there’s no minimum waiting period to access your home equity. You’ll need to meet a lender’s other conditions and requirements to qualify for a loan against your equity, but you can decide when it makes sense to borrow against your home.
How is home equity explained? Equity is the difference between your home’s value and the remaining amount due on the mortgage. In simpler terms, equity represents the portion of the home that you own.
Home equity accumulates as your mortgage balance goes down and your property’s value goes up. As of March 2024, the average equity value among 48 million U.S. homeowners with mortgages was $206,000, according to the ICE Mortgage Monitor.
It’s possible to have negative equity in a home. That scenario can occur when you owe more on the mortgage than the home is worth. This is also referred to as being upside down or underwater on the mortgage. That’s important to know if you’re calculating how home equity counts in your net worth.
There are several options for borrowing against your equity. The most common are a home equity loan, a home equity line of credit, and a cash-out refinance.
A home equity loan allows you to withdraw your equity in a lump sum. Home equity loans typically have fixed interest rates and your repayment term may last up to 30 years. A home equity loan is a type of second mortgage that doesn’t affect the terms of the loan you took out to purchase the property. Your home serves as collateral for the loan. If you default on the payments, the lender could initiate a foreclosure proceeding against you.
Home equity loans offer flexibility since you use the money any way you like. Some of the most common uses for home equity loans include:
• Home repairs and maintenance
• Home improvements
• Debt consolidation
• Medical bills
• Large purchases
Interest on a home equity loan may be tax-deductible if the proceeds are used to “buy, build, or substantially improve the residence,” according to IRS tax rules. This rule applies through the end of 2025.
A home equity line of credit (HELOC) is a revolving line of credit that you can draw against as needed. HELOCs tend to have variable interest rates, though some lenders offer a fixed-rate option.4 When you take out a HELOC, you have a draw period in which you can access your line of credit and a repayment period when you pay it back. You pay interest only on the portion of your credit line that you use.
HELOCs can be used for the same purposes as a home equity loan. A HELOC may offer a lower interest rate than a home equity loan, depending on the overall rate environment. However, your payment isn’t always predictable if you have a variable interest rate.
Cash-out refinancing replaces your existing mortgage loan with a new one while allowing you to withdraw some of your equity in cash at closing. A cash-out refinance loan isn’t a second mortgage; it takes the place of your original purchase loan. The balance due is higher to account for the amount of equity you withdraw in cash.
A cash-out refinance loan may have a fixed rate or an adjustable rate. Fixed-rate loans typically have repayment terms extending from 10 to 30 years. If you choose an adjustable-rate mortgage (ARM), you might be able to select a 3/1, 5/1, 7/1, or 10/1 ARM.
The first number represents how long you have to enjoy a fixed rate on the loan; the second number is how often the rate adjusts on an annual basis. So, a 10/1 ARM would have a fixed rate for the first 10 years. Then the rate would either increase or decrease once a year annually for the remainder of the loan term.
Qualification requirements for a home equity loan, HELOC, or cash-out refinance loan vary by lender. In most instances, you’ll need to have:
• A credit score of 660 or better
• At least 20% equity, though some lenders may go as low as 15%
• A debt-to-income (DTI) ratio below 43%
Essentially, lenders want to make sure that you have sufficient income to make the payments on a home equity loan and that you’re likely to pay on time.
Lenders use your combined loan-to-value (CLTV) ratio to measure your equity. Your loan-to-value (LTV) ratio measures your home’s mortgage value against the property’s appraised value. The current loan balance divided by the appraised value equals your LTV.8 Combined LTV uses the balance of all loans, including first and second mortgages, to measure equity. This number can tell you how much of your equity you can borrow. Most lenders look for a CLTV in the 80% to 85% range, though it’s possible to find lenders that allow 100% financing.
Recommended: Understanding Mortgage Basics
How soon can you get a home equity loan? Technically, right away. But the more important question to ask is whether it makes sense to access your equity sooner or later.
If you’ve just purchased a home, you may not have much equity built up yet. You may need to wait a few months for some equity to build up before borrowing against it. Your choice of lender could also make a difference. If a lender requires a home equity waiting period, you might have to wait until it ends to borrow.
Here are some questions to ask when deciding if the time is right to withdraw equity:
• What will you use the money for?
• How much do you need to borrow?
• Which borrowing option makes the most sense?
• How much can you afford in additional monthly mortgage payments?
Just because you can get a home equity loan or HELOC right away doesn’t mean you should. There are some risk factors to consider if you’re thinking about an equity withdrawal.
• Having less equity in the home can mean a higher LTV, which could make it harder to qualify.
