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Compliance, CRM, LOS, Servicing, Workflow, Internal Audit Products; Non-QM and Jumbo News

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Compliance, CRM, LOS, Servicing, Workflow, Internal Audit Products; Non-QM and Jumbo News

By:
Rob Chrisman

Tue, Dec 5 2023, 11:33 AM

My cat Myrtle doesn’t have a lot of rizz, and there are those that will argue that no cat has any charisma whatsoever. But plenty of marketing people do, or can create it, and even if you’re not in marketing, there are some clever marketing people out there. Creative minds as well, and if you’re looking for a Christmas present, here are the “best inventions of 2023” per Time Magazine. There is also cleverness and creativeness in the modular home manufacturing industry, probably far outpacing the ability of state and local government to issue permits. Meanwhile, lenders are facing a winter trying to figure out if they are in the “Survive until ‘25” camp or the “Grow more in ‘24” mindset? The credit industry is reeling as lenders grapple with soft versus hard pulls, renegotiating pricing, and bundled deals. And for some reason LO comp continues to be unsettled: dual comp, MLOs as real estate agents, transferring pipeline data when changing jobs, different fee structures within the same state, and so on. (Today’s podcast can be found here, and this week’s is sponsored by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender. nCino Mortgage Suite’s three core products, nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics, unite the people, systems, and stages of the mortgage process. Hear an interview with Mayer Brown LLP’s Holly Spencer Bunting on RESPA happenings and how the industry can get to better regulation.)

Lender and Broker Products, and Services

Out with the old; in with the new! One of the things we most look forward to in December (besides the holidays, of course!) is the opportunity to envision and plan for a great future. We’ve curated a killer panel of industry execs who will share best practices and their favorite secrets to help you usher in 2024 at the highest possible note. TrustEngine’s Dave Savage hosts Dustin Owen of Waterstone Mortgage and Brian Covey of Revolution Mortgage in “Chaos to Clarity”, a sure-to-be deliciously juicy webinar that will inspire and energize you to end 2023 with a bang and move powerfully into the new year. Register now to save your seat!

What’s an internal audit anyway and do you need one? An internal audit acts as a third line of defense for your mortgage operation. It provides comprehensive assurance based on the highest level of independence and objectivity to evaluate the effectiveness of management’s internal controls. This function should advise your mortgage operation on plans to achieve the company’s strategic, operational, financial and compliance goals. An effective internal audit should go far beyond just checking a compliance box; it should be an integral part of protecting your company. If you want to ensure you’re adhering to regulatory requirements and demonstrating good faith business practices, a Richey May internal audit is a good fit. If you’re looking to be Fannie Mae approved in the future or want to maintain your approved status, it’s required. If you’re unsure whether you need an internal audit, ask one of Richey May’s experts today or learn more here.

“Is it a challenge getting what was promised out of your current subservicer? New regulations are always moving the compliance goal posts and your customers are craving the newest technology and high-quality customer experience to meet their needs. After all, aren’t those the reasons you contracted with them? Perhaps it’s time for a change. Come meet Servbank at the MBA Servicing Solutions 2023 and let us show you how our cutting-edge, fully transparent and award-winning servicing platform (SIME), combined with our family of caring Customer Care reps, will protect your company from regulatory misses and keep your customers loyal by delivering a superior experience every time. If your current subservicer promised to make life easier for you, but continues to miss the mark, now is the time to partner with Servbank, the nation’s only fintech bank subservicer, who can meet your unique needs. Stop by booth #601, or schedule a meeting with Servbank.”

Right in time for the holidays, Floify has launched Floify Broker Edition, a one-stop lending platform that makes it easy for brokers to manage loans in one place. Wrapped in Floify’s famously sleek interface, Floify Broker Edition is packed with magical features that save precious time and money, such as automated mortgage call reporting, dual AUS functionality, and PPE and wholesaler integrations. Just like Santa’s elves, automated workflows advance loans behind the scenes so brokers can spend more time spreading the joy of homeownership and less time pushing paper. Treat yourself (and your borrowers!) this holiday season with a lending platform that’s a joy to use. Experience the magic of Floify Broker Edition firsthand and book a demo today.

Take advantage of more opportunities by adjusting your business to match the market. Recently, lenders who could quickly scale their home equity products were able to capitalize on the increased demand. Are you maximizing home equity lending in your system of record? Encompass® by ICE Mortgage Technology® is the only solution on the market that can be easily configured without any development efforts to support a user’s unique products and workflows for each of their channels, including retail, consumer direct, HELOC, wholesale and correspondent. This means you can quickly react to market changes and manage your business in your own way. Click here to read our recent blog that shares strategies to maximize your home equity lending business and how Encompass makes it easy.

A borrower’s servicing experience is only as good as the back-office environment that supports it, which is only as good as the technology that powers it. That’s why ICE is actively moving servicing forward through digitizing the consumer experience and streamlining back-office operations. The mortgage technology experts at ICE understand that effective servicing solutions are built from the “outside in”, designing with the customer in mind and working until the same level of convenience is brought to those working behind the scenes. Read the new blog from Sandra Madigan, Chief Digital Officer at ICE Mortgage Technology, to see how ICE is engineering with empathy, and helping people achieve and maintain the dream of homeownership.

In Naples, people hurl plates, appliances and even furniture out of their windows on New Year’s Eve to symbolize making room for the new. If your LOS has been causing you strife, take a cue from the Neapolitans and chuck it out the window. Dark Matter Technologies is here to help you usher in a more prosperous 2024 with its Empower LOS. A fully cloud-based system, Empower brings your tech ecosystem together in one place and intelligently orchestrates delightful borrower experiences and efficient loan production. Schedule a demo with the Dark Matter team to learn how Empower can elevate your business in the year ahead.

