As affordability challenges conspire to keep would-be buyers out of the housing market, the nation’s two largest mortgage lenders have rolled out programs that allow borrowers with modest incomes to qualify for a loan with just 1 percent down.
Rocket Mortgage, the largest lender in the U.S. in 2022, announced its ONE+ program this week. United Wholesale Mortgage, the No. 2 lender, launched its Conventional 1% Down loans in April — then made them significantly more generous following Rocket’s announcement.
The rival programs piggyback off of Fannie Mae’s HomeReady mortgages and Freddie Mac’s Home Possible loans. Those initiatives allow borrowers who make less than 80 percent of their neighborhoods’ median income to obtain a conventional loan with just 3 percent down.
Both programs come at a time when home prices remain near record highs and mortgage rates are more than double what they were two years ago.
“With affordability being tougher, people are getting boxed out,” says Bill Banfield, executive vice president of Capital Markets at Rocket Mortgage. “Free money helps people want to buy a home.”
How the 1% mortgages work
To make 1 percent down a reality, both lenders cover 2 percent of the 3 percent down payment needed to obtain a HomeReady or Home Possible mortgage. The borrower supplies the remaining 1 percent.
Rocket offers this scenario as an illustration: A buyer of a $250,000 home with a HomeReady or Home Possible mortgage needs at least 3 percent down, or $7,500. Under its new program, Rocket covers $5,000, or 2 percent of that down payment, through a grant. The borrower then needs to put down just $2,500, or 1 percent.
Rocket’s program also covers private mortgage insurance (PMI) at no cost to the borrower. Typically, lenders require borrowers to pay these insurance premiums if their down payment is less than 20 percent. On a $242,500 loan, those premiums can run as much as $245 a month, according to Rocket.
ONE+ is available to first-time and repeat homebuyers, and there are no limits on assets, just income (more on that below).
United Wholesale Mortgage’s program is similar, following the same guidelines as HomeReady and Home Possible. The lender pays 2 percent of the purchase price, up to $4,000. That means the down payment benefit maxes out at $200,000; a borrower who takes a $400,000 loan under the program would get 1 percent of the down payment from United Wholesale Mortgage, and need to come up with 2 percent.
When United announced its program in April, the down payment assistance was limited to borrowers making less than half of area median income. After taking criticism on social media — and after Rocket rolled out its more generous income limits — the lender boosted its income limit to 80 percent.
What are the income limits?
To qualify for the 1 percent down programs — or any HomeReady or HomePossible loan — you can’t make more than 80 percent of the median income in the area where you’re buying. Those figures vary widely throughout the U.S. A few examples of the 80 percent limit:
Atlanta
No more than $76,560
Chicago
No more than $84,560
Dallas
No more than $76,480
New York City
No more than $90,080
San Francisco
No more than $120,880
To see income limits in your area, enter an address into this map on Fannie Mae’s website.
Is there a catch?
These programs are a sweet deal for borrowers — so much so that there’s no guarantee the terms will stay the same, as evidenced by United Wholesale Mortgage’s decision to boost income limits.
What’s more, the down payment assistance is so generous that the nation’s two largest lenders could decide to pull the plug.
“Some of the features on this are costly for the lender,” says Rocket’s Banfield. “We’ll have to see how it all plays out.”
Another risk for borrowers: They could find themselves owing more than their homes are worth. Median home prices shrank 1.7 percent from April 2022 to April 2023, and home values could keep declining. For homebuyers who put just 3 percent down, a 5 percent decline in local home prices could put them underwater.
The Great Recession infamously played up the dangers of buying with little equity — but it’s worth pointing out that the mortgage market and housing sector are on much firmer footing now than they were 15 years ago. What’s more, borrowers still must qualify based on such factors as debt-to-income (DTI) ratio.
“There’s no stretching the underwriting,” says Banfield.
More lenders are getting creative
In another nod to the challenges facing buyers in a still-expensive market, Movement Mortgage this month announced it’s now allowing FHA borrowers to take out a 10-year second mortgage to finance the 3.5 percent down payment required for FHA loans. In effect, this eliminates the need for borrowers to put down any money upfront. To qualify, you must have a credit score of 620 or higher.
That offer is just one way lenders are responding to the one-two punch of an affordability squeeze and a sharp slowdown in mortgage applications since 2021. Lenders have been rolling out all manner of mortgage promotions, including rate buydowns paid for by the seller and discounts on future refinances.
In another variation on the theme, Rocket earlier this year unveiled a new credit card that allows homebuyers to earn up to $8,000 towards closing costs and a down payment. The Rocket Visa Signature Card offers a generous 5 percent back on all purchases, up to the limit — with the stipulation that the rewards are worth full value only if you ultimately get your home loan from Rocket Mortgage.
Other low-down payment mortgage options
Mortgage lenders and regulators recognize that down payments are one of the primary obstacles to homeownership, so there are several low- and no-down payment loan options. Loans backed by the U.S. Department of Veterans Affairs (VA), for instance, don’t require a down payment.
Aside from HomeReady and Home Possible conventional loans, here are other options for buyers looking to make low down payments:
FHA loans: Insured by the Federal Housing Administration (FHA), FHA loans allow borrowers to put down just 3.5 percent with a credit score of 580 or higher, or at least 10 percent with a score as low as 500. However, FHA borrowers with less than 20 percent down have to pay FHA mortgage insurance premiums (MIP) for the life of the loan.
USDA and VA loans: USDA and VA loans don’t require any down payment, but they’re only for specific types of borrowers: USDA loans for borrowers in certain rural areas and VA loans for active-duty service members, veterans and surviving spouses. Neither charge mortgage insurance, but USDA loans come with guarantee fees and VA loans come with a funding fee.
Conventional loans are the most popular kind of mortgage, but a government-backed mortgage like an FHA loan is easier to qualify for and may have a lower interest rate. FHA home loans have attractive qualities, but borrowers should know that mortgage insurance usually tags along for the life of the loan.
As of March 2023, new FHA borrowers will pay less for insurance. The Biden-Harris Administration announced it was reducing premiums by .30 percentage points, lowering annual homeowner costs by $800 on average. The administration hopes the cuts will help offset rising interest rates.
What Is an FHA Loan?
The Federal Housing Administration has been insuring mortgages originated by approved private lenders for single-family and multifamily properties, as well as residential care facilities, since 1934.
The FHA backs a variety of loans that cater to the specific needs of a borrower, such as FHA reverse mortgages for people 62 and older and FHA Energy Efficient Mortgages for those looking to finance home improvements that will increase energy efficiency (and therefore lower housing costs).
But FHA loans are most popular among first-time homebuyers, in large part because of the relaxed credit requirements.
Recommended: Tips to Qualify for a Mortgage
FHA Loan Requirements
If you’re interested in an FHA home loan to buy a single-family home or an owner-occupied property with up to four units, here are the details on qualifying.
FHA Loan Credit Scores and Down Payments
Borrowers with FICO® credit scores of 580 or more may qualify for a down payment of 3.5% of the sales price or the appraised value, whichever is less.
Those with a poor credit score range of 500 to 579 are required to put 10% down.
The FHA allows your entire down payment to be a gift, from a family member, close friend, employer or labor union, charity, or government homebuyer program. The money will need to be documented with a mortgage gift letter.
FHA Loan DTI
Besides your credit score, lenders will look at your debt-to-income ratio, or monthly debt payments compared with your monthly gross income.
FHA loans allow a DTI ratio of up to 50% in some cases, vs. a typical 45% maximum for a conventional loan.
FHA Mortgage Insurance
FHA loans require an upfront mortgage insurance premium (MIP) of 1.75% of the base loan amount, which can be rolled into the loan. As of March 2023, monthly MIP for new homebuyers is 0.15% to .75% — most often 0.55%.
For a $300,000 mortgage balance, that’s upfront MIP of $5,250 and monthly MIP of $137.50 at the 0.55% rate.
That reality can be painful, but MIP becomes less expensive each year as the loan balance is paid off.
There’s no getting around mortgage insurance with an FHA home loan, no matter the down payment. And it’s usually only shed by refinancing to a conventional loan or selling the house.
FHA Loan Limits
In 2023, FHA loan limits in most of the country are as follows:
• Single unit: $472,030
• Duplex: $604,400
• Three-unit property: $730,525
• Four-unit property: $$907,900
The range in high-cost areas is $1,089,300 (for single unit) to $2,095,200 (four-unit property); for Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the range is $1,633,950 (for single unit) to $3,142,800 (for four-unit property).
FHA Interest Rates
FHA loans usually have lower rates than comparable conventional loans.
The annual percentage rate (APR) — the annual cost of a loan to a borrower, including fees — may look higher on paper than the APR for a conventional loan because FHA rate estimates include MIP, whereas conventional rate estimates assume 20% down and no private mortgage insurance.