• Should your home’s value drop after borrowing, you could end up underwater on the mortgage.
• If you only recently bought the home, you may not have a firm idea of your maintenance and utility costs, which could make it difficult to estimate how much you can afford in additional mortgage payments.
• Your credit score may need time to recover so you can qualify for the best rates if you just signed off on a purchase mortgage loan.
Using a home equity loan or HELOC calculator can help you estimate what your payments might be. You can then add that to your existing mortgage payment to get an idea of what you’ll pay overall and what’s affordable for your budget.
If you need to borrow money for home repairs, home improvements, or any other purpose, your equity isn’t the only option. You might consider these alternatives instead.
• Personal loan. A personal loan allows you to borrow a lump sum and repay it with interest over time. Personal loans are typically unsecured, meaning you don’t need collateral and your home isn’t at risk if you’re unable to pay for any reason.
• Credit card. Credit cards can be a convenient way to pay for large purchases, home improvements, or emergency expenses. Choosing a card with a 0% introductory APR on purchases can give you time to pay them off interest-free.
• 401(k) loan. If you have a retirement plan at work, you might be able to borrow against it. However, that’s usually not ideal since any money you take out won’t benefit from compounding interest, which could shortchange your retirement.
• Home equity conversion mortgage (HECM). Eligible seniors 62 and older can get a home equity conversion mortgage to withdraw equity. You can also use an HECM for purchase loan to buy a home. A home equity conversion mortgage requires no payments as long as the homeowner lives in the property, with the balance due when they sell the home or die. Compare an HECM vs. reverse mortgage to see if you’re eligible.
You might also ask friends and family for a loan or sell things you don’t need to raise funds. Taking on a side hustle or part-time job could also bring in extra income so you don’t need to borrow.
Withdrawing equity from your home can give you access to cash when you need it. In addition to getting the timing right, it’s also important to shop around and find your ideal lender. Comparing rates, terms, credit score requirements, and CLTV requirements can help you find the best loan for your needs.
SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 95% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.
Unlock your home’s value with a home equity line of credit brokered by SoFi.
There’s generally no set period for how soon you can take equity out of your home after purchasing it. Your ability to borrow can depend on your credit scores, debt-to-income ratio, and how much equity you’ve accumulated in the home.
Home equity loans, HELOCs, and cash-out refinance loans can all have closing costs just like a purchase loan. Some of the fees you’ll pay can include appraisal fees, inspection fees if an inspection is required, attorney’s fees, and recording fees. You’ll need to pay certain fees out of pocket but your lender may allow you to roll other closing costs into the loan.
It’s possible to get a home equity loan as soon as you purchase your home. You’ll need to meet a lender’s minimum requirements to qualify for home equity financing. Getting approved may be challenging if you have a low credit score or only a small amount of equity in the home.
Photo credit: iStock/DjelicS
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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²To obtain a home equity loan, SoFi Bank (NMLS #696891) may assist you obtaining a loan from Spring EQ (NMLS #1464945).
All loan terms, fees, and rates may vary based upon individual financial and personal circumstances and state.
You may discuss with your loan officer whether a SoFi Mortgage or a home equity loan from Spring EQ is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit brokered through SoFi. Terms and conditions will apply. Before you apply for a SoFi Mortgage, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and loan amount. Minimum loan amount is $75,000. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria.
SoFi Mortgages originated through SoFi Bank, N.A., NMLS #696891 (Member FDIC), (www.nmlsconsumeraccess.org). Equal Housing Lender. SoFi Bank, N.A. is currently NOT able to accept applications for refinance loans in NY.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.
SOHL-Q224-1917700-V1
Source: sofi.com
Mortgage interest rates moved in different directions compared to last week, according to rate data compiled by Bankrate. See below for a detailed breakdown of how different loan types moved.
Inflation has cooled somewhat, but homebuyers are still feeling limited by high prices and rates. At the close of the Fed meeting on June 12, policymakers chose to hold rates at current levels.. The next Fed meeting concludes July 31.
“With [the June 12] announcement, the Fed confirms its higher-for-longer position on interest rates,” says Dr. Selma Hepp, chief economist at CoreLogic. “But the stance is looking more untenable as more American households continue to pull back on spending. As more economic indicators begin to confirm this and unemployment begins to rise, the Fed will then look to cut rates. What’s not clear yet is when exactly the disinflation signs will be consistent enough for the first rate cut — we hope it’s still this year.”
Often, though, the decision to buy a home isn’t based on what’s happening in the economy — it’s more personal. Depending on your situation, it might make sense to take a higher rate now and refinance later. This way you can start building equity, rather than hoping for a future of more favorable rates and home prices that might not materialize.
