Today we’ll take a look at “eClick Lending,” which is the online mortgage division of parent company Celebrity Home Loans, LLC.
Their motto is to point, click, and save, a reference to their simplified digital loan process and what they refer to as “incredibly low rates.”
The company seems to be very well regarded from its past customers, with excellent reviews across different ratings websites.
Let’s learn more to determine if they’re really as good as they sound.
eClick Lending Fast Facts
Direct-to-consumer online mortgage lender that offers home purchase and refinance loans
Founded in 2007, headquartered in Oakbrook Terrace, Illinois
A dba of parent company Celebrity Home Loans, LLC
Licensed to do business in 38 states and the District of Columbia
Funds several billion in home loans annually
eClick Lending is a direct-to-consumer mortgage lender that operates online, meaning you’ll be working from afar to close your home loan.
They offer both home purchase loans for home buyers and refinance loans for existing homeowners.
As mentioned, they are a dba of Celebrity Home Loans, which apparently does several billion in loan origination volume annually.
At the moment, the company is licensed to do business in 38 states and the District of Columbia.
Those states include: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Maine, Maryland, Michigan, Minnesota, Missouri, Mississippi, Montana, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
One nice feature about them is their loan officers are apparently available seven days a week, so there should always be someone around to help.
How to Apply with eClick Lending
To get started visit their website or call them up on the phone
If you go online you’ll need to fill out a short form and a loan officer will get in touch to discuss pricing and eligibility
They offer a digital mortgage application that lets you complete most tasks electronically
Once submitted you can manage your loan via their smartphone app or online borrower portal
You can either call them directly or visit their website to begin the loan process. Those who choose to go online can click on “Get Started Now.”
From there, you can select a short contact form to fill out for either a purchase, refinance, or mortgage pre-approval.
At that point, a loan officer will reach out to discuss loan pricing and available loan programs, and if you like what you hear, you’ll be able to formally apply.
They offer both a digital mortgage application and a free smartphone app, so you’ve got options when it comes to applying.
Once your loan is submitted, you’ll be able to view your progress, securely upload any necessary documents, and message your loan officer whenever you need assistance.
Because they’re a direct lender, every step of the mortgage process is completed in-house, which should speed things up and keep your personal details more secure.
This includes loan processing, underwriting, closing, and the funding of your home loan.
All in all, they appear to make it easy to apply for a home loan thanks to the use of all the latest technology available.
Loan Programs Offered by eClick Lending
Home purchase loans
Refinance loans: rate and term and cash out
Conforming loans backed by Fannie/Freddie
Jumbo home loans
FHA loans
VA loans
Fixed-rate and adjustable-rate mortgages in various loan terms
eClick Lending’s website is a little light on details when it comes to available loan programs, but they do offer home purchase and refinance loans, including cash out refinances.
In fact, they refer to themselves as cash out experts with unparalleled customer service. So existing homeowners who want to tap their equity may find them to be a good fit.
They also help home buyers, and say they can close loans in as a little as two weeks if you’re on a tight schedule.
It’s possible to get a conventional loan backed by Fannie Mae or Freddie Mac, a government loan such as an FHA loan or VA loan, or a jumbo loan that exceeds the conforming loan limit.
However, they may not offer USDA loans, as it’s not made clear on their website.
But you should be able to choose from a fixed-rate mortgage or an ARM, including a 30-year fixed, 15-year fixed, or a 5/1 ARM.
While they don’t appear to have a super expansive lending menu, they should be able to assist most homeowners in a variety of different scenarios.
eClick Lending Mortgage Rates
eClick Lending says it has incredibly low rates, but for whatever reason doesn’t post them online for us to see.
As such, we’ve got to take their word for it until actually speaking with a loan officer.
This isn’t necessarily a bad thing, but lenders do gain transparency points when they take the time to publicize their mortgage rates.
To get pricing, you’ll need to reach out to a loan officer, either by calling them directly or filling out a short contact form on their website.
Also be sure to inquire about any lender fees, such as a loan origination fee, or separate charges for loan processing and/or underwriting.
Once you know all those details, you can compare their mortgage APR to that of other lenders to see where they stand.
My assumption is they’re probably competitively priced because they’re an online mortgage lender with lower overhead and limited advertising (and lots of positive reviews).
And online lenders typically appeal to customers looking for low rates.
But always put in the time to gather multiple quotes to ensure it’s a good deal, or that a better one isn’t out there.
eClick Lending Reviews
Over at Zillow, eClick Lending has a near-perfect 4.97-star rating out of 5 from nearly 1,100 customer reviews.
That’s doubly impressive given the large number of reviews coupled with the excellent score.
At Bankrate, they have a perfect 5.0 rating from about 350 reviews, with 100% of reviews saying they would recommend this lender.
But wait, there’s more. On SocialSurvey, they have a 4.91-star rating from over 2,200 reviews.
And on Google, they’ve also got a 5-star rating from more than 400 reviews, so it’s clear they’re consistently making their clients very happy.
Lastly, eClick Lending’s parent company is an accredited business with the Better Business Bureau and currently has an ‘A+’ rating based on customer complaint history.
In summary, they say they make mortgages easy and have the technology and many positive reviews to back it up.
If they also offer low rates with limited lender fees, they could be a good choice for an existing homeowner looking to refinance, or even a home buyer who is comfortable working with a lender remotely.
eClick Lending Pros and Cons
The Good
Offer a digital, paperless home loan process
Can apply online and manage loan via borrower portal
Claim to have very low mortgage rates
Say they can close loans in as little as two weeks
As economic clouds loom, mortgage lenders are making it harder for some borrowers to get some types of home loans. Along with that not-so-great news, however, comes a silver lining: There’s still plenty of opportunity for borrowers to qualify for mortgages.
Why mortgage lenders are extending less credit
Mortgage credit availability declined in April to its lowest level since January 2013, according to the Mortgage Bankers Association (MBA).
“The contraction was driven by reduced demand for loan programs such as certain adjustable-rate [mortgage] loans, cash-out and streamline refinances and those with lower credit score requirements,” says Joel Kan, MBA deputy chief economist.
Back in 2013, the U.S. housing market was emerging from the Great Recession, and lenders were still wary of handing out too many loans. They gradually loosened standards in the years that followed, then tightened up at the beginning of the pandemic. Notably, MBA’s index shows credit availability is even tighter now than it was during the uncertain time at the beginning of the pandemic.
There are a few reasons lenders have become less eager to extend credit:
The banking sector has hit a rough patch. Three of the largest bank failures in U.S. history took place this spring — Silicon Valley Bank and Signature Bank in March and First Republic Bank in May. None of the three were major players in the mortgage industry, but the headline-grabbing turmoil roiled lending markets all the same.
The economic outlook is uncertain. Hoping to cool inflation, the Federal Reserve has raised interest rates at 10 consecutive meetings. While the labor market’s still cruising along — employment growth surpassed expectations in April — the Fed’s tightening will eventually result in a slowdown. That typically means an increase in unemployment rates, and more defaults by borrowers, giving lenders reason to exercise caution.
The boom went bust. As mortgage rates plunged to all-time lows during the pandemic, Americans rushed to refinance and buy homes. When rates started rising in 2022, that activity slowed — and lenders that were hiring during the boom turned to layoffs during the bust. As a result, lenders now have less capacity to handle loan applications than before.
Niche loans are most affected
While this all sounds like a problem for mortgage borrowers, it’s possible many might not even notice the pullback.
An April survey by the Federal Reserve found the stricter standards don’t affect conventional conforming loans bought by Fannie Mae and Freddie Mac — the majority of mortgages originated in the U.S. — or loans issued through the Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) programs.
Instead, lenders are holding back on niche products such as subprime mortgages, home equity lines of credit (HELOCs) and non-qualified, or “non-QM” jumbo mortgages.
What tighter mortgage credit means for you
Rest assured, you still can qualify for a mortgage if you meet the lender’s credit and other approval criteria, including having sufficient employment history and income.
If you’re looking for a loan type affected by tighter availability, however, there are a few ways to boost your chances of getting what you need:
Boost that credit score as high as you can. “People with lower credit scores are having a harder time today,” says Melissa Cohn, regional vice president of William Raveis Mortgage in Delray Beach, Florida. Your credit score remains the single most important factor in determining your mortgage rate. While 740 used to be the goal to strive for, new rules from Fannie Mae and Freddie Mac have made 780 the threshold at which borrowers get the best rates. You can still get a mortgage with a credit score in the 600s, but it’ll cost you more — or might be harder to find altogether.
Make as much of a down payment as possible. More cash down translates to a lower loan-to-value (LTV) ratio — and a lower LTV means more lenders willing to extend you credit. You can still qualify with 3 percent down for a conventional loan or 3.5 percent down for an FHA loan, but you’ll pay higher fees, and mortgage insurance, to compensate for your lower upfront investment.
Don’t stretch your budget too far. If the loan you want means your mortgage payment would eat up a significant chunk of your monthly budget, a lender might reject your application, even if all your other financials check out. That’s not to say you absolutely won’t qualify — but you’ll help your case by keeping the mortgage payment in the range of 30 percent of your income. Keep in mind, too: If you want an adjustable-rate loan, many lenders only qualify borrowers based on a higher payment, rather than the initial low payment.
Build up your cash reserves well in advance. Lenders are getting stricter about the sources of your down payment and cash reserves. If you expect to use a gift from family to buy a home, put the money in the bank now, says Cohn. That “seasoning” time will make your loans look better to lenders.
If you’re in the market for a conventional or Department of Veterans Affairs (VA) home loan and come from a military background, a USAA mortgage can be your best option.
This mortgage lender also offers home loans for first-time homebuyers with low down payment requirements. However, you won’t be able to get approved for a USAA mortgage if you don’t qualify for membership or want an FHA or USDA loan.
USAA overview
United Services Automobile Association (USAA) started in 1922 as an automobile insurance company for military officers. Over the decades, the organization has expanded its product offerings to include mortgages, consumer loans, banking accounts and various types of insurance.
Current members of the U.S. Armed Forces, veterans and their immediate families are eligible for USAA membership. It’s possible to apply for conventional, VA and jumbo loans to buy a house or refinance an existing mortgage.