Two things come to mind when looking for strategies to help LOs today. First, understand home buyers in the context of uncertainty in the market today. Get back to basics of why homeownership still makes sense: pride of ownership, building equity for the future, and a better environment for their family to live and grow. Next, be able to articulate good solid strategies to make home buying more affordable, both down payment strategies and ARMs to lower payments. It’s also important to understand buyer’s bias against ARMs and counter with common sense arguments. Usherpa, the #1 ranked mortgage CRM in customer satisfaction and loyalty, is offering these FREE printable handouts with informational scripts to use when talking with your homebuyers and valuable resources you can easily send them about ARMs.

ActiveComply is thrilled to introduce a brand-new product, WebCompass™, to discover and manage your websites for branding, compliance, and accessibility. The same power as SocialShield™ for Social Media but now for website and brand compliance. With WebCompass™ you can discover and monitor company and employee websites & web pages, protect your brand with website content scans and compliance tracking, uncover rogue or unauthorized websites, and streamline reporting demands during regulatory examinations. Sign up today for a demo and the first 25 customers will receive a discount. ActiveComply cloud-based solutions help highly regulated industries confidently manage their social media and website compliance and virtual inspections.

Non-QM, DSCR, Jumbo Broker and Correspondent Program News

Can we continue our same ad please: Long-term Rental or Vacation Rental? Visio Lending is the nation’s leader in Non-QM Investor DSCR loans for buy and hold SFR rentals with nearly a decade of experience and over $2.5 billion in originations. No-DTI, 30-year terms, rate buy downs, free 45-day rate locks; I/O and Sub-1 DSCR options available. Through our top-notch Broker Program, brokers are able to earn up to 2 points YSP, and 5 points total. Visio Brokers can count on a designated Account Executive and in-house processing.

PRMG offers several Non-QM resources such as product matrices, job aids, trainings, calculators, worksheets, and other information to assist with using Non-QM loan products. Access the TPO Non-QM Resources page for detailed information.

Angel Oak Mortgage Solutions announced the release of its Blended Rate Calculator, providing borrowers with a quick and straightforward tool to estimate potential loan scenarios.

In tandem with its Angel Oak Mortgage Closed End Second Loans program, the Blended rate calculator helps you show borrowers what their 1st and 2nd payments, as well as LTV and blended rates, will be for both mortgages. This tool enables borrowers to easily assess how they can tap into their home’s equity while retaining their first mortgage.

PHH Mortgage announced new products for Non-Agency offering as of November 28th. Go to the company library to view the information.

A Jumbo option designed to empower homebuyers in high-value markets to secure their dream homes. Explore the advantages of Plaza’s new Jumbo Champion loan program, featuring top-notch pricing, loan amounts up to $3 million, and eligibility for FICO scores starting from 720.

LendSure Mortgage Corp., a Non-QM wholesale lender, announced the launch of its new Profit & Loss (P&L) Loan Program offering “a simplified and user-friendly process for business owners seeking capital in a complex financial landscape.” LendSure’s P&L Loan Program is designed to cater to business owners and self-employed investors with fluctuating seasonal income or cash businesses. It eliminates the need for a self-employment questionnaire, simplifying and speeding up the application process and making it more convenient for borrowers to secure financing. “We aim to empower business owners, redefining industry standards and facilitating their path to financial success… The program offers two tiers of loan amounts, giving borrowers the choice to provide only P&L statements for loan amounts up to $1,000,000 or supply two months of bank statements with P&L statements for loan amounts up to $1,500,000. This flexibility enhances the broker-customer relationship by providing a straightforward, efficient solution for business owners. Reach out to LendSure for more information.

First time home buyer/ first time investors now have a chance to buy an investment property with no income. Hometown Equity Mortgage offers a Bridge for First time home buyers; up to 75 percent LTV on a purchase, no ratio DSCR product, NO VOR/VOM, allowed to live rent free. FICO down to 650, Flexible guidelines, 12-24 month I/O with no prepay or EPO.

HighTech Lending Wholesale is now offering Jumbo Reverse Mortgages the Platinum Reverse which comes in three variations: Maximum LTV Fixed Rate, Adjustable Rate with a Line of Credit, and Reduced LTV with a lower Fixed Rate. The minimum age for the Platinum is 55 in most states, but some require the borrower to be 60 or 62.

Capital Markets

First Community Mortgage has named Jeff Pancer to the new position of Executive Vice President, Capital Markets. Congratulations!

Markets finally paused recent optimism that has been riding on the assumption that the Fed will lower interest rates in 2024. Until yesterday, that optimism had fueled rallies in both stocks and bonds over the past few weeks, with investors continuing to overlook Fed rhetoric and bet on deep interest rate cuts next year. Fed Chair Powell on Friday reiterated that it is too early to consider cutting rates, and that the Federal Open Market Committee plans to keep policy restrictive for some time. Despite his stance, markets are still at odds with the Fed, pricing in the first rate cut as early as March and 125 basis points of rate cuts in total for 2024. Remember, sticky inflation can prevent the Fed from cutting.