The APR will be similar, though, for an FHA loan with 3.5% down and a 3% down conventional loan.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
FHA Income Requirements
There are none. High and low earners may apply for an FHA loan, but they must have at least two established credit accounts.
Recommended: How to Afford a Down Payment on Your First Home
Types of FHA Home Loans
Purchase
That’s the kind of loan that has been described.
FHA Simple Refinance
By refinancing, FHA loan borrowers can get out of an adjustable-rate mortgage or lower their interest rate.
They must qualify by credit score and income, and have an appraisal of the property. Closing costs and prepaids can usually be rolled into the new loan.
FHA Streamline Refinance
Homeowners who have an FHA loan also may lower their interest rate or opt for a fixed-rate FHA loan with an FHA Streamline Refinance. Living up to the name, this program does not require a home appraisal or verification of income or credit.
The new loan may carry an MIP discount, but you’ll pay the upfront MIP in addition to monthly premiums. An exception: The upfront MIP fee of 1.75% is refundable if you refinance into an FHA Streamline Refinance or FHA Cash-out Refinance within three years of closing on your FHA home loan.
Closing costs are involved with almost any refinance, and the FHA doesn’t allow lenders to roll them into a Streamline Refinance loan. If you see a no closing cost refinance for an FHA loan, that means that instead of closing costs, a lender will charge a higher interest rate on the new loan.
You’ll continue to pay MIP after refinancing unless you convert your FHA loan to a conventional mortgage.
FHA Cash-Out Refinance
You don’t need to have an FHA loan to apply for an FHA Cash-Out Refinance. Whatever kind of loan the current mortgage is, if the eligible borrower has 20% equity in the home, the refinanced loan, with cash back, becomes an FHA loan.
The good news: Homeowners with lower credit scores may be approved. The not-great news: They will have to pay mortgage insurance for 11 years.
Any cash-out refi can trigger mortgage insurance until a borrower is back below the 80% equity threshold.
FHA 203(k) Loan
In addition to its straightforward home loan program, the FHA offers FHA 203(k) loans, which help buyers of older residences finance both the home purchase and repairs with one mortgage.
An FHA 203(k) loan can be a 15- or 30-year fixed-rate or adjustable-rate mortgage.
Some homeowners take out an additional home improvement loan when the need arises.
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FHA vs Conventional Loans
Is an FHA loan right for you? If your credit score is between 500 and 620, an FHA home loan could be your only option. But if your credit score is 620 or above, you might look into a conventional loan with a low down payment.
You can also buy more house with a conventional conforming loan than with an FHA loan. Conforming loan limits in 2023 are $726,200 for a one-unit property and $1,089,300 in high-cost areas.
Borrowers who put less than 20% down on a conventional loan may have to pay private mortgage insurance (PMI) until they reach 20% loan-to-value. But borrowers with at least very good credit scores may be able to avoid PMI by using a piggyback mortgage; others, by opting for lender-paid mortgage insurance.
One perk of an FHA loan is that it’s an assumable mortgage. That can be a draw to a buyer in a market with rising rates.
The Takeaway
An FHA home loan can secure housing when it otherwise could be out of reach, and FHA loans are available for refinancing and special purposes. But mortgage insurance often endures for the life of an FHA loan. The Biden-Harris Administration recently reduced monthly MIP for new homebuyers to help offset higher interest rates.
Some mortgage hunters might be surprised to learn that they qualify for a conventional purchase loan with finite mortgage insurance instead. And some FHA loan holders who have gained equity may want to convert to a conventional loan through mortgage refinancing.
SoFi offers conventional fixed-rate mortgages with competitive interest rates and cancellable PMI, as well as refinancing. Check out SoFi’s low rate home mortgages.
Qualifying first-time homebuyers can put as little as 3% down, and others, 5%.
View your rate today.
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information. 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. 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. SOHL0622007
A jumbo loan is something you’ll likely need if you’re looking to purchase a luxurious home, one whose features are more expensive than the average property in the area. What qualifies as a jumbo loan in your neck of the woods depends on the county in which you live.
Let’s explore the details around getting a jumbo loan.
What’s a Jumbo Mortgage Loan?
If you’re in the market for a new home and the asking price is higher than average, you might need to consider getting a jumbo loan.
Technically, a jumbo loan is a mortgage whose size surpasses the threshold set by government agencies Fannie Mae and Freddie Mac. These government-sponsored enterprises (GSE) are responsible for buying up the lion’s share of U.S. single-family mortgages, but not when it comes to oversized loans.
Due to their nature as non-GSE products, jumbo mortgages are considered non-conforming loans.
Considering that jumbo loans fall outside the parameters of the GSEs, they do not qualify for the government guarantees that their conforming loan counterparts receive. As a result, jumbo home loan requirements can be more stringent than secured loan products.
Jumbo vs. Conventional Loan
The GSEs were formed so that banks and credit unions would have enough cash on hand to perpetuate the lending process to other homebuyers.
A key feature of conforming loans is a cap placed on the amount, which protects the government from getting stuck holding too big a bag from borrowers who turn out to be a credit risk.
Jumbo loans are outsized mortgages for homes on the expensive side of the price spectrum. Often, a jumbo loan is appropriate if you are looking to buy a luxury home that stands out from the pack in the neighborhood, but that’s not always the case.
In a white-hot real estate market, you might find yourself needing to access a jumbo mortgage to outbid the competition.
Interest rates attached to jumbo loans are likely to exceed conventional loans because of the bigger risk to lenders. A similarity between jumbo and conventional loans is that both are repackaged and sold to investors in the secondary market.
However, due to their size, jumbo mortgages attract a different set of investors with a different risk profile.
Conforming Loan Limit Explained
The restrictions around conforming loans mainly involve the size of the mortgage. The Federal Housing Finance Agency, the department that oversees Fannie Mae and Freddie Mac, updates these parameters annually.
In 2021, conforming loan limits prices were $548,250 for single-family homes and increased to $647,200 in 2022.
The conforming loan limits are adjusted each year due to fluctuations in the average U.S. home price. Between Q3 2020 and Q3 2021, the average home price increased an average of 18.05%, which established the baseline from which the conforming loan limit was set.
Total Mortgage works with borrowers across the United States, making it easy to find a mortgage expert near you.
How Do Jumbo Loans Work?
When you’re getting a jumbo loan, it helps to know what to expect beforehand. We have streamlined the mechanics of jumbo mortgages so you’re not taken by surprise:
Higher Rates: Interest rates on jumbo loans tend to be higher than those on conforming loans to reflect the greater risk the lender is inheriting. According to Experian, you can expect a jumbo loan interest rate to be 1-2% higher vs. the going rates for more conventional loan products.
Second Opinion: You might need more than one appraisal. Considering the sheer size of a jumbo mortgage and potentially tough comps by which to compare the home’s market value, lenders may ask for two appraisals. They want to make sure that the value of the home measures up to the price.
Higher Expenses: Expect the closing costs to be higher than traditional loans. Lenders will generally charge a percentage of the home’s total purchase price that’s higher than usual because of the extra vetting that jumbo mortgages lend themselves to. According to Bankrate, as of Q1 2021, the average closing costs for a typical mortgage range between 2% and 5%, or $6,837 for a single-family property.
Requirements for a Jumbo Loan
Jumbo home loan requirements will vary from lender to lender, but everything is higher as a general rule of thumb. This is due to the bigger size of these mortgages, which places more risk on the lender’s shoulders.
Here’s a breakdown of the requirements for a jumbo loan:
Credit Score: You’ll need pristine credit to qualify for a jumbo loan. Lenders will be looking for a FICO credit score of at least 720, though they may be willing to go as low as 660. By comparison, borrowers could qualify for a conventional mortgage with a credit score of as low as 600.
Down Payment Amount: Expect to plunk down anywhere from 20-30% of the home’s purchase price as a down payment. A silver lining is that with a down payment of this size, as long as it doesn’t dip below the 20% threshold, you may not need to invest in private mortgage insurance (PMI).
Debt-to-Income (DTI) Ratio: Lenders want to see that your debt-to-income (DTI) ratio, which is the result of dividing your monthly expenses by your gross monthly income, does not exceed 36%. By comparison, lenders could be willing to overlook a DTI as high as 50% for a conventional mortgage.
Net Worth: Considering the risk that a lender is taking on, they might require borrowers to provide proof that they can liquidate other assets, if necessary. This is to cover the cost of the jumbo mortgage payments for 12 months.
Explore Total Mortgage’s Jumbo Loan Options
If your next home is one that is probably going to turn some heads, and you’ve got the credit profile and income required, you came to the right place. Consider jumbo loan options from Total Mortgage, whether a 10/1 ARM, 15-year, or 30-year mortgage, and apply online today.
The home-buying process can seem daunting for first-time homebuyers. The good news is there are some mortgage lenders that offer home loan products designed to provide more ease with the process, which can be very appealing to many first-time future homeowners.