Your mortgage options include:
Conventional: Fixed-rate purchase, low down payment purchase, rate-and-term refinance and cash-out refinance
Jumbo: Conventional purchase, VA purchase and VA jumbo IRRRL
Currently, Mr. Cooper (formerly Nationstar) services all USAA Bank mortgages, and you can mail a payment to the USAA headquarters by mail or schedule payments online or by phone.
Find the right VA loan: Best VA mortgage lenders
How to qualify for a USAA mortgage
If you’re not a USAA member yet, you’ll need to apply for membership. Membership is open to U.S. military members, veterans, their spouses and children of USAA members.
Some of the initial borrower requirements include:
Credit score of 620 or above for all loans.
Debt-to-income (DTI) ratio of 50% (lower for conventional loans). It’s variable for VA-backed loans.
Two years of tax returns.
Pay stubs for the last 30 days.
W-2 forms for the past two years.
Bank and investment account statements.
You will also need to present your Certificate of Eligibility (COE) if you’re applying for a VA-backed home loan.
The minimum loan amount is $50,000 on all products and up to $3 million with a jumbo loan.
Additional requirements may apply for a specific loan program. For example, you may need to complete a free online course for the low down payment conventional purchase loan.
How to apply for a USAA mortgage
You can apply online anytime or by calling a loan officer during the week. Depending on your circumstances, you may need to call to start the application process.
The first step is getting mortgage preapproval. USAA will do a hard pull of your credit report in order to provide a rate quote. You should also have your desired purchase price and down payment amount in mind to estimate your loan-to-value (LTV) ratio.
After comparing your loan options, you will apply to confirm your eligibility and finalize your interest rate, term and loan APR.
Many loan programs require a property appraisal to complete the application process. The VA IRRRL loans most likely won’t need an appraisal.
The average duration for the underwriting process is from 30 to 45 days on purchase and refinance loans.
Compare the average rates: Current mortgage rates
How to pay your USAA mortgage online
You can schedule one-time payments and enroll in autopay through your USAA account. You can also watch how-to videos on coordinating payments and linking your accounts at USAA’s payment support site.
Pros of a USAA mortgage
Low down payment loan options.
Positive customer service ratings.
Can apply online or by phone.
Specializes in VA home loans.
Cons of a USAA mortgage
No FHA, USDA or home equity loans.
Must contact the lender to estimate rates and fees.
Strict membership requirements.
No phone support on weekends.
USAA perks and special features
Here are some of the best aspects of getting a mortgage through USAA.
Savings and discounts
The lender doesn’t offer interest rate discounts or other incentive programs to reduce your closing costs. Like other banks, you can purchase discount points or potentially roll your lender fees into the loan which may be of benefit. Additionally, all loans have a fixed interest rate.
As many USAA members are eligible for VA loans, they can avoid common mortgage fees including private mortgage insurance (PMI). These loans also have low down payment requirements compared to a conventional loan. The lender usually won’t charge origination fees on VA purchase loans or refinances, but a one-time funding fee and origination fee (up to 1% or a maximum of $1,295) for conventional purchase and refinance loans applies.
As USAA also offers homeowners insurance and auto insurance, you might receive a 10% discount on your home insurance premium by bundling these products. However, you should compare rates and coverage from several insurance providers to find your best option.
First-time homebuyer loan
While you cannot apply for FHA loans through USAA, the lender offers first-time homebuyer loans that require a down payment of 5% or less. You’re eligible for this 30-year conventional loan when you haven’t owned a home in the past three years, but you might be required to complete an online education course to qualify.
You may also consider this loan type if you’re not eligible for a VA home purchase loan.
Easy to apply
Borrowers can apply for a mortgage online or by phone and receive hands-on help. After getting approved, you can continue to work with USAA if you start to struggle with affording your mortgage payment. You can call the mortgage assistance department (1-855-430-8489) to review your repayment options.
How USAA could improve
There are several downsides that may hinder you from getting a USAA mortgage.
Provide additional loan options
While the conventional, VA and jumbo mortgage options will suit many borrowers, not having access to FHA loans, USDA loans or adjustable-rate mortgages (ARM) can make it harder to compare your loan options.
USAA also doesn’t offer home equity loans which are a second mortgage that prevents refinancing your existing mortgage balance. To tap your equity through USAA, you must apply for a conventional or VA cash-out refinance which replaces your existing rate and term along with having higher closing costs as the loan balance is bigger.
Offer weekend phone support
While the USAA mortgage team receives consistently high marks for customer service, you can only call its loan officers on weekdays and there are no physical branches.
Other mortgage lenders might be better if you anticipate completing the application steps over the weekend. However, you can start and monitor the application process online 24/7.
Have less restrictive membership requirements
You must have military experience or be an immediate relative of a USAA member to join and apply for financing.
USAA customer service and reviews
You can speak with a USAA loan officer by phone Monday through Friday from 7 a.m. to 8 p.m. CT. Keep in mind, however, that phone support isn’t available on the weekends.
The lender has 171 mortgage-related complaints in the Consumer Financial Protection Bureau (CFPB) Consumer Complaint Database. This number is relatively low and borrowers primarily mention challenges with scheduling payments. Some also report troubles advancing through the application process without delays.
This institution has negative Better Business Bureau (BBB) and Trustpilot ratings but mainly focus on its banking and insurance products.
USAA mortgage alternatives: USAA vs. Navy Federal vs. Chase
USAA is an excellent lender for VA and conventional loans but doesn’t offer as many specialty programs. As a result, you may consider one of these two alternatives which offer more loan types with low down payment requirements or the ability to borrow from your home equity.
Navy Federal Credit Union has similar membership requirements as USAA Bank and caters to the military community. Borrowers ineligible for VA loans may consider the Homebuyers Choice or Military Choice loan programs that require no down payment or private mortgage insurance. This lender also offers home equity loans and lines of credit (HELOC).
If you don’t come from a military background or want to work with a brick-and-mortar national bank, Chase Bank is an excellent option. Its mortgage options include conventional, FHA, VA and jumbo loans. Home equity products are available too and the lender offers relationship discounts for qualified borrowers.
Frequently asked questions (FAQs)
USAA uses Mr. Cooper (formerly Nationstar) to service its mortgages although you can schedule payments through your USAA member dashboard or by contacting USAA.
No, USAA only offers conventional, VA and jumbo home purchase loans as well as mortgage refinancing.
A minimum 620 credit score is necessary for conventional and VA home loans. Other factors also apply including your DTI ratio, current income, employment history and down payment requirements.
Yes, you can get pre-approved for a USAA mortgage online or by phone after agreeing to a hard credit check and submitting the necessary initial documents such as proof of income, bank statements and recent tax returns.
The VA streamline refinance is the quickest, cheapest, and most beneficial type of refinance for veterans who currently have a VA home loan. VA refinance rates are at historic lows. If you are interested in reducing your interest rate and monthly payment, it’s worthwhile to check current VA streamline rates.
The VA streamline is one of the only refinance programs available in 2023 that allow you to qualify without income or bank account verification. It’s available to those with less than perfect credit. It is one of today’s quickest and easiest refinance options.
Check today’s VA streamline refinance rates by completing this quick online form.
What is a VA Streamline Refinance Loan?
The VA streamline helps veterans lower their mortgage rate and payments. When rates are low like they are now, veterans can refinance into a new loan based on today’s rates, and often reduce their monthly payment quickly and easily.
This loan type, also called the Interest Rate Reduction Refinancing Loan (IRRRL) eliminates many of the roadblocks that hold up applicants on other types of refinances. The VA Streamline is much easier because:
No paystubs or W2s are required
No bank statements are required
No home appraisal is required
There is no loan-to-value limitation because no appraisal or value is required.
Underwater homes are eligible
The required funding fee is lower than for VA purchase loans
Closing costs can be wrapped into the new loan, meaning little or no out-of-pocket expenses
Get a VA streamline rate quote here, no obligation.
Why is this loan so easy to obtain? Homeowners with a VA loan are more likely to make payments on time if their payments are lower. It benefits everyone when veterans have affordable mortgage payments.
Current VA Refinance Rates
VA streamline refinance rates are at historic lows. Many Veterans who have purchased or refinanced a VA home loan in the past few years should check today’s VA rates to make sure they have the absolute lowest rate and monthly payment possible.
Click here for a free VA streamline rate quote.
Eligibility
If you’re interested in a VA Streamline (IRRRL) you must currently have a VA loan. Your mortgage professional will pull a Prior Loan Validation from VA’s website to prove current VA loan status. There are some additional requirements.
On-Time Payments
In addition, you are required to have made on-time payments over the past year, with no more than one payment that was 30+ days late in the past 12 months. If you did have a late payment, say, 8 months ago, you may want to wait 4 months before applying.
The VA Streamline Refinance Must Improve Veteran’s Situation
The VA streamline has to put the borrower in a better financial situation. VA lenders may only approve streamline refinances that help the veteran.
The new payments on the VA streamline must be lower than your current payments. There are a few exceptions, like when you:
Refinance an adjustable rate mortgage (ARM) to a fixed rate mortgage.
Refinance into a shorter term
Finance energy efficient improvements into the VA streamline
In all cases except for an ARM refinancing into a fixed rate, the interest rate must decrease.
Check VA streamline refinance rates here.
To prove the benefit of the refinance, your lender will provide you with a form stating the interest rate and payment of your current loan compared to the rate and payment of the new loan. The form will also state how long it will take the refinance to pay for itself. For instance, if the refinance will cost you $3000 in closing costs, but you are saving $300 per month, you will make back the cost of the refinance in 10 months. Be sure to review this form to make sure you are receiving an adequate benefit from the refinance. Talk to one of our VA experts to determine your refinance payback time frame.
Occupancy
You must certify that you previously occupied the home that you are refinancing with a VA streamline. Those applying for a VA streamline are more likely to qualify if they currently live in the home.
There are still instances where you may still qualify if you don’t live in the home. For example, if you lived in the home, then relocated and rented it out, you still may be able to apply for a VA streamline. Speak with your lender for more information.
VA Streamline Funding Fee
The VA funding fee is required on most purchase and refinance VA loans to defray the costs of the VA home loan program. In most cases, the VA Streamline funding fee is 0.50% of the new loan amount. This fee can be financed into the loan so that the veteran does not have to pay it at closing of the loan.
Check today’s VA rates.