The Fed is widely expected to leave rates unchanged for the third consecutive FOMC meeting next week, in what would be no change for the fourth out of the past five meetings. However, the post-meeting statement will likely continue to indicate that additional tightening is possible. The fear is that the Fed declaring victory too early while the economy is growing, and the labor market is tight is a risk if inflation spikes back up. The Fed has entered its blackout period ahead of the meeting, so we won’t get any more chatter from FOMC members until after the meeting. Additionally, there will be no Treasury note or bond auctions this week. This week will be dominated by the jobs report on Friday where expectations are for an improvement from October’s report: an increase of 180,000 jobs in November and no change in unemployment.

Today’s economic calendar has a lot of non-market moving releases: Redbook same store sales for the week ending December 2, final November S&P Global services PMI, expected to decline slightly, ISM non-manufacturing PMI for November, expected to tick up, and JOLTS job opening for October, supposedly sliding to 9.35 million from 9.55 million in September. We begin the day with Agency MBS prices better by .125-.250, the 10-year yielding 4.23 after closing yesterday at 4.29 percent, and the 2-year yield down to 4.52 as investors continue to believe, perhaps mistakenly, that the Fed is not only done raising rates but will come around to cutting them.

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Source: mortgagenewsdaily.com

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Lately, some mortgage lenders have pitched “buy now, refinance for free” offers to get more home buyers to take the plunge.

The thinking is mortgage rates will be lower in the near future. And when that time comes, you won’t have to pay any lender fees.

This can even sway the decision to buy a home, assuming you’re on the fence about renting vs. buying because it feels too expensive today.

These offers sound like a win-win for the home buyer, as they’ll get a lower interest rate and avoid potentially thousands in closing costs.

But there are quite a few issues with this line of thinking that are worth discussing.

Nobody Knows If Mortgage Rates Will Rise or Fall

Last I checked, mortgage rate predictions have been a tough game. Prior to early 2022, mortgage rates defied the forecasts.

While most expected them to rise, they hit fresh all-time lows and stayed at those levels for much longer than expected.

Then the Fed announced an end to it Quantitative Easing (QE) program and the start of Quantitative Tightening (QT), which sent shockwaves through the mortgage market.

Accompanied by 11 Fed rate hikes, the 30-year fixed surged from around 3% in January 2022 to as high as 8% in October 2023.

Once again, no one expected this, and most predictions called for improvements in 2023 after a rough 2022.

Instead, mortgage rates climbed even higher, leading to the lowest mortgage demand in decades.

People stopped buying homes and virtually nobody refinanced their mortgage. Even worse, existing owners won’t sell because they don’t want to lose their ultra-low interest rate.

This so-called mortgage rate lock-in effect has stifled inventory, which was already low to begin with.

It also partially explains why home prices remain so high, in spite of much more expensive mortgage rates. There’s no supply.

To entice buyers, some real estate agents and mortgage lenders have pitched the phrase, marry the house, date the rate.

The logic is you can still buy your forever home today, while mortgage rates are high. But refinance that pesky high mortgage rate once they fall again.

Problem is they haven’t fallen. And those predictions didn’t pan out. At least not yet.

Speaking of, take a look at the 2024 mortgage rate predictions if you think they’ll be of any use.

Mortgage Rates Are About 1% Below Their Recent Peak

Over the past month and change, the 30-year fixed has come down about one percentage point.

It surpassed 8% in mid-October before falling precipitously, thanks to favorable economic data.

Several reports hinted at possible weakness in the economy, pushing bond yields down from their recent highs while mortgage rates followed.

At the same time, the Fed is expected to cut rates several times in 2024 as the economy cools.

The thought is inflation has peaked, and restrictive monetary policy can ease somewhat.

This is all good news for mortgage rates, which tend to fall when inflation is low, or when the economy is showing signs of weakness.

But there’s still no guarantee mortgage rates will come down. Nor is there a guarantee they’ll fall by an amount necessary to make a refinance worthwhile.

I don’t subscribe to a refinance rule of thumb, but generally you’d want an interest rate at least 1% below your current rate for it to be worth it.

Once you factor in the closing costs, you’ll need to realize some decent monthly payment savings to make it worthwhile. And to break even on those upfront costs.

These Refinance for Free Later Deals Have Some Issues

  • Will mortgage rates fall enough in the future to make the refinance work?
  • Will this lender still be in business and agree to the terms of the deal?
  • Will anything change that limits your ability to refinance (credit score, property value, etc.)
  • What if a different lender has a lower rate in the future?
  • Could this type of offer pressure you into buying a home today if you’re unsure or not ready?

To make a refinance more compelling, or at least easier to pencil, some mortgage lenders are offering a free one in the future if you use them for a home purchase loan.

It seems like a no-brainer. Why not take them up on the deal, right? Well, there are myriad issues with these types of offers.

For one, you have to use the same lender twice. And you have to use the lender offering the free refinance deal to begin with.

So their “refinance for free” deal might stop you from shopping your rate with other banks, lenders, brokers, etc.

The next problem is this lender might not even be in business once it comes time to refinance. Trust me, many lenders have closed their doors as business has dried up.

And if you do use them again in the future, you’ll need to hope they have the lowest rate compared to other lenders. What are the chances of that?

Then there is the pesky issue of mortgage rates. Remember, nobody is very good at predicting them.

Sure, they could drop. But they might not. Or they may not fall enough to make the refinance worthwhile.

At the same time, you’ll need to qualify for the refinance. What if home prices fall between now and then, and you’ve got negative equity to deal with?

Or something else comes up that limits your ability to refinance? Perhaps a lower FICO score, a gap in employment, etc.

Ultimately, you’re probably better off going with the lowest combination of rate and fees you come across today.

And if and when the time comes to refinance in the future, do the same exact thing. Look for the best deal in front of you.