Rates accurate as of July 9, 2024.
The rates listed here are marketplace averages based on the assumptions shown here. Actual rates listed within the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Tuesday, July 9th, 2024 at 7:30 a.m. ET.
The average rate you’ll pay for a 30-year fixed mortgage today is 7.07 percent, unchanged over the last seven days. A month ago, the average rate on a 30-year fixed mortgage was higher, at 7.09 percent.
At the current average rate, you’ll pay principal and interest of $670.01 for every $100,000 you borrow.
Use the loan widgets on this page or head to our primary rates page to see what kind of rates are available in your situation. You just need to give us a little information about your finances and where you live. With that data, Bankrate can show you real-time estimates of mortgages available to you from a number of providers.
The average 15-year fixed-mortgage rate is 6.56 percent, down 3 basis points over the last week.
Monthly payments on a 15-year fixed mortgage at that rate will cost approximately $874 per $100,000 borrowed. That’s clearly much higher than the monthly payment would be on a 30-year mortgage at that rate, but it comes with some big advantages: You’ll come out several thousand dollars ahead over the life of the loan in total interest paid and build equity much faster.
The average rate on a 5/1 adjustable rate mortgage is 6.68 percent, rising 3 basis points over the last week.
Adjustable-rate mortgages, or ARMs, are mortgage terms that come with a floating interest rate. To put it another way, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These types of loans are best for people who expect to sell or refinance before the first or second adjustment. Rates could be materially higher when the loan first adjusts, and thereafter.
While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.
Monthly payments on a 5/1 ARM at 6.68 percent would cost about $644 for each $100,000 borrowed over the initial five years, but could increase by hundreds of dollars afterward, depending on the loan’s terms.
The average rate for a jumbo mortgage is 7.23 percent, up 8 basis points since the same time last week. A month ago, the average rate on a jumbo mortgage was lower at 7.16 percent.
At today’s average rate, you’ll pay principal and interest of $680.82 for every $100,000 you borrow. That’s $5.41 higher compared with last week.
The average 30-year fixed-refinance rate is 7.03 percent, down 3 basis points over the last week. A month ago, the average rate on a 30-year fixed refinance was higher at 7.12 percent.
At the current average rate, you’ll pay $667.32 per month in principal and interest for every $100,000 you borrow. That’s down $2.02 from what it would have been last week.
The rates on 30-year mortgages mostly reflect the 10-year Treasury yield, which changes with the market. The yield curve is a tool used by investors to predict where interest rates could be headed.
“The yield curve remains inverted — no surprise here,” says Ken Johnson of Florida Atlantic University. “Until the yield curve reverts to its normal upward slope, we will not see significant downward pressure on mortgage rates.”
Besides bond yields, the Federal Reserve’s key benchmark rate also has an impact. The Fed has held this rate at a 23-year high since July 2023.
If and when the Fed cuts interest rates depends on evolving economic data, such as inflation and the jobs market. While inflation has fallen since its peak in 2022, it’s still well above the Fed’s target rate of 2 percent. Unemployment is still low, though in May it hit 4 percent for the first time since 2022.
“Much like that flight where departure keeps getting delayed 15 minutes at a time with no end in sight, the timetable for when the Fed begins to cut rates is equally uncertain,” says Greg McBride, CFA, Bankrate’s chief financial analyst.
While the Fed bases its decisions on rate changes due to broader economic factors, your rate is also affected by personal finances. Depending on your credit score, down payment, debts and income, you could be quoted a rate that’s higher or lower than the trend.
Mortgage rates fluctuate daily, but it appears that, for now, they will remain above the historical lows of recent years. If you’re shopping for a mortgage, it might be wise to lock your rate when you find an affordable loan. If your house-hunt is taking longer than anticipated, revisit your budget so you’ll know exactly how much house you can afford at current market rates.
You could save serious money on interest by getting at least three loan offers, according to Freddie Mac research. You don’t have to stick with your bank or credit union, either. There are many types of mortgage lenders, including online-only and local, smaller shops.
“All too often, some [homebuyers] take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”
Bankrate displays two sets of rate averages that are produced from two surveys we conduct: one daily (“overnight averages”) and the other weekly (“Bankrate Monitor averages”).
The rates on this page represent our overnight averages. For these averages, APRs and rates are based on no existing relationship or automatic payments.
Learn more about Bankrate’s rate averages, editorial guidelines and how we make money.