The fee is waived for veterans who are disabled due to service-related injuries. The VA makes this determination and provides it to the lender.
The 0.50% fee is much less than the 2.15% or 3.3% usually required for purchase or VA cash out refinance loans.
Subsequent Use
The VA streamline is not viewed as a subsequent use of your VA home loan benefit. You will not incur the 3.3% subsequent use fee because you used the VA streamline refinance program.
Entitlement
This loan does not use any of your VA home loan entitlement, nor do you have to prove remaining entitlement to obtain a VA streamline. Your remaining VA entitlement after purchase of the home, if any remains, does not change when you obtain a VA streamline.
Loan Terms and VA Streamlines
As discussed previously, your VA loan term may decrease, for instance, from 30 years to 15 years. In this case, it’s OK that your payment increases.
You can also refinance a 15 year loan into a longer term loan. However, keep in mind that the most your loan term can increase is 10 years. So if you currently have a 15 year term, the longest loan you can refinance into will be 25 years.
Apply for a VA Streamline
Complete a short online form to get a free rate quote and see how much you can save.
Can I refinance my Home if it’s Underwater?
Yes. The VA streamline does not require an appraisal, therefore no value is established for the property. The basis for the loan is the existing VA loan, not the current value of the property.
Do lenders impose additional rules for VA streamlines?
Yes. Often, lenders will impose “overlays,” which are additional guidelines on top of VA’s requirements. Each lender has the right to establish their own standards for lending on VA loans.
For instance, the VA does not require an appraisal or credit report. But almost all lenders require a credit report, and many require an appraisal for a VA streamline. If you are worried about the value of your home or the cost of the appraisal, find a lender who will complete the loan without an appraisal.
Do I need my COE for a streamline?
No. Your Certificate of Eligibility (COE) is needed for your VA home purchase, but not for a streamline. Since you already have a VA loan, most lenders will simply request a prior loan validation directly from VA’s website in lieu of a COE. If you have questions about your COE, contact us.
Get a free VA streamline rate quote here.
Can I add or remove anyone from the mortgage with a VA Streamline?
In some cases, parties can be added or removed. The general rule of thumb is that the veteran who was eligible for the original loan must remain on the loan. The exception is when a spouse and veteran are on the existing loan, and the veteran passes away. In this case, the spouse may be able to refinance with a VA streamline without the eligible veteran.
What if the VA streamline raises my payment?
The payment is allowed to rise as a result of the VA streamline in some cases. In the very rare case that the new payment goes up 20% or more because of these features, the lender may ask for full income documentation. Usually the payment does not rise that dramatically because of the below factors:
ARM to Fixed Rate
Because fixed rate mortgage generally have higher interest rates than adjustable rate mortgages (ARMs), your payment may go up. But, often it is a good trade off to know that your payment won’t change over the life of the loan like it can with an ARM.
Check VA rates today.
In some cases, your rate and payment may even go down if your ARM interest rate is higher than today’s low fixed rates.
Shorter Term
The VA streamline allows you to refinance from a 30 year loan into a shorter term, such as a 15 year term. In this case, it’s OK for your payment to rise as long as your interest rate goes down. Since shorter term loans pay off faster, payments are bigger than loans with longer terms.
Energy Efficient Improvements
As an added benefit, the streamline refinance program allows home owners to finance up to $6000 in energy efficient improvements for their home. These improvements will save home owners money over time and are a great option for those who are interested in upgrading and adding value to their home. Some examples of energy-efficient items are programmable thermostats, insulation, solar heating, and caulking/weather stripping.
In some cases, the veteran may receive cash at closing of a VA streamline for reimbursement of energy-efficient items. Check with your lender for details.
What if I have a Second mortgage?
Second mortgages on VA loans are fairly rare, since VA loans do not require a down payment, and therefore not enough equity exists to obtain a second mortgage.
In the case that there is a second, the new VA loan from a streamline can’t pay it off. A VA cash out loan would be required. Any additional loans on the property need to be “subordinated,” or put underneath on title, behind the new VA loan.
Can I get cash at closing with a VA streamline?
No. VA streamlines are meant only to pay off the existing loan and closing costs. The only exception is when a veteran prepays for energy-efficient improvements and needs to be reimbursed for actual costs.
Should I apply for a VA streamline with my current lender?
Although your original lender or current mortgage servicer might be able to do your VA streamline, it is not required. Any VA-approved lender can do your streamline, and it’s best to check with a few lenders to compare interest rates and fees.
Get a personalized rate quote here.
Is VA streamline the same as HARP 2.0?
No. HARP 2.0 is a refinance for loans owned by Fannie Mae or Freddie Mac. Fannie/Freddie do not own VA loans, so a HARP loan can’t refinance a VA loan.
Can I refinance my VA loan with a new conventional loan?
Yes, if you have enough equity and meet other qualification standards for conventional loans. If you have 20%+ equity in your home, it would be possible to open a new conventional mortgage without a funding fee or mortgage insurance, to refinance the current VA loan. This type of loan would require an appraisal and full income, asset, and credit underwriting.
Check today’s VA streamline rates.
What are the closing costs on a VA streamline?
Closing costs vary greatly from lender to lender. Borrowers should shop around to find the best interest rate and closing cost combination for them. There are certain closing costs the veteran can and cannot pay on a VA loan. For an in-depth look at closing costs, see our closing cost page. Generally, rules for VA streamline closing costs are the same as for purchase closing costs, except that the veteran may not finance more than two discount points (2%) into the new loan. Discount points are points paid to reduce the interest rate. For a closing cost quote based on your specific situation, contact a licenced VA lender.
Can the lender pay my closing costs instead of including them into the new loan?
In some, cases, the lender can give you a higher interest rate and pay your closing costs, and sometimes even your funding fee. The closing costs aren’t added to the loan amount; the lender pays them for you by using the excess profit from the loan. Usually this works best when rates are very low, or if you currently have a high interest rate. In these cases, you lower your rate substantially, despite the rate hike given to you to pay for fees.
Check today’s rates.
For instance, if market rates are 4.0%, your lender might give you a 4.25% rate and pay all your closing costs. You still end up with a great rate, and don’t add much principle to the loan balance. This isn’t always an option, though, and often closing costs need to be wrapped into the new loan or paid in cash.
Can I skip a payment by getting a VA streamline?
No payments can be skipped. Sometimes, depending on the closing date of the new loan, it appears that a payment has been missed because the previous or subsequent month’s interest was wrapped into the new loan. However, the VA does not condone this practice as a method to “skip” a payment. The VA lender should not coach the borrower to structure a refinance in this way.
How do I know if market rates are lower than my current rate?
The amount of money that you can save with a VA streamline refinance varies with the current VA interest rates that change based upon the normal market fluctuations. You should look at the current VA rates displayed on our site and match them against the rate you got when you initially got your VA loan. If the rate is lower than what you are currently paying, there’s a strong chance that you can save money with a VA streamline refinance loan.
Check today’s rates and see how much you can save.
Can I use a VA streamline to refinance another type of loan?
No. VA streamlines or for VA to VA refinances only. If you have a conventional, FHA, USDA, or other type of loan, you could possibly use a VA cash out refinance. You would need an appraisal, and income, asset, and credit documentation.
I’m Ready to Apply for a VA Streamline. What’s my Next Step?
Call (866) 240-3742 or simply complete our online form for a free, no obligation VA streamline rate quote. Rates are low and it’s a great time to lower your home payment.
Today we’ll review East Coast based mortgage broker “Silver Fin Capital,” which says it’s the #1 rated certified lender in New York based on LendingTree reviews.
The company has also been ranked the #1 lender across LendingTree’s nationwide network four times since inception in 2005, and landed in the top-10 rankings eight times.
Additionally, they pride themselves on never having a complaint filed with the Better Business Bureau, while maintaining an A+ rating.
So clearly they’re making their customers happy and striving for perfection when it comes to customer satisfaction, which is a big plus.
Assuming they also offer low mortgage rates with limited fees, they could be a good choice if you need a mortgage on the East Coast.
Let’s discover more about them.
Silver Fin Capital Fast Facts
Mortgage broker that offers home purchase loans and refinances
Founded in 2005, headquartered in Great Neck, NY
Has 60+ wholesale lender partners in its network to choose from
Currently licensed to do business in Connecticut, Florida, New Jersey, and New York
A LendingTree Certified Lender for the year 2021
Pride themselves on having zero complaints filed with the Better Business Bureau (BBB)
As noted, Silver Fin Capital is a mortgage broker, which means they connect homeowners with their wholesale lender partners.
This allows them to shop your loan scenario and mortgage rate with a variety of their partners all at once to land you the best possible rate with the fewest fees.
At last glance, the company said it had more than 60 wholesale lender partners in its network, meaning they should have lots of options to both shop your rate and find a suitable loan program.
The company got its start back in 2005, and is headquartered in Great Neck, New York.
They are currently licensed to do business in just four states, including Connecticut, Florida, New Jersey, and New York.
Aside from their flawless BBB rating, they are also a LendingTree Certified Lender.
This means they’ve demonstrated a commitment to employee development with at least half of their loan originators certified (while also earning high marks from LendingTree customers).
How to Apply for a Home Loan with Silver Fin Capital
First call them up or fill out a short contact form on their website
A loan originator will then discuss loan options and rates with you
They offer secure document uploading to speed up the loan process
Unclear if they offer a fully digital mortgage application or eClose options
To begin, you can either call Silver Fin Capital up directly or fill out a short contact form on their website.
If you go the online route, a licensed mortgage loan originator will promptly contact you to discuss loan options and provide a personalized rate quote.
Once you speak with a loan officer and intend to move forward, you can proceed to filling out the mortgage application.
It’s unclear if they offer a fully digital application, but my assumption is you’ll be able to complete most tasks electronically, whether it’s eSigning documents or uploading documents.
They do have a page dedicated to secure document upload, so once you are approved, you’ll easily be able to share files to satisfy any outstanding loan conditions.
Based on their stellar customer satisfaction ratings, Silver Fin Capital probably makes it super easy to apply for and manage your home loan from start to finish.