To help you get started, CNBC Select rounded up a list of the best mortgage lenders first-time homebuyers should consider. We evaluated home loan lenders based on the types of loans offered, customer support, credit score requirements and minimum down payment amount, among others (see our methodology below.)
Beyond just the lowest rates, it’s important to go with the lender that offers the best loan terms to suit your needs. There’s a learning curve when it comes to homeownership, but we’ve included an FAQs section below to help you get a better understanding of some aspects of the process.
The best mortgage lenders for first-time homebuyers
Best for loan variety
PNC Bank
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Conventional loans, FHA loans, VA loans, USDA loans, jumbo loans, HELOCs, Community Loan and Medical Professional Loan
Terms
10 – 30 years
Credit needed
Minimum down payment
0% if moving forward with a USDA loan
Pros
Offers a wide variety of loans to suit an array of customer needs
Available in all 50 states
Online and in-person service available
Cons
Doesn’t offer home renovation loans
Who’s this for? PNC Bank has a wide variety of home loan options, making it easy for first-time homebuyers to find a loan that suits their circumstances. This lender offers conventional loans, FHA loans, VA loans, jumbo loans and HELOCs. On top of that, PNC Bank offers USDA loans, which can be tougher to find among some lenders. PNC Bank also has some specialized loan options, like the Community Loan, which is meant for individuals with lower cash reserves and allows for a down payment as low as 3% and no PMI (private mortgage insurance).
It also offers a Medical Professional Loan for interns, residents, fellows or doctors who have completed their residency in the last five years. Eligible borrowers for this loan can borrow up to $1 million and won’t have to pay PMI, regardless of their down payment amount.
In addition to all these offerings, PNC Bank gives eligible borrowers the chance to qualify for a $5,000 grant to be used toward closing costs. Eligible borrowers must have an income at or below 80% of the median household income for the metropolitan statistical area (MSA), or their desired property must be located in a low- or moderate-income census tract as designated by the FFIEC, according to PNC’s website.
Best for educational offerings
Bank of America Mortgage
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Conventional loans, FHA loans, VA loans, jumbo loans, doctor loans and the Affordable Loan Solution mortgage
Terms
15 – 30 years
Credit needed
Not disclosed
Minimum down payment
0% if moving forward with a VA loan; 3% if moving forward with the Affordable Loan Solution mortgage
Pros
Offers a wide variety of loans to suit an array of customer needs
Offers an Edu-Series for educating first-time homebuyers as well as other learning resources and materials
Online and in-person service available
Fixed-rate and adjustable-rate mortgages offered
Reduced cost of mortgage insurance
Cons
Doesn’t offer USDA loans
Who’s this for? Bank of America stands out for its first-time homebuyer educational resources. Aside from home loan calculators, which are typical for mortgage lenders to provide on their websites, Bank of America has an online “Edu-Series” for first-time home buyers. There are also guides on its website that break down key terms and a list of FAQs geared toward first-time home buyers.
Bank of America also offers a variety of loan options, including a home loan for medical professionals. With this loan, doctors, dentists, residents and fellows can make down payment minimums that are tiered based on the size of the loan they’re applying for. They’ll put down at least 3% on mortgages up to $850,000, at least 5% on mortgages up to $1 million, at least 10% down on mortgages up to $1.5 million and at least 15% down on mortgages to $2 million. If you’re a medical professional, Bank of America will also exclude your student loan debt from your total debt when you’re applying for the loan. This could bring down your debt-to-income ratio for the purposes of applying for the loan and make it easier for you to qualify.
Even if you aren’t a qualifying medical professional, you can still potentially take advantage of tiered down payment terms through the Affordable Loan Solution mortgage option. With this loan, eligible borrowers can make a down payment as low as 3% on loan amounts up to $726,200, and as low as 5% on mortgages up to $1,089,300. Mortgage insurance would be required if making down payments lower than 20%, but according to Bank of America’s website, the mortgage insurance would come at a reduced cost compared to that of other conventional loans.
Best for lower credit scores
Rocket Mortgage
Annual Percentage Rate (APR)
Apply online for personalized rates
Types of loans
Conventional loans, FHA loans, VA loans and Jumbo loans
Terms
8 – 29 years, including 15-year and 30-year terms
Credit needed
Typically requires a 620 credit score but will consider applicants with a 580 credit score as long as other eligibility criteria are met
Minimum down payment
3.5% if moving forward with an FHA loan
Pros
Can use the loan to buy or refinance a single-family home, second home or investment property, or condo
Can get pre-qualified in minutes
Rocket Mortgage app for easy access to your account
Cons
Runs a hard inquiry in order to provide a personalized interest rate, which means your credit score may take a small hit
Doesn’t offer USDA loans, HELOCs, construction loans, or mortgages for mobile homes
Doesn’t manage accounts for jumbo loans after closing
Who’s this for? First-time homebuyers tend to be younger and may not have a long credit history, which can make it harder to qualify for a good mortgage rate. Rocket Mortgage stands here because it accepts applicants with credit scores as low as 580. The lender also has a program called the Fresh Start program that’s aimed at helping potential applicants boost their credit score before applying.
Rocket Mortgage offers conventional loans, FHA loans, VA loans and jumbo loans but not USDA loans, which means this lender may not be the most appealing for potential homebuyers who want to make a purchase with a 0% down payment. Rocket Mortgage doesn’t offer construction loans (if you want to build a brand new custom home) or HELOCs, but if you’re a homebuyer who only plans to purchase a single-family home, a second home, or a condo that’s already on the market, this shouldn’t be a drawback for you.
This lender offers flexible loan repayment terms that range from 8 – 29 years in addition to standard 15-year and 30-year terms.
Best for no lender fees
Ally Bank Mortgage
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Conventional loans, HomeReady loan and Jumbo loans
Terms
15 – 30 years
Credit needed
Minimum down payment
3% if moving forward with a HomeReady loan
Pros
Ally HomeReady loan allows for a slightly smaller downpayment at 3%
Pre-approval in just three minutes
Available in all 50 U.S. states
Online support available
Doesn’t charge lender fees
Cons
Doesn’t offer FHA loans, USDA loans, VA loans or HELOCs
Who’s this for? Ally Bank doesn’t charge any application fee, origination fee, processing fee or underwriting fees. These are what’s collectively known as “lender fees” and they can cost you anywhere from a few hundred to a few thousand dollars, and eat into the money you put aside for buying your home. When you’re a first-time home buyer, going through the process as affordably as possible is often top-of-mind, so saving on these fees will let you keep more of your money for other things, like renovations or moving costs.
Keep in mind, though, that Ally Bank may still charge appraisal fees and recording fees and may charge for the title search and insurance. As long as you have all the necessary documents handy and submit complete and accurate information, you can get pre-approved for a loan in as little as three minutes online and submit your application in just 15 minutes.
Best for no PMI
CitiMortgage®
Annual Percentage Rate (APR)
Apply online for personalized rates
Types of loans
Conventional loans, FHA loans, VA loans and Jumbo loans
Terms
15 – 30 years
Credit needed
Minimum down payment
Terms apply.
Pros
Citi’s HomeRun Mortgage program allows for a downpayment as low as 3%
Citi’s Lender Assistance program gives eligible homebuyers a credit of up to $5,000 to use toward closing costs
Ability to choose between fixed-rate and adjustable-rate mortgages
New and existing Citi bank customers can qualify for closing cost discounts based on their account balance
HomeRun mortgage program allows for a downpayment of less than 20% without PMI
Provides homeownership education and counseling
Cons
No options for a 0% downpayment
Existing customers need high account balances to receive some of the highest interest rate discounts
Who’s this for? CitiMortgage gives homebuyers a chance to save big-time by waiving the PMI (private mortgage insurance) requirement on loans with down payments below 20%. This can be done by applying for a mortgage through Citi’s HomeRun program, which also allows for down payments as low as 3%.
PMI is typically a required monthly charge with other home loans if you make a down payment of 20% or less. But PMI can cost you tens of thousands of dollars extra over the entire life of the loan. The money you save from not paying PMI could potentially go towards saving for a second property, a home renovation, or any other financial goal you have. HomeRun mortgages also allow borrowers to lock in a fixed rate on their mortgage so they won’t have to worry about their rate increasing down the line.
FAQs
How do mortgages work?
A mortgage is a type of loan you can use to purchase a home. This agreement essentially says you can purchase a home without paying for it in full, upfront — you’ll just need to put some of the money down — usually between 3% and 20% of the home price — and pay smaller, fixed monthly payments over a certain number of years, plus interest and potentially other charges. Having a mortgage allows you to own the property even if you don’t have the hundreds of thousands of dollars in cash needed to purchase it outright.
What is a conventional loan?