There are simply too many variables and unknowns to bank on a free refinance in the future.

Source: thetruthaboutmortgage.com

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Many people want to buy a home but think it isn’t possible because they don’t have money to put toward a down payment. Traditionally, lenders require a 20% down payment toward your mortgage.

But a 20% down payment adds up to a lot of money. For example, if you plan to purchase a $150,000 home, you’d need to come up with a $30,000 down payment. Many people cannot afford this, but fortunately, the 20% rule is a lot less common than you might think.

Is a buying a house with no money down possible?

The National Association of Realtors (NAR) reports that 39% of non-owners believe they need a 20% down payment or more and 22% believe they need a 10% to 14% down payment.

But neither of these are true. Many mortgage lenders will let you buy a home by putting down as little as 3%. And some lenders will let you skip the down payment altogether.

NAR also found that 61% of first-time homebuyers made a down payment between zero and 6%. So, it’s safe to say that a 20% down payment isn’t the standard anymore. But unfortunately, many consumers choose not to pursue homeownership because they believe this down payment myth.

Weighing the Pros and Cons of No Down Payment Mortgages

Is there any reason to aim for 20% down when most home buyers buy with a down payment less than 20%? If you can afford it, yes, the 20% rule is still a wise choice.

The more money you put toward your mortgage, the less debt you’ll have to repay and the less your monthly payment will be. Plus, there are several drawbacks to putting down less than 20%:

  • Less favorable rates: If you pay less than 20%, lenders will probably see you as a risky investment. And they will take this into consideration when calculating your mortgage rates. In general, you can expect to pay a higher interest rate if you put down a smaller down payment.
  • Higher closing costs: Closing costs are based on the size of your mortgage. So, the smaller your down payment is, the higher your closing costs will be. However, you may be able to get around this if you live in a state where it’s typical for the seller to pay the closing costs.
  • Private mortgage insurance (PMI): Private mortgage insurance is a type of mortgage insurance designed for borrowers who make a down payment lower than 20%. It protects your mortgage lender in case you end up defaulting on your loan.

PMI can cost as much as 1% of your total monthly mortgage payment. So for a $150,000 mortgage, you’ll end up paying $150 per month.

However, this may not be that bad, especially if you have a less expensive mortgage. And once you reach 20% home equity, you can cancel your PMI and get rid of these extra payments.

Check Out Our Top Picks for 2023:

Best Mortgage Lenders

How to Buy a House With No Money Down

Fortunately, there are several lending programs that do not require a down payment. Here are five payment assistance programs that will help you buy a home with little to no down payment.

1. VA Loans

VA loans are a valuable option for eligible military veterans, active-duty service members, and certain surviving spouses. These government-backed loans offer several benefits, making homeownership more accessible and affordable through the use of a VA loan.

100% Financing and No Down Payment

One of the most significant advantages of VA loans is the 100% financing, meaning you won’t need to make a down payment when utilizing a VA loan. This can save borrowers a substantial amount of money upfront, making it easier to enter the housing market.

No Private Mortgage Insurance (PMI) Requirement

Unlike conventional loans that require PMI for down payments less than 20%, VA loans do not require PMI. This can save borrowers hundreds or even thousands of dollars per year in mortgage insurance premiums when using a VA loan.

VA Funding Fee

While VA loans offer numerous benefits, there is a one-time funding fee charged to help offset the costs of the program. The funding fee is 2.15% of the total loan amount for first-time users of VA loans and 3.3% for subsequent uses.

This fee can be financed into the VA loan, reducing the out-of-pocket expenses for the borrower. In some cases, borrowers may be exempt from the funding fee, such as those with service-connected disabilities.

Certificate of Eligibility

To apply for a VA loan, borrowers need to obtain a Certificate of Eligibility (COE) from the Department of Veterans Affairs. The COE verifies the borrower’s eligibility for the VA loan program based on their military service or, in some cases, the service of their spouse. The COE can be requested online through the Department of Veterans Affairs website, by mail, or through an approved lender.

Additional Benefits

VA loans also offer competitive interest rates, more lenient credit requirements, and flexible underwriting guidelines compared to conventional loans. Additionally, there are no prepayment penalties, allowing borrowers to pay off their VA loans early without incurring additional fees.

2. Navy Federal Credit Union

Navy Federal Credit Union’s loan program is similar to what the VA offers. It offers a zero down mortgage and no mortgage insurance. And Navy Federal’s funding fee is only 1.75%.

Navy Federal offers a 30-year loan and a 30-year jumbo loan. 30-year loans have a loan limit of $424,100 while jumbo loans are available up to $1 million. However, you will have to be a Navy Federal member to qualify.

3. USDA Loans

If you’re looking to move to a rural area, you might qualify for a USDA loan. The United States Department of Agriculture Housing Program was designed to aid rural development and is aimed at low-income families. USDA loans offer 100% financing with low interest rates.

Here are the eligibility requirements you must meet to qualify for a USDA loan:

  • When buying a home it must be within the USDA’s boundaries: Although this loan targets rural areas, some suburban areas may still qualify. You can look at this map on the U.S. Department of Agriculture’s website to see if your location falls within the USDA’s geographical boundaries.
  • Your household income can’t exceed a certain threshold: This applies to everyone living in the household, even if they won’t be listed on the mortgage. For instance, if you have a parent living with you who collects Social Security, this counts toward the gross income of all members of a household. The maximum household income varies by state and county so you can find out if you qualify here.