Loan Programs Available at Silver Fin Capital
Home purchase loans
Refinance loans: rate and term, cash out, and streamline options
Home renovation loans
Conventional loans
Jumbo loans
FHA loans
VA loans
Reverse mortgages
Interest-only home loans
Fixed-rate options: 10, 15, 20, 25 or 30 years
Adjustable-rate options: 3, 5, 7 or 10 years
One plus to using Silver Fin Capital is their extensive product menu. This is a benefit to using a mortgage broker, as they have not one lending menu, but dozens.
In fact, they say they’ve got 60+ lender partners to choose from, meaning you should be able to get your hands on just about any type of home loan that exists, regardless of your property type.
They should have you covered whether it’s a home purchase, mortgage refinance, renovation loan, or even a reverse mortgage.
You’ll also be able to get anything from a conventional loan to a government-backed loan (FHA or VA) to a jumbo or interest-only mortgage.
The one major loan type they might not have is USDA loans, which are reserved for borrowers in rural areas.
In terms of specific loan programs, they offer both fixed-rate and adjustable-rate mortgages in a large variety of loan terms.
You shouldn’t face too many restrictions in this department, and brokers also tend to be good at funding difficult scenarios, whether you’re self-employed or experienced a recent credit event.
Silver Fin Capital Mortgage Rates
While Silver Fin Capital doesn’t advertise its mortgage rates on its website, they will have numerous options for you to choose from due to their many wholesale lender partners.
Instead of showing you rates from just one company, they have the ability to shop your rate with dozens of lenders simultaneously to find you the best combination of rate and fee.
They also say they structure most loans where the lender pays them directly, meaning you won’t have to pay anything out-of-pocket if that’s your wish.
But even though they’re a broker who can shop on your behalf, it’s still recommended to compare two or three brokers to see what they can offer.
It might be possible to find better pricing, or negotiate more effectively if you can pit two brokers against one another.
Silver Fin Capital Reviews
On LendingTree, they have a perfect 5.0 rating from 700+ customer reviews, along with a 99% recommendation rate.
The company is also one of just eight Certified Lenders on the LendingTree platform for the year 2021.
Over at Zillow, they’ve got a similarly stellar 4.95-star rating out of a possible five from 120+ reviews, with a good chunk of them saying the interest rate received was lower than expected.
Additionally, they’ve got a 5-star rating on Google from about 125 customer reviews, which tells us they’re consistent in the customer satisfaction department.
Lastly, they are an accredited business with the Better Business Bureau and currently have an ‘A+’ rating based on complaint history.
And as mentioned, they’ve never had a complaint filed against them with the BBB.
In summary, Silver Fin Capital could be a good choice for both home buyers and those looking to refinance, who prefer a more hands-on approach from a broker.
Their ability to shop rates on your behalf is also a plus if you’re not one to put in the time yourself.
Silver Fin Capital Pros and Cons
The Good
Offer a simplified and streamlined mortgage loan process
Can shop your mortgage rate with dozens of lenders all at once
Lots of loan programs to choose from thanks to their many lender partners
Excellent reviews from past customers across all ratings sites
A+ BBB rating, accredited business (with no complaints filed)
Mortgage glossary and mortgage calculators on their website
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If you’re in the market for a new home, chances are you’ll have to compromise at some point along the way. Maybe you’ll have to commute a little farther than you’d like in order to get the best value for your money, or perhaps you’ll forgo a huge backyard to be closer to the city.
And when it comes to finances, you might find a disparity between how much house you want and how much house you can afford.
Home loans are made against your ability to repay. While the mortgage loan is secured against the house, it is really made against your income. That’s what mortgage lenders look for — income to offset liabilities.
Simply put, the amount of income you need to purchase a house will vary by your payment comfort level, including any other monthly debt obligations you might have.
Important terms
Mortgage payment: Principal, interest, property taxes insurance and mortgage insurance, if needed.
Consumer debts: Minimum payment obligations on things such as auto loans, credit cards, student loans, personal loans and installment loans.
Other debt obligations: Alimony and/or child support or any other court-ordered repayment obligations.
Running the math
Here’s a simple formula to calculate the amount of income you’ll need to purchase a home:
(Target mortgage payment + consumer debts) ÷ .36 = Gross monthly income needed to qualify
Most lenders limit your debt-to-income ratio (how much of your monthly income pays debt) to between 36 percent and 45 percent. While the exact ratio varies by lender and loan type, it’s best to base your calculations on the lower end to ensure that you won’t overextend yourself financially.
So, if your target mortgage payment is $2,000 per month and you have consumer debts of $300 per month, you will need approximately $6,388 gross monthly income to offset your housing expenses and consumer obligations.
Down payment
Your down payment is another important factor in determining how much income you’ll need to buy a home.
Consider the following loan scenario using a purchase price of $300,000 (assuming no other debts) and the current rates on Zillow Mortgage Marketplace.
Conventional loan
Down payment: 5 percent ($15,000)
Interest rate: 3.26 percent
Approximate mortgage payment: $1,770
Gross monthly income needed: $4,916
So, at the end of the day, how much income you need to purchase a home is predicated on your monthly income, consumer debt obligations and down payment.
Impact of debt
For every dollar of debt, you will need double that in income. So if you have a $300 car payment, you’ll need at least $600 per month or more in income to offset that debt.
Debt erodes income, and less income translates to less purchasing power.
So, does buying a home make sense?
Yes, so long as the amount you can borrow for your desired purchase price is in sync with your debt obligations and, of course, your down payment.
“How Much Income Do You Need to Buy a House?” was provided by Zillow.com.
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A 20% down payment usually isn’t required to finance a home purchase, and most buyers who finance a home put down less.
But the 20% down payment isn’t dead yet. In fact, a growing share of buyers are making down payments of at least 20% to compete in today’s sizzling market.
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Competitive market prompts higher down payments
Realtors reported that 48% of their home buyer clients made down payments of at least 20% in the first quarter of 2021, up from 46% in all of 2020 and 40% in all of 2011, according to the National Association of Realtors’ Confidence Index Survey. Among first-time buyers, almost 28% put down at least 20% in the first quarter, up from almost 26% in 2020 and about 23% in 2011.
A larger down payment strengthens your offer because it assures the seller that you’re on solid financial ground and your financing is likely to go through.
For example, if the home appraisal comes in lower than the sales price, you’ll need to negotiate with the seller to lower the price or pay more money out of your own pocket. Lenders generally won’t approve a loan for more than the home is worth, minus the required down payment.
If you have more than enough for a lender-required down payment, you could use some of that money to make up the difference between the appraisal figure and sales price.
Still, it’s important to maintain perspective and make a down payment that’s right for you.
The average down payment on a house
Even though a greater share of buyers are putting down 20%, most first-time home buyers don’t make that oft-quoted benchmark.
Because outliers can skew an average, the telling figure for what other home buyers put down is the median down payment, meaning half paid that much or above, and half paid that much or below.
For first-time home buyers who financed the purchase, the median down payment was 7%, according to a 2020 survey by the National Association of Realtors. The median down payment for repeat buyers who financed was 16%.
Minimum down payment on a house
The required minimum down payment for a house depends on the type of loan and a lender’s criteria. Here are the minimum down payment requirements for the most common types of loans.
Conventional loans, which aren’t guaranteed by the federal government, can have down payments as low as 3% for qualified buyers. Some lenders offer down payment assistance grants to allow even lower down payments.
FHA loans, backed by the Federal Housing Administration, require a minimum 3.5% down. FHA loans allow lower minimum credit scores than conventional loans.
VA loans for military service members and veterans, and USDA loans for certain rural and suburban buyers, usually require no down payment. VA loans are backed by the U.S. Department of Veterans Affairs, and USDA loans are guaranteed by the U.S. Department of Agriculture.
Low minimum down payments: Nothing new
Mortgages with low down payment requirements have been around for decades.
The FHA has backed home loans with 5% down or less since the 1980s. Conventional loans have had them since the 1990s. And some first-time home buyer programs offer down payment assistance that can further reduce upfront costs.
“Some first-time home buyer programs offer down payment assistance that can further reduce upfront costs.”
Yet more than three-fifths (62%) of Americans think you need a down payment of 20% or more to buy a home, according to the NerdWallet 2020 Home Buyer Report. That’s likely because a 20% down payment on a conventional loan is considered an exemplar and often used to quote mortgage rates. And it’s an important criterion — with 20% down you can avoid paying for private mortgage insurance.
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Is it worth putting down 20%?
Aside from making your offer look stronger in a competitive market and avoiding mortgage insurance, making a 20% down payment has other advantages:
Your monthly payment will be lower.
You’ll likely earn a lower mortgage interest rate.
Lenders will be more likely to compete for your business.
How much should a first-time buyer put down?
There is no single right answer for everyone. Deciding how much to put down on your first house depends on your financial situation, how long you plan on living in the home, and the housing market in your area.
Here are some general tips:
Avoid draining your savings account for a down payment. You’ll want to have some money on hand for closing costs, homeowners insurance and property taxes.
Budget for things you’ll need to buy after moving in, like a lawn mower for that new lawn, and for home maintenance and repairs.
Earn more interest on what you are saving by stashing money in a high-yield savings account or certificate of deposit. See NerdWallet’s picks for the best high-yield savings accounts and, if you’re saving a sum for years ahead, consider the best CD rates.
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Today we’ll check out “Supreme Lending,” a mortgage banker out of Dallas, Texas that is all about speed.
In fact, their goal is to close and fund every loan that comes in their door in 20 days or less, using the latest technology and more efficient loan processing.
This is especially important because they specialize in home purchase lending, which is often more time-sensitive than a standard mortgage refinance.
They also believe they can offer lower rates and fees than other lenders thanks to their advanced processing software and automated underwriting systems.
Additionally, their “Give Back Program” provides up to $800 in reduced closing costs to veterans, first responders, and cancer survivors, and possible discounted real estate agent fees as well.
Supreme Lending Fast Facts
A direct-to-consumer retail mortgage banker that offers home purchase and refinance loans
Founded in 1999, headquartered in Dallas, Texas (a dba of Everett Financial)
Funded $16 billion in home loans last year
About a third of their overall volume comes from home state of Texas
Licensed to do business nationwide including the District of Columbia
Has 300 physical branches and 1,800+ employees across the country
Supreme Lending is a direct-to-consumer retail mortgage banker based in Dallas, TX that was founded all the way back in 1999 by Scott Everett.
The company is actually a dba of Everett Financial, which gets its namesake from, you guessed it, their founder.