A conventional loan is a home loan that’s funded by private lenders and sold to government enterprises such as Fannie Mae and Freddie Mac. It’s a very common loan type and some lenders may require a down payment as low as 3% or 5%.
What is an FHA loan?
A Federal Housing Administration loan, or FHA loan, is a loan program that has some slightly looser requirements. For example, this loan program may allow some borrowers to be approved for a loan with a lower credit score or be able to get away with having a higher debt-to-income ratio. You’ll typically only need to make a 3.5% down payment with this type of loan.
What is a USDA loan?
A USDA loan is offered through the United States Department of Agriculture and is aimed at borrowers who want to purchase a home in a qualifying rural area. USDA loans don’t require a minimum down payment, so borrowers can use this loan to purchase a home for almost no money upfront (you’ll still likely pay fees, though).
What is a VA loan?
VA mortgage loans are provided through the U.S. Department of Veterans Affairs and are meant for service members, veterans and their spouses. They typically require a 0% down payment and borrowers don’t have to pay private mortgage insurance.
What is a jumbo loan?
A jumbo loan is meant for home buyers who need to borrow more than $647,200 to purchase a home. Jumbo loans usually have stricter credit score and debt-to-income ratio requirements, and they also typically require a larger minimum down payment.
How is my mortgage rate decided?
Mortgage rates change almost daily and can depend on market forces such as inflation and the overall economy. However, 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.
Be sure to submit the necessary information for more personalized rate estimates from your desired lender.
What is the difference between a 15- and 30-year term?
A 15-year mortgage gives homeowners 15 years to pay it off in fixed, equal amounts plus interest, while a 30-year mortgage gives homeowners 30 years to pay it off. Monthly payments are generally lower with a 30-year mortgage since you’ll have a longer period of time to pay off the loan. However, you’ll wind up paying more in interest over the life of the loan since it is charged on a monthly basis. A 15-year mortgage, on the other hand, lets you save on interest but you’ll likely have to make a higher monthly payment.
How does private mortgage insurance (PMI) work?
Lenders charge private mortgage insurance (PMI) to protect themselves in the event that a borrower defaults on their loan. PMI is assessed to your account if you choose to make a down payment of less than 20%. You’ll be responsible for paying this 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.
Bottom line
If you need to take out a mortgage to purchase your first home, you have options. Certain mortgage lenders stand out for first-time homebuyers by considering applicants with lower credit scores, offering lower down payments and providing useful educational resources.
Keep in mind that mortgage interest rates fluctuate often and the rate you receive will vary depending on your location, credit score and credit report. While lenders may post general interest rate ranges on their websites, the best way to get a more accurate estimate of your rate is to provide the necessary information to check your rate.
Our methodology
To determine which mortgage lenders are the best for first-time homebuyers, 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:
Fixed-rate APR: Variable rates can go up and down over the lifetime of your loan. With a fixed rate APR, you lock in an interest rate for the duration of the loan’s term, which means your monthly payment won’t vary, making your budget easier to plan.
Types of loans offered: The most common kinds of mortgage loans include conventional loans, FHA loans and VA loans. In addition to these loans, lenders may also offer USDA loans and jumbo loans. Having more options available means the lender is able to cater to a wider range of applicant needs. We have also considered loans that would suit the needs of borrowers who plan to purchase their second home or a rental property.
Closing timeline: The lenders on our list are able to offer closing timelines that vary from as promptly as two weeks after the home purchase agreement has been signed to as many as 45 days after the agreement has been signed. Specific closing timelines have been noted for each lender.
Fees: Common fees associated with mortgage applications include origination fees, application fees, underwriting fees, processing fees and administrative fees. We evaluate these fees in addition to other features when determining the overall offer from each lender. Though some lenders on this list do not charge these fees, we have noted any instances in which a particular lender does.
Flexible minimum and maximum loan amounts/terms: Each mortgage lender provides a variety of financing options that you can customize based on your monthly budget and how long you need to pay back your loan.
No early payoff penalties: The mortgage lenders on our list do not charge borrowers for paying off the loan early.
Streamlined application process: We considered whether lenders offered a convenient, fast online application process and/or an in-person procedure at local branches.
Customer support: Every mortgage lender on our list provides customer service via telephone, email or secure online messaging. We also opted for lenders with an online resource hub or advice center to help you educate yourself about the personal loan process and your finances.
Minimum down payment: Although minimum down payment amounts depend on the type of loan a borrower applies for, we noted lenders that offer additional specialty loans that come with a lower minimum down payment amount.
After reviewing the above features, we sorted our recommendations by best for loan variety, educational offerings, lower redit scores, no lender fees and no PMI.
Note that the rates and fee structures advertised for mortgages are subject to fluctuate in accordance with the Fed rate. However, once you accept your mortgage agreement, a fixed-rate APR will guarantee the interest rate and monthly payment 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.
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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.
Purchasing mortgage points from your lender can lower your interest rate and make your monthly mortgage payments more affordable. If you’re considering a home purchase or refinance, mortgage points could save you tens of thousands of dollars over the life of the loan.
In this article, we’ll explain what mortgage points are and present the pros and cons of buying mortgage points
What Does Buying Points Mean in a Mortgage?
Mortgage points, also called discount points, are an upfront fee that a borrower pays their mortgage lender to cut down the interest rate on their loan.
Borrowers can lock in a lower interest rate on a purchase or refinance loan and pay less on their mortgage over time. This may make more sense for borrowers who plan to stay in their homes for a long time.
How Much Is One Point on a Mortgage?
One point typically costs 1% of your loan amount and lowers your mortgage interest rate by about 0.25%. For example, on a $100,000 loan, one point would cost $1,000. Mortgage points also don’t have to be round numbers — they can also be fractions of a point.
How much each point lowers your mortgage interest rate varies by lender. It also depends on the type of loan product as well as the current interest rate environment. This is why it pays to shop around with a few lenders and compare quotes.
You can also purchase discount points for an adjustable-rate mortgage (ARM) loan, which works the same as it would for a fixed-rate mortgage. However, most ARMs adjust after five or seven years.
Mortgage points are paid at closing and according to Consumer Finance, they are listed on your Loan Estimate and your Closing Disclosure on page 2, Section A. By law, the points listed on these documents must be connected to a discounted interest rate.
Pros and Cons of Buying Points on a Mortgage
Pros of Buying Mortgage Points
The biggest benefit of buying mortgage points is lowering the interest rate on your loan, no matter your credit score. This saves you money not only on your monthly mortgage payments but also on total interest payments.
Buying down your rate also reduces the total cost of the home. Paying an extra $3,000 upfront could save you thousands more over the life of the mortgage loan.
Mortgage points are also tax-deductible. The IRS considers mortgage points to be prepaid interest, which may be deductible as home mortgage interest if you itemize deductions. If you deduct all interest on your mortgage, you may be able to deduct all of the points.
Calculate how much you can save on your mortgage payments with Total Mortgage.
Cons of Buying Mortgage Points
Buying mortgage points isn’t recommended for everyone. If you don’t have the extra cash reserves, paying for mortgage points on top of your closing costs and down payment could drain your savings.
If you’re purchasing a house and putting less than 20% down on a conventional loan, the added expense of private mortgage insurance (PMI) may not make much financial sense. It may be better to put those funds towards your down payment.
It could also take a while to break even, which is the time it takes for the monthly savings to pay for the points.
For instance, let’s say you purchased 3 mortgage points for $9,000 on a $300,000 home loan financed over 30 years. This lowered your interest rate from 3.5% to 2.75% and saves you $122 per month. However, your break-even point is a little over six years and if you move or refinance before then, you may not recoup that upfront cost.
Also, interest rates fluctuate. If rates go down after purchasing mortgage points, then the value of the points would essentially be worthless.
Mortgage Points vs. Lender Credits
You may also come across lender credits, which are similar to mortgage credits but in reverse. Your lender may offer a higher interest rate in exchange for extra funds to offset your closing costs. Lender credits mean you pay less upfront but you pay more over time in interest.
Lender credits are also calculated the same way as mortgage points, but they may appear as negative points on the Lender Credits line item on page 2, Section J of your Loan Estimate or Closing Disclosure.
Should You Buy Mortgage Points?
Although mortgage points can potentially save you money over the long run, they aren’t for everyone and it could take between five and 10 years to recoup the cost of the points.
Here are some instances where buying mortgage points may be worth your while:
You have the extra money to put down without draining your savings
You plan to live in your home for a long time
Your credit score doesn’t qualify you for the lowest possible rate
You need to lower your interest rate to make your monthly mortgage payments more affordable
Here are some reasons why you shouldn’t buy mortgage points:
You’re planning on selling your property in a few years
You’re going to pay extra on your mortgage payments
You don’t have the money to buy mortgage points
It would reduce your down payment amount
If you’re deciding whether to direct extra funds toward your down payment or buy mortgage points, a larger down payment usually has more benefits compared to mortgage points.