See also: Best Home Loans for Low-Income Borrowers

4. Lease-Option

A lease-option (also known as rent-to-own) allows you to rent a home with the option to buy it at a predetermined price after a certain period. A portion of your monthly rent may be applied toward the purchase price or down payment. This can be a solid option if you need more time to save for a down payment or improve your credit.

5. Seller Financing

In some cases, the seller may be willing to finance the property for you, allowing you to purchase the home without a traditional mortgage. This arrangement typically requires a contract outlining the terms of the loan, including the interest rate, payment schedule, and any potential penalties.

Seller financing can be a viable option if you have a strong relationship with the seller or if the seller is having difficulty selling the property.

6. Crowdfunding

Crowdfunding is a method where you raise money from multiple individuals, typically through online platforms. You can set up a campaign to raise funds for your down payment or even the entire purchase price. This method may work best if you have a strong network of friends, family, and supporters who are willing to contribute to your home-buying goal.

7. Shared Equity Agreements

Shared equity agreements involve partnering with an investor who provides a portion or all of the down payment in exchange for a percentage of ownership in the property. When the property is sold or refinanced, the investor receives a return on their investment based on the agreed-upon share of equity. This can be an attractive option if you can’t afford a down payment but are willing to share future appreciation in the home’s value.

8. Housing Assistance Programs

There are numerous local, state, and federal housing assistance programs that offer grants, low-interest loans, or other forms of financial support to help eligible individuals purchase a home with no money down. These programs often have specific requirements, such as income limits, property location, or first-time homebuyer status. Be sure to research and apply for any programs for which you might be eligible.

Low Down Payment Loans

If you’re unable to buy a house with no money down but can afford a small down payment, consider these low down payment options that can help make homeownership more accessible.

1. 97% LTV mortgages

97% LTV mortgages is a loan program that is offered to first-time homebuyers by Fannie Mae and Freddie Mac. They require a 3% minimum down payment and private mortgage insurance.

Here are the guidelines for the program:

  • You’ll need a credit score of at least 680
  • One of the borrowers must be a first-time homeowner
  • Manufactured housing isn’t permitted
  • Gifts, grants, and other funds may be used toward the down payment

2. Federal Housing Administration (FHA) Loans

The Federal Housing Administration (FHA) was established in 1934 to reduce the requirements to qualify for a mortgage. This government-backed mortgage program offers flexible requirements, making it an attractive option for first-time homebuyers.

Here are the guidelines you’ll need to meet to qualify for an FHA loan:

Credit Score Requirements

The minimum credit score required to qualify for an FHA loan is 500. The specific down payment requirements depend on your credit score:

  • If your credit score is between 500 and 579, you’ll need to make a 10% down payment.
  • If your credit score is 580 or higher, you’ll have to make a 3.5% down payment.

Seller Contributions

FHA loans allow sellers to contribute up to 6% of the closing costs. This can help reduce the upfront costs for the buyer and make it easier to afford the purchase.

Mortgage Insurance Requirements

Mortgage insurance is required for an FHA loan, protecting the lender in case the borrower defaults on the loan. However, once you build 20% equity in the home, you can refinance to a conventional loan to eliminate the mortgage insurance requirement.

Debt-to-Income Ratios

FHA loans accept high debt-to-income (DTI) ratios, allowing borrowers with significant existing debt to still qualify for a mortgage. The FHA typically requires a maximum DTI of 43%, but exceptions can be made for borrowers with compensating factors, such as substantial savings or a history of making large payments on time.

3. HomeReady Mortgage

The HomeReady mortgage is a Fannie Mae program designed for low-to-moderate-income borrowers. It requires a down payment as low as 3% and offers flexible underwriting guidelines, making it an attractive option for first-time homebuyers or those with limited credit history.

4. Home Possible Mortgage

Similar to the HomeReady mortgage, the Home Possible mortgage is a Freddie Mac program that allows for a down payment as low as 3%. It is designed to help low-to-moderate-income borrowers achieve homeownership and offers flexible underwriting guidelines.

5. State and Local Homebuyer Assistance Programs

Many state and local governments offer homebuyer and down payment assistance programs that provide grants or low-interest loans to help cover down payment and closing costs. These programs typically have income and property location requirements, so be sure to research and apply for any programs for which you might be eligible in your area.

Each of these low down payment mortgage options has its own set of eligibility requirements and potential benefits. Be sure to research and compare these options to determine which one best aligns with your financial situation and home-buying goals.

Preparing for Homeownership

Before jumping into the home buying process, it’s essential to prepare yourself financially and mentally. This section covers tips for improving credit scores, creating a budget, and managing debt to make the home buying process smoother.

Credit Score Improvement Tips

Improving your credit score involves checking your credit report for errors and disputing any inaccuracies. Ensure that you pay your bills on time and reduce outstanding debt as much as possible. Keep credit card balances low, avoid opening new credit accounts, and consider requesting a credit limit increase without increasing your spending.

Creating a Budget

Creating a budget requires tracking your income and expenses to understand your spending habits better. Categorize your expenses and set realistic limits for each category. Allocate funds for saving and investing, including a down payment and emergency fund, and regularly review and adjust your budget as needed.

Managing Debt

Managing your debt effectively involves prioritizing high-interest debt and paying more than the minimum payment. Consider debt consolidation or refinancing options to secure a lower interest rate. Avoid taking on new debt before applying for a mortgage and create a debt repayment plan that you can stick to.

Understanding the Total Cost of Homeownership

Understanding the total cost of homeownership means factoring in property taxes, insurance, maintenance, and utility costs. Estimate homeowners association (HOA) fees if applicable and consider the costs of furnishing and updating the home. Prepare for potential increases in expenses over time, such as property tax hikes.