They are a home purchase-heavy lender, meaning they probably have good relationships with real estate agents and home builders too.
Nearly 75% of their overall volume consisted of purchase loans, with the remainder made up of mortgage refinance loans.
And while they’re licensed to do business nationwide, roughly a third of overall volume comes from their home state of Texas.
Supreme is also quite active in the states of California, Colorado, Florida, and Georgia.
How to Apply at Supreme Lending
You can apply online, call/email them, or meet a loan officer face-to-face
They offer a digital mortgage application powered by Ice Mortgage Technology
Allows you to complete most loan tasks electronically such as linking bank accounts or eSigning disclosures
Aim to close loans in 20 days or less by starting the closing process sooner than other lenders
To apply with Supreme Lending, you can either call them, visit a local branch, or head right to the online application on their website.
Whichever route you choose, their digital mortgage application powered by Ice Mortgage Technology (formerly Ellie Mae) allows borrowers to complete most tasks electronically.
This includes the ability to link bank accounts using your login credentials, scan/upload documents, eSign disclosures, and track loan status 24/7.
You’ll also have a dedicated, human lending team that is available to assist whenever you have questions or concerns along the way.
Supreme says it aims to close loans in 20 days or less, and is able to speed up the process by using the latest technology while starting the closing process sooner than other lenders.
Loan Programs Offered by Supreme Lending
Home purchase loans
Home renovation loans: HomeStyle and FHA 203k
Refinance loans: rate and term, cash out, and streamline
Conventional loans backed by Fannie Mae and Freddie Mac
Jumbo loans
FHA/VA/USDA loans
First-time home buyer programs
Down payment assistance
Educator Mortgage Program
Fixed-rate mortgages: 10 to 30-year terms available
Adjustable-rate mortgages: 5/1, 7/1, and 10/1 ARMs
One area where Supreme Lending really shines is their loan programs. They offer just about anything you could ask for, including purchase, renovation, and refinance loans.
You can get a first-time home buyer loan like Fannie Mae HomeReady or Freddie Mac Home Possible, or an FHA, VA, or USDA loan.
They also offer jumbo home loans, including ones with just a 10% down payment requirement, along with conventional loan offerings.
Those in the market to buy a home can take advantage of their “Lock & Look” program that allows borrower to pre-lock their mortgage rate before they find a property.
Lastly, they offer a so-called “Educator Mortgage Program,” which similar to their perks for veterans, first responders, and survivors, offers up to $1,600 in closing cost credits for teachers, librarians, secretaries, nurses, counselors, and more.
They lend on all major residential property types, including condos, second homes, and investment properties.
You can get both a fixed-rate or adjustable-rate mortgage in a variety of different loan terms.
Supreme Lending Mortgage Rates
One slight drawback to Supreme Lending is their lack of transparency regarding mortgage rates and lender fees.
They don’t appear on their website, so you’ll need to get in touch with a loan officer first to discuss loan pricing before you proceed to an application (assuming pricing matters to you).
Be sure to ask about both mortgage rates and lender fees, such as a loan origination fee, processing and underwriting fees, and so on.
Collectively, these will make up the mortgage APR, which is a more effective tool to compare loan offers than the interest rate alone.
As always, be sure to gather multiple mortgage quotes to ensure you don’t miss out on a better deal elsewhere.
Given their strong customer satisfaction numbers and the fact they’re a mortgage banker as opposed to a large bank, my guess is their pricing is pretty competitive.
Supreme Lending Reviews
Over at Zillow, Supreme Lending has a really impressive 4.97-star rating out of 5 from over 7,000 customer reviews.
The sheer number of reviews combined with the super high score shows they’ve consistently made customer satisfaction a top priority.
A lot of the reviews also indicated that rates and/or fees were lower than expected, which is a good sign in terms of loan pricing.
At LendingTree, they’ve got a similarly high 4.8-star rating from about 500 reviews, along with a 94% recommend rating.
You can also look up specific branch locations near you and find their ratings via Google if you want to see how a certain location performs.
While they aren’t an accredited business with the Better Business Bureau, they do hold a coveted ‘A+’ rating based on customer complaint history.
Supreme Lending Pros and Cons
The Good
You can apply online via a digital mortgage application
Also have hundreds of physical locations nationwide
Aim to close loans super-fast (in 20 days or less)
Tons of different loan programs to choose from
Excellent customer reviews across multiple ratings websites
Free mortgage calculators and mortgage glossary online
The Maybe Not
Do not publicize mortgage rates or lender fees
May transfer your mortgage to a third-party loan servicer after closing
Last Updated on February 25, 2022 by Mark Ferguson
Buying one rental property may not make you a ton of money right away. However, rentals can be an amazing investment when held for the long-term and when multiple properties are purchased. There is also the opportunity to buy larger commercial or multifamily properties, which can increase returns as well. With a good rental property, you should be making money every month (cash flow); you should make money as soon as you buy by getting a great deal; you will have fantastic tax advantages, you can use financing which greatly reduces the amount of cash needed; and the property value and rents will most likely go up in value over time.
Rental properties have been a great investment for me. I make more than $100,000 a year from the cash flow on my rental properties after all expenses including mortgages, property management, maintenance, and vacancies. I now have 20 rental properties which are a mix of residential and commercial. I bought my first rental property in December of 2010 for $97k. I started with residential properties but now buy almost all commercial, including a 68,000-square-foot strip mall in 2018.
You cannot buy just any property and turn it into a rental if you want to make a lot of money. You have to buy properties below market value with great cash flow to be a successful rental property owner. Not only do I make money every month from my rentals with minimal work, but my rentals have also increased my net worth thanks to buying below market value and appreciation (I don’t like to count on appreciation, but it is a nice bonus). This is not just a hypothetical article. I have owned rentals for many years, kept track of their returns, and written many articles about what I have learned.
The cool thing about real estate is while I have more than $6,000,000 worth of rental properties, it did not take millions of dollars to buy them.
Why did I choose rentals?
One of my passions is automobiles. I purchased a 1986 Porsche 928 a few years ago, and I absolutely love that car. I also have a 1999 Lamborghini Diablo, a 1981 Aston Martin V8, a 1998 Lotus Esprit Twin Turbo, and a few other cars. In my early 20s, I never thought I could afford any of these cars in my early. However, I started to make decent money as a real estate agent in my mid to late 20s. The problem was I was not saving much money. I just kept spending it. I knew if I ever wanted to get ahead in life and be able to afford these cars, I would have to invest the money I was making. I researched everything I could and decided rental properties were the best investment. I worked very hard to save money to buy my first rental.
As soon as I started buying rentals, I could see the fruits of my labor. I was making money every month from rent, I made money as soon as I bought the house because I bought it below market value, and it was forcing me to save money. I wanted to buy as many as I could, and I knew with steady money coming in every month from the rentals I could someday feel comfortable buying expensive cars.
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Why are rentals a good investment?
Not all properties are a good rental, but if you can find properties that are, they can be an amazing investment. A rental property should have a number of attributes
Cash flow
Good rentals will make money every month after paying all expenses. The expenses should include mortgage, taxes, insurance, maintenance, vacancies, and property management. The cash flow is the rent minus all of these expenses. Some people like to shoot for different numbers, but I always liked to see $400 to $500 in cash flow per property.
Buy below market
I get a great deal on every rental I buy. I don’t want to pay retail when I can pay to 20% to 30% less than retail. It is not easy to get great deals, but it is possible. On almost every house I have ever bought, I got a great deal. That instantly increases my net worth, makes me more cash flow, and looks better on my balance sheet for banks.
Leverage
You can put as little down as 20 percent when buying rentals. You can put even less down when buying a property as an owner occupant and then turning the property into a rental.
Tax advantages
Most expenses on rental properties are deductible or depreciable. You can also depreciate the structure of a rental property, which means you can save thousands of dollars each year on your taxes. You can also complete a 1031 exchange on rentals to avoid capital gains taxes.
Appreciation
Many people only talk about housing prices when comparing rentals to the stock market, but appreciation is a bonus. It is not what you are shooting for when buying a rental property because no one knows for sure if prices will go up or when.
It is not easy to find rental properties that are a good investment. It takes me months to find great deals that make over $500 a month like mine typically have, and they are not available in every market. My typical rental property used to cost between $80,000 and $130,000, and it rented for $1,200 to $1,500 a month. I put 20 percent down on the properties and finance the rest with my portfolio lender. I usually end up spending $25,000 to $35,000 in cash to buy each rental property. Cash flow is not the only benefit of rental properties. I slowly pay down the mortgage every month; I have great tax advantages; and they will most likely appreciate.
I am able to save that much cash from each rental property because I make a very good living as a real estate agent as well as from fixing and flipping houses. I like to have nice cars and a nice house, but I always make sure I am saving and investing money first. There are ways to buy rental properties with little money down, but I think you will get further ahead in life by saving as much as possible and investing wisely.
How much do you need to buy a rental?
I go over the exact cost of a rental property here, but let us assume that it costs $30,000 to purchase and repair one rental. You do not have to invest $90,000 a year to buy three rentals a year because you can begin refinancing rental properties after you own them for a year and take cash out to invest in more rentals. You can also save the cash flow from your rental properties to buy more rental properties. I usually buy my properties for about $100,000, with a four percent interest rate and 20 percent down, which leaves a payment of $381 for principal and interest. Those numbers combined with rents from $1,200 to $1,500 a month leave me with at least $500 a month in income from my rental properties.
How much should a rental property cash flow?
It is not easy to make $500 a month in cash flow from a single rental property. I detail how to calculate cash flow here, and I created a cash flow calculator to help people determine cash flow. Cash flow is not the rent minus the mortgage payment: you must consider many other factors. My rents range from $1,250 to $1,600 a month, and my mortgage payments range from $450 to $650 a month. I have to account for maintenance and vacancies on my rental properties, which leaves me with about $500 in profit each month. I buy my properties for $80,000 to $130,000 and usually make quite a few repairs before I rent them out.
What are the long-term returns for someone with little money?
Investing in rental properties can provide fantastic returns when you have a lot of money to invest. Even if you have little money, you can invest in rental properties. I am going to walk through how many years it will take someone to accumulate one million dollars from investing $7,500 a year into long-term rental properties.