A bigger down payment can get you a better interest rate, cheaper PMI (or none), or lower mortgage payments.
Build Your Perfect Mortgage With Total Mortgage
Mortgage points can potentially save you money on your mortgage loan, but the monthly savings will depend on the interest rate, the amount you borrow, and the term of the loan. However, mortgage points may not be the best financial move for your situation.
The right mortgage can save you thousands. Get a free rate quote from Total Mortgage for a home purchase, refinance, or home equity loan.
Carter Wessman
Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.
Inside: This guide will teach you about the different factors you need to consider when purchasing a home with a 70k salary.
There are a lot of factors to consider when you’re trying to figure out how much house you can afford. Your income, your debts, your down payment, and the interest rate on your mortgage all play a role in determining how much house you can afford.
Your situation will be different than the person next-door or your co-coworker.
Making 70000 a year is a great salary. You are making the median salary in the United States.
It’s enough to comfortably afford most homes and gives you plenty of room to save money each month.
But how much house can you actually afford?
It depends on several factors, including your down payment, interest rate, income, and credit score.
In this ultimate guide, we’ll walk you through everything you need to know about how much house you can afford making 70000 a year.
how much house can i afford on 70k
In general, you can expect to spend 28-36% of your income on housing.
Generally speaking, if you make $70,000 a year, you can afford a house between $226,000 and $380,000.
How much mortgage on 70k salary?
In general, you should expect to spend no more than 28% of your monthly income on a mortgage payment.
Thus, you can spend approximately$1633-2100 a month on a mortgage.
Just remember this is relative to the interest rate, term length of the loan, down payment, and other factors.
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28/36 Rule
But there’s one factor that trumps all the others: The 28/36 rule.
Also known as the debt-to-income (DTI) ratio.
The 28/36 rule is a guideline that says that your housing costs (mortgage payments, property taxes, homeowners insurance, and HOA fees) should not exceed 28% of your gross monthly income.
And your total debt (housing costs plus any other debts you have, like car payments or credit card bills) should not exceed 36% of your gross monthly income.
You must follow the 28/36 rule.
How to calculate how much mortgage you can afford?
If you’re like most people, you probably don’t know how to calculate how much mortgage you can afford.
This is actually a really important question that you need to ask yourself before beginning the home-buying process.
The answer will help determine the price range of homes you should be looking at. Plus know how much money you’ll need to save for a down payment.
Step #1: Check Interest Rates
Research current mortgage rates to get an accurate estimate. You can also check your credit score and search for average mortgage rates based on your credit score.
Right now, with sky-high inflation, you are unable to afford a bigger house when interest rates are hovering around 6% compared to ultra-low interest rates of 2.5%.
With a 70k salary, this can be the difference between $50-100k on the total mortgage amount you can afford.
Step #2: Use a Mortgage Calculator
Use a mortgage calculator to get an estimate of the home price you can afford based on your income, debt profile, and down payment.
Generally, lenders cap the maximum amount of monthly gross income you can use toward the loan’s principal and interest payment to not more than 28% of your gross monthly income (called the “Front-End” or “Housing Expense” ratio). Then, limit your total allowable debt-to-income ratio (called the “Back-End” ratio) to not more than 36%.
You can use a mortgage calculator to a ballpark range of what house you can afford.
Step #3: Taxes, Insurance, and PMI
When planning for a home purchase, it’s important to factor in all of your monthly expenses, including taxes, insurance, and PMI.
This will ensure that you get an accurate estimate of your home-buying budget based on your household annual income.
Don’t forget to include these payments to get a realistic understanding of your monthly budget.
Step #4: Remember your Living Expenses
When considering how much house you can afford based on your $70,000 salary, you must consider your lifestyle and current expenses.
It is important to factor in other monthly expenses such as cell phone and internet bills, utilities, insurance costs, and other bills.
More than likely, you will be approved for a higher mortgage amount than you would feel comfortable with. This is 100% what lenders will do.
They want to provide you with the most you can afford – not what you should afford.
Step #5: Get prequalified
Prequalifying for a mortgage is an important first step to take when estimating how much house you can afford.
It gives you a more precise figure to work with and helps you make a more informed decision based on your personal situation.
Remember that your final amount will vary depending on a number of factors, especially your interest rate, which will be based on your credit score.
Taking the time to research current mortgage rates helps you secure a better mortgage rate, giving you more buying power.
Home Buying by Down Payment
How much house can you afford?
It’s a common question among home buyers — especially first-time home buyers. Use this table to figure out how much house you can reasonably afford given your salary and other monthly obligations.
The assumption is 30 year fixed mortgage, good credit (690-719), no monthly debt, and a 4% interest rate.
Annual Income
Downpayment
Monthly Payment
How Much House Can I Afford?
$70,000
$9,552 (3%)
$1,750
$318,412
$70,000
$16,215 (5%)
$1,750
$324,316
$70,000
$34,058 (10%)
$1,750
$340,581
$70,000
$53,573 (15%)
$1,750
$357,152
$70,000
$75,094 (20%)
$1,750
$375,468
$70,000
$98,933 (25%)
$1,750
$395,731
**Your own interest rate, monthly payment, and how much house you can afford will vary on your personal circumstances.
Mortgage on 70k Salary Based on Monthly Payment and Interest Rate
How much house can you afford on a $70,000 salary?
This largely depends on the current interest rate of the mortgage loan you’re considering. When interest rates are high, people aren’t actively buying as when interest rates are low.
By understanding these factors, you can better gauge how much house you can afford on a $70,000 salary.
The assumption is 30 year fixed mortgage, good credit (690-719), no monthly debt, and a 20% downpayment.
Annual Income
Monthly Payment
Interest Rate
How Much House Can I Afford?
$70,000
$1,750
3.25%
$406,796
$70,000
$1,750
3.5%
$396,231
$70,000
$1,750
3.75%
$386,101
$70,000
$1,750
4%
$375,994
$70,000
$1,750
4.5%
$357,554
$70,000
$1,750
5%
$339,954
**Your own interest rate, monthly payment, and how much house you can afford will vary on your personal circumstances.
Home Affordability Calculator by Debt-to-Income Ratio
Around here at Money Bliss, we always stress that debt will hold you back.
In the case of buying a house, debt increases your DTI ratio.
Here is a glimpse at what monthly debt can cause your debt-to-income (DTI) ratio to increase. Thus, making the house you want to buy to be more difficult.
Annual Income
Monthly Payment
Monthly Debt
How Much House Can I Afford?
$70,000
$2,100
$0
$440,085
$70,000
$1,900
$200
$404,584
$70,000
$1,800
$300
$382,334
$70,000
$1,600
$500
$337,883
$70,000
$1,350
$750
$282,208
$70,000
$1,100
$1000
$226,582
**Your own interest rate, monthly payment, and how much house you can afford will vary on your personal circumstances.
Increase your Home Buying Budget
Here are a few ways you can increase your home buying budget when buying a house on a $70k annual income.
By following these steps, you can increase your home buying budget and find a more suitable house for your income.
1. Pick a Cheaper Home
Home prices vary significantly in different parts of the country.
Moving out of a major metropolitan area with notoriously high housing costs can help you find more affordable homes.
There are plenty of ways to find a home that is cheaper than you would normally expect.
Look for homes that are for sale in less desirable neighborhoods.
Find homes that are for sale by owner or have not been listed yet.
Check for homes that are for sale outside of your usual price range and haven’t sold as they may drop their price.
Move to a lower cost of living area.
2. Increase Your Down Payment Savings
A larger down payment can reduce the amount you have to finance, which lowers your monthly payment.
Plus help you get a lower interest rate and avoid paying PMI.
Putting down at least 10-20 percent of the home sale price can help boost your home buying power. You can also take advantage of down payment assistance programs in your area.
3. Pay Down Your Existing Debt
Paying down your debts such as credit card debts or auto loans can help raise your maximum home loan.
Paying down your debts can help you qualify for a higher loan amount.
This is because when you have lower amounts of debt, your credit score is higher and your debt-to-income ratio is less. This means you are less likely to be rejected for a home loan.
4. Improve Your Credit Score
A higher credit score can lead to lower rates and more affordable payments.
You can improve your credit score by:
Paying your bills on time
Paying down your credit card balances
Avoiding opening new credit before applying for a mortgage
Disputing any errors on your credit report
This is very true! We had an unfortunate debt that wasn’t ours added to our credit report right before closing. While the debt was an error, it still cost us a higher interest rate and forced us to refinance once the credit report was fixed.
5. Increase Your Income
Asking for a raise, seeking a higher-paid position, or starting a side gig can help you increase the amount of home you can afford.
While you need two years of income from a side gig or your own online business to count as income, the extra cash earned helps you to increase the size of your downpayment. Plus it lowers your debt-to-income ratio with the savings you are setting aside.