Source: bankrate.com
Buying a home can be a wonderful experience. Yet as a first-time homebuyer, or even someone who hasn’t purchased a home in several years, there can also be a lot of stress involved in trying to qualify for a mortgage loan—whether that be high mortgage interest rates, saving enough for the down payment, or just the myriad of steps involved in the process.
The good news is, there are valuable resources that can make home buying easier and more affordable for first-time buyers. The following guide will help you understand how first-time homebuyer programs work and where to find some of the best options for your situation.
Learn more: How to buy a house step by step.
There are many different types of first-time homebuyer programs—at both the federal and state levels. In general, these types of programs and mortgages aim to make homeownership more affordable for borrowers who have either never bought a home in the past or those who haven’t owned a home for several years.
In some cases, a first-time buyer program may feature a low-interest mortgage, a lower down payment requirement, and credit score standards that are easier to satisfy. Depending on the program, your lender may also let you combine a first-time homebuyer loan with down payment and closing cost assistance to make the overall goal of homeownership more attainable.
“Talk to a local expert who knows both the nationally available first-time homebuyer programs and the locally funded down payment assistance programs,” says Casey Flemming, mortgage advisor at Silicon Valley Mortgage and author of Buying and Financing Your New Home.
Below are nine programs and loans to consider if you’re in the market to purchase a home as a first-time homebuyer. Researching your choices in advance can help you make sure you find the best financing option for your situation when you’re ready to start the homebuying process.
There are several federal homebuyer programs available that could work well for first-time homebuyers and repeat borrowers alike. The federal government doesn’t issue the mortgages below, but rather insures them.
If you take out a government-backed home loan and default, the federal government repays a portion of the loan to the lender. This arrangement reduces the risk involved for the lender and can make homeownership more accessible to borrowers.
Here are some of the most common types of government-backed mortgage loans and some basic details on how the loans work.
As you can see above, credit score and down payment requirements tend to be more forgiving with government-backed home loans. But it’s still important to make sure you don’t rush into purchasing a home unless you’re confident you can afford the financial commitment.
“Homebuyers who just barely squeak in to qualify should use caution,” says Fleming of Silicon Valley Mortgage. “In my opinion, loans are sometimes made to people who are almost certainly going to fail in the long run. If a homebuyer has a credit score that is just enough to qualify and debt-to-income ratios that are just under the limit, I recommend they work on their finances before jumping into homeownership.”
Conventional loans are another option first-time homebuyers can consider when searching for mortgage programs. But trying to save the traditionally recommended 20% down payment for this type of loan (to avoid private mortgage insurance) could be a challenge for many people, especially if you’re trying to buy a home for the first time.
On a positive note, both Fannie Mae and Freddie Mac—privately held mortgage companies that were created by Congress and are backed by the government—offer conventional loan programs designed to make homeownership more affordable for first-time homebuyers. Below are four low-down payment conventional loan programs and some basic details about how they work.
In addition to the national first-time homebuyer programs and loans mentioned above, there are numerous state-level programs to consider. Nonprofit organizations and other agencies may be good resources for borrowers as well.
Here are a few options to help guide your research.
Many states offer down payment assistance for first-time homebuyers. These programs may come in the form of grants, low-interest loans, or loans with forgivable interest or deferred payments for first-time borrowers.
You may be able to find information about homebuyer programs in your area by searching the U.S. Department of Housing and Urban Development (HUD) website. It may also be worthwhile to seek out a HUD-certified housing counseling agency to get advice on what resources are available to you. The Consumer Financial Protection Bureau (CFPB) offers a Find a Counselor tool, or you can call the CFPB at 855-411-2372, or the HOPE Hotline at 888-995-4673.
Also, you can visit the National Council of State Housing Finance Agencies website to see if programs are available from your local state housing finance agency. Last but not least—another valuable resource could be your loan officer or realtor.
“A skilled lender should know all about the programs available in the market they serve,” says Matthew Dunbar, senior vice president of the Southeast Region for Churchill Mortgage. “Realtors should know about these programs as well.”
In general, nonprofit homebuyer programs exist to serve low-income families or those with specific housing needs. Below are two well-known nonprofit homebuyer programs.
With home prices having skyrocketed over the past several years, buying your own place can feel out of reach. But first-time homebuyer programs and loans have the ability to help make homeownership more accessible for many would-be borrowers.
So, take the time to do your research and explore your options to see if the available resources could save you money or help you reach your goals faster.
“Diligence is the most important step in the homebuying process for a first-time buyer,” says Churchill Mortgage’s Dunbar. “Go online. Do your own research. And once you find a lender you’re comfortable working with, don’t be afraid to ask questions. At the end of the day, this transaction is about the borrower—and your lender should be providing you expertise.”
Source: fortune.com