The more money you make and save, the easier it is to make one million dollars from rentals. However, even people who do not make a lot of money can get there, although it may take a little longer. I am going to write out this plan assuming someone has a $75,000 salary and can save 10 percent of their income a year.
When you first start out, $7,500 does not go very far, and it takes a lot of money to buy an investment property. Luckily, there are many ways to buy a rental property with much less money if you are an owner occupant or use some of the techniques I discuss here. In the first year, the best bet is to buy a HUD home or REO that needs some work but will still qualify for an FHA or conventional loan. The key to my strategy is buying houses below market value. HUD or REO houses are a great way to do that. We will assume the investor can buy a house similar to the ones I purchase in my area, which cost around $100,000. There are closing costs that the buyer is charged when they get a loan, but you can ask the seller to pay most of your costs.
Buying as an owner occupant year one
The first step is to buy a house. But you cannot buy just any house; you want to buy a house as an owner occupant that you can later turn into a rental. You also want to get a great deal on a house to gain instant equity. To get a great deal on a house, you may have to buy one that needs some repairs. With a HUD home, you can roll $5,000 of the repairs needed into the loan with the FHA escrow and only put 3.5 percent down for the down payment. If the home needs a lot of work, you could use an FHA 203K loan to roll more repairs into the loan. We will assume this house needs $4,000 in work to qualify for a loan, and you bought a HUD home with the costs rolled into the loan. With an FHA loan, you have to pay mortgage insurance every month and an upfront mortgage insurance premium (which could be $200 or more a month).
With a conventional loan, mortgage insurance is much lower than FHA, and you might be able to remove it after two years. However, you may not be able to roll the repairs into the loan, but you could get the seller to fix some items before closing. If the repairs are cosmetic items, you should be able to get a loan without making the repairs before closing. I will assume the total cash needed to close on this hypothetical house is about $5,000. Hopefully, this house was bought below market value because it needed some repairs and was a foreclosure. Once the house is repaired, it should be worth around $125,000.
Since you bought this house as an owner-occupant, you have to live in the home for at least one year.
Year two
After one year, you have gained about $22,000 in net worth; $125,000 – $100,000 purchase price – $4,000 repairs rolled into the loan + $1,000 gained in equity pay down. In year one, no rent was collected because the home was owner-occupied to get a low down payment. In year two, the house is rented out and you can buy another owner-occupied home using the same strategy. When you try to buy a home right away, you won’t be able to count the rent from the first house as income right away. It is best to buy houses priced low enough that you can qualify for two houses at once to make this work. Otherwise, you may have to wait up to a year for the rent to count as income and can buy again.
You can only have one FHA mortgage at a time, so this time you have to get a conventional loan with 5 percent down. In the second year, you have saved up another $7,500 from your job and have $2,500 left over from the first year for a total of $11,500 saved. The second home also costs $100,000, and the seller pays 3 percent closing costs. The down payment needed is $5,000, and $5,000 in repairs are needed on this second house. The total cash needed to buy an owner-occupied home is $10,000 and the repaired value is $125,000.
The first house is rented out for $1,300 a month (which I will do all the time on a $100,000 purchase), and the payment is $550 with taxes and insurance. Add vacancy, maintenance, mortgage insurance and we’ll assume $300 a month in positive cash flow.
Year Three
In the second year, you made $25,000 from buying house number two (equity) and made $3,600 from cash flow. You also made $2,500 from equity pay down on both loans (I am assuming each loan will pay down $500 more each year). In year two, all the savings was used from year one, but you saved $7,500 and made $3,600 in cash flow for a total of $11,100 savings. Buy another house using an owner-occupied loan and use $10,000 of cash. Net worth increases to $53,100 after adding the equity pay down, cash flow and equity gained in the purchase of a new home.
The second house is rented out again using the same figures, although the mortgage insurance may be less because we are using a conventional loan instead of an FHA loan.
Year Four
Another house is bought below market value in year four. Cash flow increases to $7,200 a year plus $1,100 in previous savings and $7,500 saved this year. You now have $17,300 cash saved up before we subtract another $10,000 for the purchase of a new house as well as cash for the repairs. Net worth has increased $25,000 on the purchase plus $4,500 in equity pay down. The total net worth increase is now $90,800 for the last four years.
You own four houses and three of them are rented out. At this point, you may be able to remove the mortgage insurance on the conventional loans that have been held for two years, but I am not going to in my calculations to keep things simple and conservative.
Year Five
In year five, we repeat the entire process again and come up with the following numbers. Cash flow increases to $10,800 and previous savings $5,800 and $7,500 saved up equals $25,600 saved cash. The investor purchases another property and uses $10,000 in cash to leave $15,600 in his cash account. Net worth increases by $7,000 for equity pay down: $10,800 for cash flow and $25,000 for the purchase of a new property. The total increase in net worth is now $133,600.
You may have noticed this investor just mortgaged his fifth house. For many people, getting a loan on more than four houses is very difficult. However, the investor is buying houses as an owner occupant, which makes it much easier to get a loan.
Year Six
The same process is repeated all over again. Cash flow is $14,400, previous cash is $14,100, savings equals $7,500 for $37,500 cash minus $10,000 for a new purchase. The investor has $27,500 left in his bank account. He increases his equity pay down to $13,500, has an increase of $25,000 in net worth from a purchase, and an increase in net worth from cash flow of $14,400. He now has increased his net worth by $186,500.
Year seven
In year seven, the seventh house is purchased. Cash in the bank equals $26,000 from previous savings, $18,000 in cash flow, and $7,500 in new savings, which totals $53,000. You are now able to buy two properties this year! Buy another owner-occupied property using $10,000 and an investor-owned property.
To purchase an investment property, we need to put at least 20% down, and we still need to make repairs. We are buying below market value still, so we are going to assume we are adding $25,000 more a year in equity and $3,600 more a year in cash flow. Estimated costs for down payment and repairs is $32,000 to buy an investment property. You have $11,000 of cash left after buying two properties this year. Net worth increased by $60,500 after adding the usual amounts to total $247,000.
Year eight
Year eight is very exciting because we get to add two properties into the mix instead of just one. With the extra houses added, increased cash flow, and continued equity pay down, our net worth increased $98,200 in just one year! Total net worth is now $345,200, and you are making real progress! You have $42,200 saved up after buying another house in year eight as an owner-occupant, so you can buy another investment property, but won’t, because our margins will be too thin with only a couple thousand in savings.
Even though you are still making only $75,000 a year, you increased your net worth by almost $100,000 a year. There are not many people who can increase their net worth by more than they make in a year!
Year nine
In year nine, you are adding $26,500 in equity pay down, $28,800 in cash flow, $25,000 in built-in equity with purchases, for a total net worth increase of $80,300. Your total net worth increase over nine years is now $425,500. You also have $60,000 saved up after paying for one house as an owner occupant, which is enough to buy another investment property, leaving $26,500 cash left over!
Year ten
In year ten, you have enough cash to buy two more properties and have $28,000 in cash left over. Net worth increases by $114,500, bringing us up to a total increase of $540,000.
Year eleven
You can buy two more properties and increase your net worth by $129,200 for a total of $669,200. Cash flow is at $43,200 a year, and there is $36,700 of cash left over after buying two more properties. You could buy a third house this year but decide not to stretch your limits. You need to make sure you have plenty of reserves for the rentals.
Year twelve
This year, you buy three houses because there is $94,600 in cash available. After buying the three houses, there is $22,100 cash left in savings, equity was paid down, and $44,500 and $50,400 in cash flow was generated. Total net worth is now $814,100! You are getting closer to making one million dollars investing in real estate!
Year thirteen
You have increased your net worth by $190,200 this year because you bought three houses last year. The total net worth increase is now $1,004,300! Your actual net worth will be higher than this because I did not calculate savings from your income into the net worth, just the gain from buying rental properties. Cash flow is now $61,200 a year, and you have paid off $54,000 of equity in one year!
You own 16 rental properties which are producing over $60,000 a year! The incredible part is we did not increase the rents at all, even though they are likely to go up over thirteen years. We assumed there was no appreciation, even though there likely will be over that time. Due to the tax advantages of rentals, you are probably taking home as much in passive income from your rentals as you are from your job.
Things we did not consider
This was a very basic calculation for how to make one million dollars investing in rental properties. It would take a book to go through all the variables and possible roadblocks that might come into play. Here are a few items we did not consider, which would have an impact on the time it takes to reach one million dollars in increased net worth.
Inflation will increase the prices of homes and wages as well as rents. While the investor has to pay more for houses each year, he will also be making more and saving more. The biggest factor is the rent increases. His rent on the first houses he buys will increase as time goes on, but his payments will stay the same. His cash flow will increase greatly as time goes on, which we did not account for.
Taxes were not accounted for either because that gets very complicated. The cash flow the investor is making would be income, but the investor could offset that with depreciation from the rental properties. I assumed those two factors even themselves out.
Investment property purchases had 20 percent down, where the owner-occupant purchases had 5 percent down. There should be an increase in cash flow on the investment property purchases because of the lower down payment, but I left them the same to make the math easier.
Refinancing was not considered either, but the investor could easily have refinanced a couple of properties to get more cash out to buy more rental properties. This would have increased cash flow and net worth due to the increased number of properties purchased.
Obtaining more than 4 or more than ten mortgages can be difficult. I am assuming the investor is able to get as many loans as possible with a lender. I can have as many loans as I want with my portfolio lender, but many people cannot. This would be a roadblock once he reached ten financed properties.
Buying owner-occupied properties each year is possible but may not be realistic. Moving thirteen times in thirteen years may put a bit of stress on the family!
I also assume the investor manages his homes himself, which is doable in the beginning but it maybe tough when he gets ten homes or more.
How Did I Build a Rental Property Portfolio
I have 20 rentals now, but I did not buy them overnight. I started in 2010 and slowly bought them over the last 9 years. I bought 1 in 2010, 2 in 2011, 2 in 2012, and kept building from there. I worked very hard to make a great living as a real estate agent, but I also used real estate to buy more rentals.
I bought my first rental by refinancing my personal house and taking cash out of it. I also refinanced some of my rentals along the way so that I would have more capital to buy even more rentals. I was lucky that our market appreciated so much, but I also bought every rental property way below market value, which allowed me to take cash out when I refinanced.