How to Choose the Right Mortgage Option

With various mortgage options available, it’s crucial to select the one that suits your financial needs and long-term goals. This section discusses factors to consider when choosing a mortgage, such as loan term, interest rates, and mortgage insurance.

Fixed-Rate vs. Adjustable-Rate Mortgages

Fixed-rate mortgages have a consistent interest rate for the loan’s duration, providing stability and predictable monthly payments. In contrast, adjustable-rate mortgages (ARMs) have an initial fixed-rate period followed by periodic rate adjustments, which may result in lower initial payments but potential rate increases over time.

Mortgage Term: 15-Year vs. 30-Year

The mortgage term plays a crucial role in determining the overall cost of your mortgage. 15-year mortgages typically have lower interest rates and allow for faster equity buildup, but require higher monthly payments. 30-year mortgages offer lower monthly payments, but result in more interest paid over the loan’s lifetime.

Mortgage Insurance Considerations

PMI may be required for conventional loans with less than a 20% down payment. Loans backed by the federal government, such as FHA, VA, or USDA loans, may have different insurance requirements or fees.

Assessing Your Long-Term Goals

When choosing a mortgage option, consider how long you plan to live in the home and whether your financial situation or housing needs may change. Evaluate the potential for home value appreciation and the impact on your future financial goals.

Planning Your Next Steps

Assess Your Financial Situation

The amount of money you choose to put toward a down payment is a personal choice. If you feel ready for homeownership but know that a 20% down payment isn’t feasible for you, there are many options available to help you.

The best place to start is by looking at your monthly budget and seeing what you can realistically afford. Use a mortgage calculator to reverse engineer your goal and find your ideal home purchase. Consider factors like property taxes, insurance, and maintenance costs, as well as any debts you currently have.

Get Pre-Approved

Get pre-approved for a mortgage before you start house hunting. This will give you an idea of how much you can afford, and it will show sellers and real estate agents that you’re a serious buyer.

To get pre-approved, you’ll need to provide your lender with documentation such as pay stubs, bank statements, and tax returns. They’ll then assess your credit score and financial history to determine how much they’re willing to lend you.

Shop Around for the Best Mortgage

Shop around for the best mortgage rates and terms. Don’t just settle for the first lender you come across. Compare different lenders and loan programs to find the best fit for your financial situation. Look for competitive interest rates, low fees, and flexible repayment terms.

Work with a Knowledgeable Real Estate Agent

A good real estate agent can help you find a home that fits your needs and budget. They’ll also guide you through the home buying process, making it less stressful and ensuring you don’t make any costly mistakes.

Attend First-Time Homebuyer Classes

Consider attending first-time homebuyer classes or workshops. Many local organizations and government agencies offer educational resources for first-time homebuyers. These classes can help you understand the ins and outs of the home buying process and give you the knowledge you need to make informed decisions.

Save for Unexpected Expenses

Even if you’re able to buy a home with no money down, it’s a good idea to have some savings set aside for unexpected expenses. These might include moving costs, home repairs, or furnishing your new home.

Build an Emergency Fund

In addition to saving for unexpected expenses, it’s also important to have an emergency fund in place. This should be enough to cover three to six months’ worth of living expenses in case you lose your job or face another financial emergency.

Be Patient and Stay Disciplined

Home buying is a complex process, and it can take time to find the right home and secure financing. Stay focused on your goals, be disciplined with your spending, and remember that homeownership is a long-term investment.

Conclusion

Buying a home with no money down is possible, but it may not be the best choice for everyone. Consider your financial situation, your long-term goals, and the various mortgage options available to you before deciding on a zero down payment mortgage. With careful planning and preparation, you can make your dream of homeownership a reality, even if you don’t have a large down payment saved up.

Source: crediful.com

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If making a move to or within Wisconsin is in your near future, there are some cities to consider at all price points. Here are the 10 cheapest places to live in Wisconsin.

Wisconsin average rent prices

While some cities throughout Wisconsin have experienced a significant increase in rent over the past year, fortunately, most cities have kept their rent increases below double-digit percentages and some rent prices reduced immensely. In fact, Wisconsin as a whole has seen a monthly rent decrease in the last year. Luckily, the average one-bedroom apartment is $1,151 — down 5.7 percent since last year.

The cheapest cities in Wisconsin for renters

Budget-conscious renters can expect to pay between $726 to $1,028 for a one-bedroom apartment in the top 10 cheapest cities in Wisconsin.

If living in one of the most hospitable Midwest states is on your agenda, here are the 10 cheapest cities to live in Wisconsin, based on current one-bedroom rent prices.

10. Waterford

Photo Source: Explore Waterford / Facebook
  • Average 1-BR rent price: $1,028
  • Average rent change in the past year: 0 percent

Situated between Milwaukee and Lake Geneva in the southeastern part of Wisconsin is Waterford, a city that includes 1,100 acres of navigable water to enjoy by canoe or kayak. The family-friendly community actively hosts farmer’s markets, golf outings, corn hole tournaments and more to residents.

If you want to live in a tight-knit and community-oriented city, complete with a downtown Heritage District, Waterford is worth exploring.

Find apartments to rent in Waterford
Buy a house in Waterford

9. Marshfield

Photo Source: Visit Marshfield / Facebook
  • Average 1-BR rent price: $975
  • Average rent change in the past year: 8.9 percent

For those who want a bit of a suburban feel but easy access to cities like Stevens Point, Marshfield provides residents with a great healthcare system through the Marshfield Clinic Health System, strong elementary and high schools and great “Main Street” shopping along Central Avenue, too.