What factors should you consider when deciding how much you can afford for a mortgage?
How much house can you afford on your current salary and with your current monthly debts?
This is a question that we are often asked, and it’s one that we love to answer.
We’ll walk you through all the different factors that go into this decision so that you can make an informed choice.
1. Loan amount
The loan amount is a key factor that affects the total cost of a mortgage.
If you have no outstanding debt, a 20% down payment, a high credit score, and a 3.5% interest rate from an FHA loan, you could be able to afford up to $508,000.
However, if you have debt, a smaller down payment, or a lower credit score, the loan amount you can qualify for will be lower.
Similarly, if you choose a 15-year fixed-rate loan, your monthly payments will be higher, but you will end up paying less in interest over the life of the loan than with a 30-year fixed-rate loan.
Ultimately, your loan amount will affect the total cost of your mortgage, so it’s important to consider all the factors when making your decision.
2. Mortgage Interest rate
Mortgage interest rates can have a significant impact on the cost of a mortgage. The higher the interest rate, the more expensive the loan will be.
For example, a difference between a 3% and 4% interest rate on a $300,000 mortgage is more than $150 on the monthly payment.
Remember, in the first few years of a mortgage, the majority of the payment goes toward interest rather than trying to reduce the principal amount.
3. Type of Mortgage
The primary difference between a fixed and variable mortgage is the interest rate and the amount of your payment
Fixed-rate mortgages offer the stability of having the same interest rate for the life of the loan.
Adjustable-rate mortgages (ARMs) come with lower interest rates to start, but those rates can change over the life of the loan. ARMs are often a riskier choice, as if the economy falters, the interest rate can go up.
Fixed-rate loans are typically the most popular choice, as the monthly payment amount is more predictable and easier to budget for. The terms of a fixed-rate loan can range from 10 to 30 years, depending on the lender.
Adjustable-rate mortgages (ARMs) have interest rates that can increase or decrease annually based on an index plus a margin. ARMs are typically more attractive to borrowers who plan on staying in the home for a shorter period of time, as the lower initial interest rate can make the payments more manageable.
The Money Bliss recommendation is to choose a 15-year fixed-rate mortgage.
4. Property value
Property value can have a direct effect on how much you can afford for a mortgage.
As the value of the property increases, so does the amount of money you will need to borrow to purchase it. This, in turn, affects the monthly payments and the amount of interest you will pay over the life of the loan.
This is especially important as many people have been priced out of the market with the rising home prices.
Additionally, higher property values can mean higher taxes, which will add to the amount you need to budget for your mortgage payments.
5. Homeowner insurance
Homeowner’s insurance is a requirement when securing a loan and it can vary depending on the value and location of the home.
Additionally, certain areas that are prone to natural disasters or are located in densely populated areas may have higher premiums than other locations and may require additional insurance like flood insurance.
As a result, lenders typically require that you purchase homeowners insurance in order to secure a loan, and may have specific requirements for the type or amount of coverage that you need to purchase.
Before committing to a mortgage, it is important to consider the cost of homeowner’s insurance and make sure it fits into your budget.
This is something you do not want to skimp on as the cost to replace a home is very expensive.
6. Property taxes
Property taxes are calculated based on the value of a home and the tax rate of the city or county where the property resides.
The higher the property taxes, the more you will have to pay in your monthly mortgage payment.
In states with high property taxes, the property tax bill can be a large sum of the mortgage payment.
It is important to consider these costs when comparing different homes and locations to ensure you can afford the home without stretching your budget too thin.
7. Home repairs and maintenance
It’s important to also consider other factors such as the age of the house, since some properties may require renovation and repairs that can cost more than the house price itself.
Beyond the cost of purchasing a home, homeowners will likely have other expenses related to owning and maintaining the property.
Also, many homeowners prefer to do significant upgrades to the home before moving in, which comes at an additional expense.
These can include ordinary expenses such as painting, taking care of a lawn, fixing appliances, and cleaning living spaces, which can add up.
Additionally, it’s advisable to buy a home that falls in the middle of your price range to ensure you have some extra money for unexpected costs, such as repairs and maintenance.
8. HOA or Homeowners Association Maintenance
This is often an overlooked factor by many new homebuyers, but extremely important as some HOAs add $500-800 per month to the total housing budget.
The purpose of a homeowners association (HOA) is to establish a set of rules and regulations for residents to follow as well as maintain the community or building.
These fees are typically used to pay for maintenance, amenities, landscaping, and concierge services.
HOA fees are used to finance community upkeep, including landscaping and joint space development, and can range from $100 to over $1,000 per month, depending on the amenities in the association.
9. Utility bills
When switching from renting to buying a home, you will have to factor in the costs of your monthly utility bills such as electricity, natural gas, water, garbage and recycling, cable TV, internet, and cell phone when calculating how much mortgage you can afford.
In addition, the larger the home, the higher the costs to heat and cool your new home.
Make sure to ask your realtor for previous utility bills on the property you are interested in.
10. Private Mortgage Insurance
The purpose of private mortgage insurance (PMI) is to protect the lender in the event of foreclosure. It is typically required when a borrower is unable to make a 20% down payment on a home purchase.
PMI allows borrowers to purchase a home with less upfront capital, but also comes with additional monthly costs that are added to the mortgage payment. These fees range from 0.5% to 2.5% of the loan’s value annually and are based on the amount of money put down.
PMI can also be canceled or refinanced once the borrower has achieved 20% equity in the home or when the outstanding loan amount reaches 80% of the home’s purchase price.
11. Moving costs
Moving is expensive, but also a pain to do. So, consider the moving costs associated with relocating from one location to another.
Typically fees for packing, transportation, and possibly storage, and can vary depending on the size of the move and the distance the move needs to cover.
Also, consider if by buying a home, you will stop having moving costs associated with moving from rental to rental.
FAQ
When determining how much house you can afford, it’s important to consider several factors.
These include your income, existing debts, interest rates, credit history, credit score, monthly debt, monthly expenses, utilities, groceries, down payment, loan options (such as FHA or VA loans), and location (which affects the interest rate and property tax). Also, think about the costs of maintaining or renovating a home.
Additionally, you should also evaluate your own budget and assess whether now is the right time to purchase a home. Taking all of these factors into account can help you set the maximum limit on what you can realistically afford.
A mortgage calculator can help you determine your home affordability by providing an estimate of the home price you can afford based on your income, debt profile, and down payment.
It works by inputting your annual income and estimated mortgage rate, which then calculates the maximum amount of money you’re able to spend on a house and the expected monthly payment.
Additionally, different methods are available to factor in your debt-to-income ratio or your proposed housing budget, allowing you to get a more accurate estimate of your home buying budget.
The debt-to-income ratio or DTI is used by lenders to assess a borrower’s ability to make mortgage payments.
This ratio is calculated by taking the total of all of a borrower’s monthly recurring debts (including mortgage payments) and dividing it by the borrower’s monthly pre-tax household income.
A high DTI ratio indicates that the borrower’s debt is high relative to income, and could reduce the amount of loan they are qualified to receive.
Generally, lenders prefer a DTI of 36% or less, which allows borrowers to qualify for better interest rates on their mortgages.
To calculate their DTI, borrowers should include debt such as credit card payments, car loans, student and other loans, along with housing expenses. It is important to note that the DTI does not include other monthly expenses such as groceries, gas, or current rent payments.
Closing costs can have an enormous impact on how much home you’re able to afford.
From application fees and down payments to attorney costs and credit report fees, these costs can add up quickly and affect your overall budget. Unfortunately, most of these closing costs are non-negotiable, but you can ask the seller to pay them.
When buying a house, it is important to research the different mortgage options available to you.
You can typically choose between a conventional loan that is guaranteed by a private lender or banking institution, or a government-backed loan. Depending on your monthly payment and down payment availability, you may be able to select between a 15-year or a 30-year loan.
A conventional loan typically offers better interest rates and payment flexibility.
While a government-backed loan may be more lenient with its credit and down payment requirements.
For veterans or first-time home buyers, there may be special mortgage options available to them.
Ultimately, it is important to talk to a lender to see which loan type is best for your personal circumstances.
When it comes to saving for a down payment, it’s important to understand how much you’ll need and how much it will affect your budget.
Generally, you’ll need 20% of the cost of the home for a conventional mortgage and 25% for an investment property. When you put down more money, it gives you more buying power and may help you negotiate a lower interest rate.
For example, if you’re buying a $300,000 house, you’ll need a down payment of $60,000 for a conventional mortgage. On the other hand, if you put down 10%, you can still afford a $395,557 house. But, you will have to pay for private mortgage insurance.
In addition, there are other ways to help you cover these upfront costs. You can look into down payment assistance programs.