I stopped buying residential rentals in 2015 because the market in Colorado became too expensive. However, I was able to invest in commercial rentals in my area and cash flow on them. There are a lot of different ways to invest in real estate!
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How much have my rentals made me?
I put together some stats to show how much rentals made me after four years of owning them. It has been a few years since then, and things have gotten even better! At the time, I had bought 11 rental properties. After doing some calculating, I discovered my rental properties have appreciated and been bought cheap enough to produce a gain of $600,000 since December of 2010! It is important to remember that net worth is all on paper, and I would not realize $600,000 in profit if I decided to sell all of my rental properties today. I would have to have selling costs, and I would have a large tax bill if I sold my rental properties.
How much equity have I built with rentals?
One thing I have done with every rental property I buy is buying them below market value. I try to buy my properties at least 20 percent below the current value, and if a home needs repairs, I want that rental property worth 20 percent more than the price I paid plus the cost of the repairs. For example; if I buy a rental for $100,000 and it needs $20,000 in work, I want it to be worth $144,000 or more when I am done repairing the home ($100,000 + $20,000 = $120,000 * .20 = $144,000). That means I usually gain at least $20,000 in net worth on every rental property I buy. The 11 rentals I have bought have gained at least $220,000 (I buy many properties at more than 20 percent below market) just by buying homes at the right price.
I also have been lucky that prices have increased significantly in Northern Colorado in the last few years. I would say lucky for the sake of calculating net worth, but the increase in prices has made it harder to buy cheap rental properties with great cash flow. If you want to know how much my houses have appreciated, I broke down each rental and how much money it has made below.
Rental 1
I bought my first rental property for $96,900 on 12/5/2010. At the time I bought it, I knew it was worth at least $125,000, which is not a huge spread between the buy price and fair market value, but the home needed less than $2,000 in repairs.
The house is now worth at least $165,000 and most likely more. I had it appraised earlier this year, and the appraisal was $165,000 and our market values have increased since that time. If the house is worth $165,000, then my net worth increased about $66,000 after you subtract the repairs. The home was rented out for 1,050 a month when I first bought it and now is rented out for $1,400 a month.
Rental 2
I bought rental property number 2 for $94,000 on 10/5/2011. This home needed much more work than number one, and I spent about $15,000 repairing the house. At the time I bought this house, I thought it was worth $140,000 after it was repaired, and this house is now worth around $175,000. That leaves me with a net worth increase of about $66,000 on this property as well.
This house has been rented to my brother-in-law since I have owned it. The rent has been steady at $1,100 the entire time but could be $1,400 to $1,500. My brother-in-law has a house under contract and will be moving soon.
Rental 3
I bought my third rental property for $92,000 on 11/21/2011. This house needed repairs, and I spent about $14,000 getting it ready to rent. At the time I bought this house, I thought it was worth $135,000 fixed up, and this house is now worth around $170,000, which creates a net worth increase of $64,000.
This home has been rented to the same tenants for $1,250 a month, but we just raised the rent this month to $1,300 a month. It would probably rent for $1,400 to $1,500 to a new tenant.
Rental 4
I bought rental property number 4 for $109,000 on 1/25/2012. This home also needed about $14,000 in repairs before it could be rented. At the time I bought this house, I thought it was worth $145,000. This house is one of my most valuable rental properties and is worth $185,000 in today’s market. That leaves a net worth gain of $62,000.
This home was rented for $1,300 up until this year when I rented it to new tenants for $1,500 a month.
Rental 5
I bought rental property number five for $88,249 on 12/14/2012, and it needed more repairs than the others. The market had definitely begun to improve at this point, and finding a home that was under $100,000 was very tough. This home was a good deal, even though it needed $18,000 in repairs. I thought it was worth around $130,000 when I bought it, and I now think it is worth $165,000. That leaves a net worth increase of $59,000.
This home has been rented to the same tenants for $1,200 a month.
Rental 6
I bought rental property number six for $115,000 on 3/7/2013. This house needed about $15,000 in repairs, and I thought the property was worth about $150,000 after it was fixed up when I bought it. It is now worth $170,000, and that leaves a net worth increase of $40,000.
This home was first rented for $1,300 a month until earlier this year it was rented for $1,400 a month.
Rental 7
I bought rental property number 7 for $113,000 on 4/18/2013. This house needed only $9,000 in repairs, and I thought it was worth $155,000 when I bought it. This neighborhood has done great, and the home is now worth $185,000, which leaves a net worth increase of $63,000.
This home has been rented for $1,400 a month since I bought it.
Rental 8
I bought rental property number 8 for 97,500 on 11/18/2013. The home needed $15,000 in repairs, and I thought it was worth $150,000 once fixed up. It is now worth $165,000, and that leaves a net worth increase of $52,000.
This home has been rented or $1,400 a month since I bought it.
Rental 9
I bought rental property number 9 for $133,000 on 2/14/2014. This home only needed $4,000 in work before it was rented, and I thought it was worth $155,000 after it was repaired. I think it is worth $165,000 now, and that leaves a net worth increase of $28,000.
This home is rented for $1,400 a month.
Rental 10
I bought rental property number 10 for $99,928 on 4/13/2014. The home only needed $3,500 in repairs before it was rented, and I thought the home was worth $125,000 when I bought it. I think it is worth about $130,000 now, leaving a net worth increase of $26,500.
This home is rented for $1,250.
Rental 11
I just bought rental property number 11 on 7/24/2014. This house will need about $15,000 in repairs, and I paid $109,318. I think this house is worth $155,000 repaired, leaving a net worth increase of $30,000.
I think this home rents for $1,400 a month.
What is the total gain?
If you add up all these numbers, my total net worth has increased by $556,500, but these numbers do not tell the entire story. I had more costs than I listed when I first bought these houses, but I did not go back through each closing file to get those exact costs. On many of these properties, I had the seller pay some closing costs, which covered much of my buying costs. I also had some carrying costs while I was getting the properties repaired and they were not rented out yet. However, I also did not include any of my cash flow or the money I made on these properties since 2010. I used all of my cash flow to pay off rental property number 1, which added up to over $70,000. That $70,000 in cash flowdefinitely covers all the closing and carrying costs I had on each property and went directly to increasing my net worth by paying off a loan. Speaking of paying down loans, I did not include the equity I have gained over the last 3.5 years by paying down my loans. I have paid down thousands of dollars of loan balances with regular payments on my rental properties.
Net worth is not money in my pocket but what I am worth on paper. Even though it is cool to see this number increase over time, this money is not all readily available. I would have to sell my rental properties to see this money, and I would not see all of it. There would be selling costs when I sell the properties and taxes owed once I sold them. Since I am using the depreciation on the rental properties to save me in taxes, I would have a higher than normal tax bill because I would have to recapture that depreciation.
What about in 2019?
I have 20 rentals that have increased my net worth about $3,000,000 in the last 9 years. I have gotten lucky that Colorado has appreciated like crazy, but they were still awesome deals even without that appreciation. They make me about $13,000 a month after all expenses. The cool part is I have spent less than $350,000 on the properties after refinancing some to take money back out. Talk about an amazing investment!
You can see all my rentals here.
My book on making money with rental properties
I provide a lot of information on my blog and YouTube channel, but I also have written six books. My book Build a Rental Property Empire has been a best-seller for years. It goes over everything I do to find, finance, repair, manage, and even sell my rentals. I also added a commercial chapter to go over that aspect as well. You can find the book on Amazon as a paperback, audiobook, and Kindle. Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely.
Conclusion
It can take time to make a lot of money with rentals, but it is possible. Over the years I have bought a 1999 Lamborghini Diablo, a 1998 Lotus Esprit, a 1981 Aston Martin, and more thanks to the rental properties. The rentals have also allowed me to be aggressive with my house flipping business because I know I have that cash flow coming in every month. We flipped 26 houses last year!
Buying a home is one of life’s most rewarding milestones. However, as a prospective homebuyer, you may have noticed how much the real estate landscape has changed over the past few years.
Let’s take a look at how a temporary mortgage buydown concession could reduce your interest rate and make your initial monthly payments more affordable.
What Is a Temporary Buydown on a Mortgage?
A temporary buydown is a mortgage financing strategy that allows a homebuyer to lower their interest rate and payment for a predetermined amount of time through the payment of mortgage points at closing (whether by the lender, homebuyer or seller).
What’s a mortgage point? A mortgage point, also known as a mortgage discount point, equals 1% of your total loan amount. For example, a mortgage point on a $200,000 loan would be $2,000. When you purchase points in a mortgage buydown, you’re essentially prepaying interest upfront at closing in exchange for a lower rate, i.e., “buying it down.” Typically, a lender may offer a .25% rate reduction in exchange for one point.
How long could the rate and payment reduction last? Up to three years.
How much could the rate be reduced? A maximum of 3%. The rate is lower in the introductory period and increases over time — a maximum increase of 1% per year — to the original quoted rate.
What happens to those mortgage point payments? The money will typically go into an escrow account. Those funds temporarily subsidize your interest rate for the agreed-upon time period.
According to Scott Bridges, senior managing director of Pennymac’s consumer direct lending division, the benefit of a buydown is simple. “In short, the buydown allows a buyer to combat higher market rates,” he explains. “The first year of the loan, your rate and payment will be based on a rate that is 1% lower than the market rate. So if current rates are 6%, your first year of payments would be based on a 5% rate. That reduced rate for year one can save the average consumer several thousand dollars in payments (depending on loan amount).”
While interest rate discounts, loan terms, and conditions vary by lender, a buydown can be a good option for temporarily lowering your monthly mortgage payments at the start of your loan.
What Are the Benefits of Buying Down an Interest Rate?
There are several reasons you may want to buy down your mortgage rate. Here are a few potential budget-friendly benefits:
Lowers initial monthly mortgage payments. If you have a temporary buydown, those points you pay for upfront can make your initial mortgage payments more manageable, which can be especially helpful if you’re at the beginning of your career and expect your income to rise in the future. Those early savings will also add up to less interest paid over the life of your loan.
May boost your buying power. A reduced interest rate and the subsequent lower monthly mortgage payment may help you qualify for a higher mortgage, enabling you to purchase a more expensive home.
Can be arranged for both purchases and limited cash-out refinances. Whether you’re buying a new home or doing a limited cash-out refinance and replacing your current mortgage with a new, slightly larger mortgage, you may qualify for a temporary interest rate buydown.