The city even has its own free zoo — the Wildwood Park and Zoo.

Find apartments for rent in Marshfield
Buy a house in Marshfield

8. Kronenwetter

Photo source: Village of Kronenwetter, WI / Facebook
  • Average 1-BR rent price: $971
  • Average rent change in the past year: N/A

Next on our list of the cheapest places to live in Wisconsin is one that’s really a village in Central Wisconsin called Kronenwetter. The town of Kronenwetter gets its name from Sebastian Kronenwetter — a state legislator and prominent pioneer resident of Marathon County.

Residents enjoy several parks and recreation centers throughout the area and the village serves two public school districts: one that serves students in the northern half of the village and one for the southern half.

The active village residents help plan events ranging from movies under the stars in nearby parks to farmers markets.

Find apartments for rent in Kronenwetter
Buy a house in Kronenwetter

7. Waukesha

Photo source: The City of Waukesha / Facebook
  • Average 1-BR rent price: $970
  • Average rent change in the past year: -2.5 percent

The city of Waukesha is a rich mix of neighborhoods, offering residents excellent schools, a variety of shopping choices, a diverse industrial base, an active arts community and beautiful parks and recreational amenities.

Just 18 miles west of Milwaukee, Waukesha has an urban suburb feel filled with young professionals and families attracted to the strong school system, parks and restaurants.

Find apartments for rent in Waukesha
Buy a house in Waukesha

6. De Pere

Photo source: De Pere Parks, Rec & Forestry / Facebook
  • Average 1-BR rent price: $894
  • Average rent change in the past year: 9 percent

Whether you love to go on long walks or hikes, runs, cycling or in-line skating, there is a trail for you to enjoy in De Pere since it has three separate trail systems of almost eight miles to enjoy year-round.

Here, swimmers can enjoy either the VFW Aquatic Facility or Legion Pool. Additionally, in De Pere, art lovers will appreciate the rich public art throughout the city. Moreover, this suburb of Green Bay has its own unique homes and restaurants, schools and shops.

Find apartments for rent in De Pere
Buy a house in De Pere

5. Fond Du Lac

Photo source: Fond du Lac County Historical Society / Facebook
  • Average 1-BR rent price: $789
  • Average rent change in the past year: -1.4 percent

A family-friendly community with a strong sense of history, Fond du Lac residents enjoy several amenities including a public library and active sporting centers with year-round programming. With all that said, Fond du Lac is a perfect city to call home.

The Fond du Lac County Historical Society helps connect residents to the town’s local history and there are plenty of restaurants and bars for locals and visitors to enjoy.

Find apartments for rent in Fond du Lac
Buy a house in Fond du Lac

4. Hales Corner

Photo source: Hales Corners Recreation Department / Facebook
  • Average 1-BR rent price: $785
  • Average rent change in the past year: -7.70 percent

Located just over 10 miles from Milwaukee, Hales Corner in the state’s southeastern part has a small suburban feel where it’s easy to meet and get to know your neighbors.

Expect to find great brewpubs, greenery in the form of parks and hiking trails and even a botanical garden here. The Boerner Botanical Gardens features 11 specialty gardens — including a bog walk and rose garden, too.

A one-bedroom apartment in Hales Corner decreased by 7.7 percent since last year. Fortunately for renters here, it’s possible to find an apartment for less than $800 a month.

Find apartments for rent in Hales Corner
Buy a house in Hales Corner

3. Merrill

Photo source: City of Merrill, Wisconsin / Facebook
  • Average 1-BR rent price: $778
  • Average rent change in the past year: 17.3 percent

Nicknamed “The City of Parks,” thanks to its many parks located throughout Merrill, the city is also home to approximately 10,000 residents. Merrill is on the Wisconsin and Prairie rivers.

The active community hosts several year-round events for its residents, from a farmers market to parades. Since there are so many parks and nearby rivers to enjoy, there are plenty of opportunities for outdoor activities from fishing and kayaking to hiking and birding, too.

Merrill is also home to several businesses included Agra Industries, Church Mutual Insurance Company, Lincoln Wood Products and Merrill Manufacturing.

Find apartments for rent in Merrill

2. Racine

  • Average 1-BR rent price: $758
  • Average rent change in the past year: 1.20 percent

Located on the shore of Lake Michigan and just 22 miles south of Milwaukee, Racine takes advantage of its proximity to the lake with many opportunities to enjoy lakefront activities, whether it’s yoga or swimming at one of its popular beaches or canoeing or kayaking.

Art and architecture fans will appreciate having close access to the Racine Art Museum, home to the country’s largest contemporary crafts while visitors from all over the world make the trek to Racine to see the S.C. Johnson’s world-renowned architecture headquarters, designed by Frank Lloyd Wright.

And, of course, residents have bragging rights to kringle, the oval-shaped Danish pastry produced mostly in bakeries in Racine County. Furthermore, you can’t come to Racine without having a kringle or two.

Its downtown area is charming and filled with independent boutiques and restaurants. In addition to being home to S.C. Johnson, other businesses such as Twin Disc, Modine and In-Sink-Erator have locations in Racine.

Find apartments for rent in Racine
Buy a house in Racine

1. Wisconsin Rapids

Photo source: Wisconsin Rapids Downtown Farmers Market / Facebook
  • Average 1-BR rent price: $726
  • Average rent change in the past year: 13.1 percent

Most people don’t know cranberries grown in the United States come from Wisconsin, New Jersey, Massachusetts and Washington and the Wisconsin Rapids area is well-known as cranberry country.