Ultimately, the size of your down payment will depend on your budget and financial goals. You should never deplete your savings account just to make a larger down payment. It’s important to factor in emergency funds and other expenses when deciding on the best option.
Eligibility requirements for loan lenders can vary, but in general, lenders are looking for borrowers with a good credit score, a reliable income, and a history of employment or income stability.
For most loan types, borrowers will need to show a history of two consecutive years of employment in order to qualify. However, lenders may be more flexible if the borrower is just beginning their career or if they are self-employed and do not have W2 forms and official pay stubs.
Income verification also needs to be done “on paper”, meaning that cash tips that do not appear on pay stubs or W2s can not be used as income. The lender will look at the household’s average pre-tax income over a two-year period before determining the amount that can be borrowed.
In order to make sure that the borrower is financially secure, lenders will also pull the borrower’s credit report and base their pre-approval on the credit score and debt-to-income ratio. Employment verification may also be done.
For certain government-backed loan types, such as FHA, VA, and USDA loans, there may be additional or different requirements for eligibility. For instance, for FHA loans, the borrower must intend to use the home as a primary residence and live in it within two months after closing. VA loans are more lenient, and may not require a down payment.
The qualifications for VA loans vary based on the period and amount of time the borrower has served. There are many ways to qualify, whether the borrower is a veteran, active duty service member, reservist, or member of the National Guard. For more information on eligibility requirements for VA loans, borrowers can visit the U.S. Department of Veteran Affairs.
A good credit score will mean you have access to more lending options, better interest rates, and more purchasing power.
On the other hand, a poor credit score could mean you are approved for a loan, but at a higher interest rate and with a smaller house.
This means your budget will be more limited and you may not be able to buy as much home as you had hoped for. Additionally, lenders will also look at other factors, such as your debt-to-income ratio, employment history, and loan term, in order to determine your overall affordability.
What House Can I Afford on 70k a year?
As a borrower, you need to consider the interest rate, down payment, credit score, debt-to-income ratio, employment history, and loan term when determining how much house you can afford.
A higher credit score can often mean a lower interest rate, and a larger down payment can bring down the monthly payments.
All of these factors can have an effect on the amount of money you can borrow and the home you can afford.
Ultimately, understanding the impact of different factors can help borrowers make the best decisions when it comes to getting a mortgage.
Now that you know how much house you can afford, it’s time to start saving for a down payment.
The sooner you start saving, the sooner you’ll be able to move into your dream home. But you may have to wait if you are considering a mansion.
By taking into consideration this guide into account, you can make a more informed decision about the cost of a mortgage for your new home.
Know someone else that needs this, too? Then, please share!!
Depending on the loan amount you need and where you’re buying a home in New Jersey, you may find it difficult to find financing beyond the conforming loan limits. If this is the case, you may need a jumbo loan.
What is a jumbo loan?
So, what exactly is a jumbo loan in New Jersey? It’s a mortgage loan that allows homebuyers to finance a property that exceeds the conforming loan limit set by the FHFA. In simpler terms, a jumbo loan is a specialized mortgage that enables you to borrow more money than you would be able to with a conventional loan. These loans are typically used to finance high-end or luxury properties in areas with high home prices.
If the loan amount needed is more than the conforming loan limit (CLL), you’ll need a jumbo loan. New Jersey jumbo loans allow you to borrow more money to buy a more expensive home, but they also come with higher interest rates and stricter requirements than conventional loans.
What is the jumbo loan limit in New Jersey?
In 2023, the conforming loan limit for a single-family home in most U.S. markets is $726,200. However, this limit can be higher in areas where the median home price is significantly above the national average.
$726,200 is the conforming loan limit in most New Jersey counties
$1,089,300 is the maximum limit in higher-cost counties
Keep in mind that the loan amount is what determines whether or not you’ll need a jumbo loan, not the price of the home you’re buying. So, if you were to put $50,000 down on a $750,000 home in Salem County, the loan would be $700,000, which is under the CLL for this area. In this case, your loan wouldn’t be considered a jumbo loan.
The following counties in New Jersey have a conforming loan limit beyond $726,200 for 2023:
County
FHFA Conforming Loan Limit
Bergen County
$1,089,300
Essex County
$1,089,300
Hudson County
$1,089,300
Hunterdon County
$1,089,300
Middlesex County
$1,089,300
Monmouth County
$1,089,300
Morris County
$1,089,300
Ocean County
$1,089,300
Passaic County
$1,089,300
Somerset County
$1,089,300
Sussex County
$1,089,300
Union County
$1,089,300
You can find the conforming loan limits for your county by using this FHFA map.
What are the requirements for a jumbo loan in New Jersey?
To qualify for a jumbo loan in New Jersey, borrowers must meet stricter requirements than they would for a conforming loan. The specific requirements can vary from lender to lender, but below are the typical requirements for borrowers seeking a jumbo loan.
Higher credit score: In order to be eligible for a jumbo mortgage, lenders generally expect applicants to have a credit score of at least 720. While some lenders may consider a score as low as 660, a credit score of less than that is typically not accepted.
Larger down payment: Jumbo loans typically require larger down payments than traditional mortgages. Generally, mortgage lenders require a down payment of at least 20% of the home’s purchase price to qualify for a jumbo loan. However, some lenders may require a higher percentage, depending on the borrower’s creditworthiness and overall financial situation. It’s worth noting that larger down payments can help to reduce monthly mortgage payments, as well as overall interest costs over the life of the loan.
More assets: During the asset review process, lenders typically request that jumbo loan borrowers provide evidence of sufficient liquid assets or savings to cover the equivalent of one year’s worth of loan payments.
Lower debt-to-income ratio (DTI): To qualify for a jumbo loan in New Jersey, lenders typically look for a debt-to-income (DTI) ratio of no higher than 43%, and ideally closer to 36%. The DTI is calculated by dividing the sum of all monthly debt payments by the borrower’s gross monthly income. This requirement ensures that borrowers have a strong ability to repay their loan and manage their debt.
Additional home appraisals: When you buy a home in New Jersey, a mortgage lender will require a home appraisal to confirm that the property’s value is equal to or higher than the loan amount. In some cases, a lender may require an additional appraisal for a jumbo loan. In cities with very few comparable property sales, the cost of the appraisal may be higher than in places with more frequent sales.
As housing affordability wanes, mortgage lenders have gotten increasingly creative to help borrowers qualify.
The latest innovative product is “Movement Boost,” a zero-down FHA loan offered by South Carolina-based Movement Mortgage.
Instead of requiring a minimum 3.5% down payment, home buyers can take out a repayable second mortgage that covers those funds and closing costs if needed.
This means a home buyer doesn’t need any cash to close in some cases, which often proves to be a roadblock.
Read on to learn more about the new loan program.
How Movement Boost Works
Movement Boost takes the standard FHA loan and supercharges it by removing the 3.5% down payment requirement.
Instead, borrowers wind up with a first and second mortgage, the latter covering the down payment and up to 1.5% in closing costs if necessary.
The first mortgage is set at 96.5% of the purchase price, with the remaining 3.5% funded via a repayable second lien.
This second lien features a mortgage rate 2% above that of the first mortgage. And the loan term is 10 years.
For example, if you purchased a $300,000 home, you’d take out a first mortgage at $289,500.
You’d typically need $10,500 to make the minimum down payment of 3.5%.
But with Movement Boost, that $10,500 could be financed via a second mortgage. Additionally, you could tack on another 1.5% ($4,500) for closing costs.
Let’s pretend the interest rate on the first mortgage is set at 6.5%. That would make the second mortgage rate 8.5%.
This would result in a monthly payment of $130.18 if the loan amount were $10,500. Or $185.98 if you took out a larger $15,000 loan to cover closing costs also.
While you’d have to make two monthly mortgage payments, the tradeoff would be $10,500 to $15,000 more dollars in your pocket.
Movement Boost Guidelines
Home purchase loan for first-time and repeat buyers
Must be a primary residence
Single-family homes, 2-unit properties, condos, and manufactured homes permitted
Minimum 620 FICO score (640 for manufactured homes)
Maximum DTI ratio of 50%
Can finance down payment and up to 1.5% in closing costs
Available in all states except for New York
As noted, Movement Boost is an option for a home buyer looking to take out an FHA loan who wants/needs help with the down payment and possibly closing costs too.
This means you need to be a home buyer, though both first-timers and repeat buyers are eligible.
Additionally, a minimum 620 FICO is required and the maximum DTI ratio is 50%.
In terms of allowable property types, single-family homes, condos, two-unit properties, and manufactured homes are permitted.
If it’s a manufactured home, you need a minimum FICO score of 640.
In all cases, the property must be your primary residence, the one you intend to live in full time throughout the year.
Those who wish to come in with a larger down payment can also apply gift funds from an acceptable source.
The new product is available nationwide in all states except for New York.
Who Is Movement Boost Designed For?