Potential tax write-off. While a seller, builder, or lender may cover the buydown to facilitate a sale, the points may be deductible as home mortgage interest if you’re the buyer and pay for the buydown.1
Reduces rates for fixed-rate and adjustable-rate mortgages (ARM). You can purchase points to lower your interest rate on a fixed-rate mortgage and during an ARM’s introductory fixed-rate period. Depending on the buydown structure, rates may be reduced up to 3% for a maximum of three years.
More money in your pocket. A lower mortgage payment at the start of your loan could free up cash to pay bills or make home improvements.
Allows you to watch the market. A buydown gives you an opportunity to watch the market while saving on your monthly payments. “As rates move up and down during and after that first year, you can refinance into a lower rate with the knowledge you had a full year of reduced mortgage payments,” Bridges notes.
How Much Does It Cost to Buy Down the Interest Rate?
Generally speaking, the approximate cost for a temporary mortgage buydown equals how much you’ll ultimately save in interest. But several factors will be taken into account:
How much money you’re borrowing
How many points you’re buying; each point costs 1% of the mortgage amount
Type of buydown structure
Who funds a temporary mortgage buydown? In most cases, the buyer will pay the mortgage points, but in some instances, the buydown could be fully or partially funded by the seller, lender, or third party, such as a realtor or builder.
How long will the reduced interest rate be in effect? The lower rate and payment will be in effect for up to three years, depending on the rate buydown structure. Below are a few different types of mortgage buydowns.
Rate Buydown Structures
There are several types of rate buydown structures. If your lender offers you a buydown — most, but not all, lenders do — you will have the opportunity to negotiate pricing and determine which structure suits your financial needs. The following are the most common types of temporary mortgage buydown structures.
3-2-1 Buydown
A 3-2-1 buydown is a home financing arrangement that will reduce a homebuyer’s interest rate for the initial three years. The lowest interest rate is in the first year, increasing to the permanent quoted rate after the third year.
3-2-1 Buydown Basics
Reduces rate by three percentage points in the first year of the mortgage
Reduces rate by two percentage points in the second year
Reduces rate by one percentage point in the third year
Borrower pays full interest rate after the completion of the third year and is fixed for the remainder of the loan
3-2-1 Buydown Example
This chart shows how a 3-2-1 rate buydown could potentially work if you were to qualify for a 30-year, $200,000 mortgage at a rate of 7%:
Mortgage Year
Interest Rate
Monthly Payment (Principal and Interest)
Monthly Savings
Annual Savings
1
4%
$954.83
$375.77
$4,509.24
2
5%
$1,073.64
$256.96
$3,083.52
3
6%
$1,199.10
$131.50
$1,578
4 – 30
7%
$1,330.60
$0
$0
In this scenario, the total buydown cost would be approximately $9,171, the amount equal to the first three years of interest savings. The chart amounts don’t include insurance or taxes, and you will want to assume no points contribution from the seller, builder, lender, or a third party.
2-1 Buydown
A 2-1 buydown is a type of home financing arrangement that reduces the interest rate on a mortgage for the first two years, after which the rate rises to the permanent quoted rate.
2-1 Buydown Basics
Reduces rate by two percentage points in the first year of the mortgage
Reduces rate by one percentage point in the second year
Borrower pays full interest rate after the completion of the third year for the remainder of the loan
2-1 Buydown Example
This chart shows how a 2-1 rate buydown could potentially work if you were to qualify for a 30-year, $200,000 mortgage at a rate of 7%:
Mortgage Year
Interest Rate
Monthly Payment (Principal and Interest)
Monthly Savings
Annual Savings
1
5%
$1,073.64
$256.96
$3,083.52
2
6%
$1,199.10
$131.50
$1,578
3 – 30
7%
$1,330.60
$0
$0
In this scenario, the total cost of the buydown would be approximately $4,661.52, the amount equal to the first two years of interest savings. The chart amounts don’t include insurance or taxes, and assume no points contribution from the seller, builder, lender, or a third party.
1-0 Buydown
A 1-0 buydown is a type of home financing arrangement that reduces the mortgage interest rate by 1% in the first year, increasing to the permanent quoted rate after that initial year.
1-0 Buydown Basics
Reduces rate by one percentage point in the first year of the mortgage
Borrower pays full interest rate after the completion of the first year for the remainder of the loan
1-0 Buydown Example
This chart shows how a 1-0 rate buydown could potentially work if you were to qualify for a 30-year $200,000 mortgage at a rate of 7%:
Mortgage Year
Interest Rate
Monthly Payment (Principal and Interest)
Monthly Savings
Annual Savings
1
6%
$1,199.10
$131.50
$1,578.00
2 – 30
7%
$1,330.60
$0
$0
In this scenario, the total cost of the buydown would be approximately $1,578, the amount equal to the first year of interest savings. The chart amounts don’t include insurance or taxes and assume no points contribution from the seller, builder, lender, or a third party.
Who Can Buy Down a Mortgage?
In most cases, the buyer will buy down the mortgage, but there are times when the seller, builder, or lender will offer to purchase points and pay for the buyer’s mortgage buydown. Let’s take a look at each scenario.
Buyer-Funded Buydown
When a buyer negotiates a buydown with a lender, they pay a certain amount of points upfront at closing in exchange for a reduced interest rate. Depending on the buydown structure, the rate could be temporarily lowered for up to three years or the entire loan term. Most mortgage buydowns are buyer-lender arrangements.
Seller-Funded Buydown
A seller-funded buydown is when a highly motivated seller purchases points and buys down the homebuyer’s interest rate. This seller concession can help “seal a deal” by incentivizing and speeding up a home sale. Subsidizing a mortgage buydown can:
Give a seller a competitive advantage without having to lower the listing price
Help increase the borrower’s purchasing power
Make it easier for buyers to qualify for financing
Expedite the home sale process
A possible win-win for both the seller and the buyer. The seller could make a faster sale while holding on to more profits than they would if they lowered the asking price. The buyer saves money with a lower interest rate.
Builder-Funded Buydown
Homebuilders can offer mortgage buydowns to attract prospective homebuyers. As interest rates climb and the new-home market slows, builder buydowns are becoming an increasingly popular selling strategy. A recent survey found that 75% of nationally surveyed home builders confirmed they are buying down buyers’ mortgage rates to make payments more affordable.2 Builder buydowns can:
Lure buyers in a competitive and high mortgage market
Make new homes more affordable to a broader range of buyers
Be offered as part of a package, such as an upgrade or closing cost contribution
A builder buydown arrangement may require the buyer to go through the builder’s mortgage company for the mortgage.
Lender-Funded Buydown
Lenders may offer to subsidize a buydown by contributing all or some of the funds for the mortgage points. This concession option could help increase your negotiating and purchasing power as a borrower.
Is Buying Down an Interest Rate Right for You?
A temporary lower interest rate is certainly enticing, but mortgage buydowns aren’t for everyone. Buying mortgage points in exchange for a rate reduction may not be in your best interest if you are…
Having trouble meeting loan qualification criteria: You must qualify for the standard loan terms without the benefit of the buydown. This also includes:
Having a minimum 660 FICO score
Meeting the applicable Fannie Mae requirements
Submitting mandatory documentation
Purchasing an investment property or manufactured home: A mortgage buydown can be arranged for a principal, owner-occupied home, or a second home. It’s not available for investment properties or manufactured homes.
Planning on selling soon: There are substantial upfront costs involved with buying a new home, including the down payment and closing costs. Add mortgage points to the mix and it will take time to “break even,” meaning the time it will take for your savings to outweigh those costs to lower your interest rate. If you sell in the near future, you may not have been in the home long enough to recoup those point costs.
Doing a regular cash-out refinance: Mortgage buydowns are allowed on purchases and limited cash-out refinances only. Limited cash-out refinances follow Fannie Mae guidelines restricting the cash-back amount to $2,000 or 2% of the new loan principal balance, whichever is less.3
Short on cash: If you have limited cash, the high upfront costs may deplete your savings, leaving you short on funds you may need to cover other future expenses. Instead of buying points, you may want to allocate those funds to paying down high-interest debt or building an emergency fund.
Making a small down payment: If you’re purchasing a home and contributing less than 20% to the down payment, or if you’re refinancing and have less than 20% equity, you’ll likely have to pay for private mortgage insurance (PMI) on your conventional loan.4 The premium will be added to your regular monthly payment. Rather than pay for points, consider using that money to make a larger down payment.
When can a mortgage buydown make sense? This home loan strategy is worth exploring if…
You have enough liquid cash: If your savings is enough to cover the down payment, closing costs, and mortgage points — and you have a cash reserve left over — a temporary mortgage buydown can be a great option for reducing your interest rate for up to three years.
You expect your income to rise: Starting your career? Re-entering the workforce? If you anticipate that your income will rise within the next few years, a temporary mortgage buydown can help you ease into homeownership with a lower initial interest rate and payment.
The seller, builder, or lender is paying for the points: If you’re a homebuyer and the seller, builder, or lender offers to purchase the mortgage points for you, a temporary buydown can be an easy way to save money without any point-related, out-of-pocket expenses.
“Lots of people avoid buying a home when rates are higher,” says Bridges, “but this program allows you to at least achieve some reduced payments and real savings for a year.”
Higher rates can also significantly slow down home buying demand. That means, Bridges adds, “You will likely pay less for the house than you would in a low rate market when multiple buyers tend to bid over asking.” With a buydown, you set yourself up to win on multiple fronts. “You get a deal on the house you want, save money on the purchase price of the home in this higher rate market, save money on the monthly payment in year one, and refinance when rates drop.”
The Permanent Mortgage Rate Buydown Option
Want to lower your interest rate and monthly mortgage payment for your entire loan term? In addition to a temporary buydown, you may be eligible to negotiate a permanent buydown with your lender.
Protects against rate hikes. The lower rate will never increase during the loan term as long as you have a fixed-rate mortgage.
How much does it cost? The rate typically costs between six and eight points. Costs are added to the closing fees.
Ready to learn more about how Pennymac can help you find the right home loan? Begin your online application now, and if you still have questions, contact a Pennymac Loan Expert. We’ll help you evaluate your mortgage buydown options and decide the best course of action for your unique situation.