Simply put, Movement Boost is geared toward the home buyer who lacks a down payment. Or one who doesn’t want to lock up all their cash in a property.
It combines a low-down payment FHA loan with down payment assistance to provide zero down home loan financing.
The program is part of Movement Mortgage’s Grab The Key initiative, which focuses on helping more underserved communities tap into homeownership.
By financing the down payment instead of paying it at closing, borrowers can deploy their money elsewhere. Or continue to build up their reserves while owning a property.
The caveat is that the borrower must qualify for two mortgages instead of one. However, the loan amount on the second mortgage will be comparatively small.
And as seen in our example, may only set the borrower back $100-$200 per month. It also features a shorter payback period, which allows the homeowner to build equity faster.
As always, be sure to compare all available loan options with multiple banks, brokers, lenders, and local credit unions.
Also ask yourself if you’re ready for homeownership if you lack the minimum down payment required.
It’s generally advisable to have several months of reserves set aside so you can continue to make payments if facing some kind of hardship.
Of course, financing the down payment instead of paying it upfront may allow you to set aside those funds.
Lastly, be sure to compare the pros and cons of an FHA loan vs. conventional loan to see which is best for your situation.
One downside to an FHA loan is that the mortgage insurance remains in force for the life of the loan.
Movement Mortgage was a top-30 mortgage lender in 2022, funding about $23 billion during the year.
Read more: Rocket Mortgage Launches a 1% Down Home Loan
In other words, independent mortgage banks (IMBs) acting as buyers in M&A deals are being asked to assume the future R&W liabilities for past loans sold to Fannie Mae by the seller should the seller, at some point, be unable to honor the terms of the contracts. An R&W contract is a legal assurance that “a mortgage loan sold to Fannie Mae or Freddie Mac (the enterprises) complies with the standards outlined in the enterprise’s selling and servicing guides, including underwriting and documentation,” according to theFederal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac.
It is not clear how many other lenders received the request from Fannie Mae. The industry sources who spoke with HousingWire indicated that so far they had not been approached by Freddie Mac with a similar request.
Officials from Fannie Mae and Freddie Mac did not respond to a request for comment prior to the deadline for this story.
The industry sources, who asked not to be identified, also alleged that in the conversations with “mid-level” Fannie officials, it was not clear whether the agency would formalize the request into an official policy requirement in the future or whether there were any consequences to the lenders should they choose not to honor the request to take on that added R&W liability risk. Still, there is a fear, expressed by more than one industry source, that no one “wants to get sideways” with the agencies.
“The mere fact that the request is being made, and the uncertainty as to what Fannie will do if it’s not honored, does create a chilling effect on M&A at a time when those deals are good for the industry and the borrowers,” one industry source explained. “That chilling effect won’t be so much a factor in small deals where the risk of assuming liabilities is far less, but it could definitely scare off buyers in large deals, which are the most impactful to the industry and consumers alike.”
Asset-only deals
That chilling effect is compounded by the fact that Fannie Mae’s request was allegedly extended to IMBs involved in asset-only purchase deals, industry sources indicate. Unlike a stock-purchase acquisition, in which the buyer typically does assume R&W liability for the seller’s loans — unless expressly specified otherwise — asset-only deals are designed to avoid the assumption of most liability risk.
“I’d say 90% of deals [involving the acquisition of an IMB] are asset purchases, not stock purchases,” said Brett Ludden, managing director and co-head of the financial services team at Sterling Point Advisors, which specializes in IMB merger and acquisition transactions. “In an asset deal, the buyer is specifying the assets it is acquiring … and explicitly states that it’s not buying any other assets, and it’s not assuming any other liabilities.”
The assets acquired in an asset-only purchase deal, according to one industry source, typically include computers, furniture and fixtures, leases, company databases and potentially a company name. Plus, such deals often involve incentives extended to certain high-performing or key employees of the acquired firm that encourage them to sign new employment agreements with the buyer.
“The seller continues to have an obligation to manage their company that they still own after an asset deal,” one industry source explained. “Whether they choose to wind that company down or whatever it might be, they still have to fulfill their contractual obligations.”
Sean A. Stephens, a certified mortgage banker and an attorney with the business and financial-services law firm of Garris HornLLC, said a key reason that a buyer structures an acquisition as an asset sale, versus a stock sale, “is so that the assets are transferred without taking on the seller’s liabilities.”
“Risk mitigation is critical right now on all levels,” Stephens added. “In the M&A context, you have a lot of the small to midsized [IMBs] who are deciding whether they want to wind down or sell their business.
“… And, depending on their book of business, if this [alleged added R&W risk] is layered in, this could be an additional factor to consider in any M&A deal. Even if you are not buying those loans, because there could be recourse down the road, this could require additional due diligence on past loan production, which could result in more time, more cost and then possibly the renegotiation of purchase price depending on the results.”
Rising tide
Much of the problem with the rising tide of repurchase requests from the enterprises Fannie Mae and Freddie Mac stems from the huge volume of low-rate loans originated in 2020 and 2021 at a time when the industry was continuously working to build capacity to deal with the explosive origination growth. That capacity issue, industry experts contend, resulted in a higher rate of underwriting errors than in more normal times that the enterprises are still uncovering as part of their ongoing quality-control checks — sometimes months or even years after a loan was originated.
There is a concern among IMBs, however, that Fannie Mae and Freddie Mac are being too aggressive in pursuing the repurchase option on loans with minor underwriting defects that could be cured far short of a draconian buyback demand.
The Community Home Lenders of America (CHLA) said due to the rapid rise in interest rates over the past year, “our consensus member conclusion is that the average loss to the lender is now 30% on every loan repurchase.”
“This equates to a loss of over $100,000 on a $335,000 loan,” CHLA states in a recent press statement focused on the problem. “The loss is even greater for high-cost loans; 30% equates to a $218,000 loss for a loan at the conventional loan limit — and a $327,000 loss for a loan at the maximum nationwide loan amount. This is for one loan that is not even in default!”
In response to the problem, the CHLA recently sent a letter to the FHFA and the enterprises asking that the GSEs adopt a policy of offering some type of reasonable indemnification-payment remedy to lenders for all performing loans “in lieu of the practice of a repurchase demand.” The letter indicates that lenders would still be responsible for repurchasing defective loans that move to a nonperforming status.
“Given the complexity, we don’t want to get into details [of how the indemnification-payment program would work], but discussing the details would certainly be part of the discussion with the FHFA and the [enterprises],” said Rob Van Raaphorst, spokesperson for the CHLA.
Stephens, for his part, said, “We do see the indemnification in lieu of repurchase as a viable option when it’s available.”
Scott Olsen, executive director of the CHLA, said the industry group’s members are concerned about the potential impact of loan-repurchase demands from Fannie Mae and Freddie Mac, “and, you know, sort of anecdotally, they’re under the impression that the level of repurchase requests is increasing.”
Stephens echoes Olsen, adding that “generally speaking, as we get into 2023 [and starting at the end of 2022] we have seen more repurchase request activity occurring.”
“While we don’t know the exact percentage of loans leading to repurchase requests,” he added, “even if it’s the same percentage [of repurchase requests as in prior years], it’s going to result in more activity because of that sample size [2021 loan originations] being so large.”
Sterling’s Ludden stressed that if lenders are approached by Fannie Mae or Freddie Mac “with the expectation that they should be backstopping rep and warranty [liabilities] in an asset purchase, I would strongly recommend that they reach out to the Mortgage Bankers Association (MBA).”
“I’m sure they’re likely not the only lender [that is in that position],” Ludden added. “And I’m sure that the MBA can play a role in helping facilitate this conversation.”
MBA also did not respond to a request for comment prior to the deadline for this story.
“It is understandable that the GSEs want to take away all of their risk, but there should be proportion here,” one industry source added. “The GSEs are making profits in a difficult environment, and last I checked, they are supposed to take on some risk.”
Whether more IMBs acting as buyers in M&A asset-only deals will be approached by Fannie Mae, or possibly Freddie Mac, with a request to assume the future R&W liabilities of the seller is not known at this point. Potentially, the requests that have surfaced so far are little more than trial balloons that will disappear soon over the horizon.
Regardless, it seems tensions between mortgage lenders and the enterprises over the loan-repurchase issue are not going to disappear any time soon.
“… As to the timing, many of the originators out there were in a much better financial situation and could have absorbed a repurchase request two years ago, but since then finances have changed,” Stephens said. “Therefore, we have seen an uptick on requests to negotiate, appeal and to provide a comprehensive review of mitigation strategies that can be used to defend against repurchase-demand requests.”
I’m not exactly sure when it happened, but I’ve become obsessed with real estate — and by that, I mean looking at apartments on Zillow and Trulia, while daydreaming about all the possibilities of “my new home.” But as much as I would like to dip my toes into homeownership, I’m one of the 44.7 … [Read more…]