Besides cranberries, Wisconsin Rapids is an attraction magnet. There is the award-winning Wisconsin Rapids Aqua Skiers, a show waterski team, the Wisconsin Rapids Municipal Zoo and even the Tri-City Curling Club, one of only 80 facilities in the country that offers training and competitions for locals and visitors to enjoy.

Additionally, Wisconsin Rapids is also known for its arts and cultural institutions. A downtown farmers market takes place twice a week from early June through end of September, as well as many unique shopping opportunities and family-operated restaurants, cafes, food trucks and taverns.

Luckily, there is no shortage of fun and activities in the Wisconsin Rapids area and more people flock to this area as a one-bedroom apartment increased in rent by more than 13 percent over the past year. Even with the double-digit increase, it’s possible to find a place for around $726 a month.

Find apartments for rent in Wisconsin Rapids
Buy a house in Wisconsin Rapids

The most expensive places to live in Wisconsin

It’s possible to find a one-bedroom apartment in Wisconsin for less than $1,500 a month. Even some of the most expensive places to live in Wisconsin, such as Saint Francis or Kenosha, offer a one-bedroom apartment for $1,469 and $1,436 respectively.

If budget is a concern, here are some of the most expensive places to live in Wisconsin.

Methodology

Rent prices are based on a rolling weighted average from Apartment Guide and Rent.’s multifamily rental property inventory as of June 2021. Our team uses a weighted average formula that more accurately represents price availability for each unit type and reduces the influence of seasonality on rent prices in specific markets.

We excluded cities with insufficient inventory from this report.

The rent information included in this article is used for illustrative purposes only. The data contained herein do not constitute financial advice or a pricing guarantee for any apartment.

Source: rent.com

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I’m always looking for ways to decorate our house while saving money in the process.

Back in November of 1983, I was five months into being a new widow. My first husband, Denny Lippincott, loved the outdoors as much as I do. So, it was no surprise we ended up pretending we lived in northern Wisconsin and furnished our home as such.

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Source: hngnews.com

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Falling mortgage rates last week brought increased demand.

Total home loan applications increased 2.8% for the week ending Dec. 1 compared to the previous week, according to data from the Mortgage Bankers Association (MBA). The 30-year fixed-rate mortgage averaged 7.17% last week.

Slower inflation and the confidence financial markets have that we are nearing the end of the Fed’s hiking cycle has brought mortgage rates to the lowest level since August.

Purchase applications rose by 35% week-over-week on an unadjusted basis, though they were 17% lower than a year ago. According to Joel Kan, MBA’s vice president and deputy chief economist, they were mostly held back by “low inventory and still-challenging affordability conditions.”

Meanwhile, refinance applications posted their strongest week in two months. The refinance index rose by 14% on a weekly basis and was 10% higher than a year ago. Refinance applications exceeded their 2022 levels for the second week in a row, a first since late 2021.  

“The overall level of refinance applications is still very low, but recent increases could signal that 2023 was the low point in this cycle for refinance activity, consistent with our originations forecast,” Kan said in a statement.

The adjustable-rate mortgage (ARM) share of activity decreased to 7.4% of total applications, down from 8.1% last week.

The share of Federal Housing Administration (FHA) loan activity increased to 15%, down from 13.5% the week prior. The share of Department of Veterans Affairs (VA) loan activity was 12.8%, up from 12.6% over the previous week, while the share of U.S. Department of Agriculture (USDA) loan activity remained unchanged at 0.5%.

Source: housingwire.com

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

A pay for delete letter is a negotiation tool intended to get a negative item removed from your credit report. It entails asking a creditor to remove the negative information in exchange for paying the balance.

If you have a spotty credit history and you’re working to turn your finances around, you may be wondering how to remove negative items on your credit report. Late payments, charge-offs, credit inquiries and overdue account citations can all count against you.

There are, however, a few ways to potentially have past mistakes removed, one of which is a pay for delete letter.

What is a pay for delete letter?

A pay for delete letter is a negotiation tool intended to get negative information removed from your credit report. It’s most commonly used when a person still owes a balance on a negative account. Essentially, it entails asking a creditor to remove the negative information in exchange for paying the balance.

Even if you’ve gotten yourself out of debt and paid off collection accounts, without a pay for delete letter, negative credit items can remain on your credit bureau file for up to seven to 10 years.

Time heals all wounds—including credit mistakes—but if you can’t simply wait around for your credit to improve, you’ll want to consider taking some actions toward repairing your credit. Read on to learn when you should send a pay for delete letter, view sample templates and discover other credit repair options.

How a pay for delete letter works

An individual with debt writes a pay for delete letter to a collection agency with a request to remove negative information from their credit report in exchange for payment.

First, in order to understand how and why a pay for delete letter works, you’ll need some background on collection agencies.

Collection agencies are in the business of collecting debt. Some collection agencies are contracted to collect for a creditor and receive a percentage of what’s collected. Others buy the debt and seek collection as the “current creditor.”

Usually, a collection agency will only consider offering a pay for delete letter when you’re willing to pay more than it paid for the debt. There’s no magic number, but generally knowing what the other party wants gives you more information about what to include in your pay for delete letter. This increases your chances of succeeding in the negotiation.

Tips for sending a pay for delete letter

A pay for delete letter isn’t a magical fix. Not all creditors will accept pay for delete letters. Typically, many creditors like corporate banks, credit unions and even small-town banks may not be receptive to this strategy.

However, small utility bills, such as phone, cable and power bills, that go to collections are more likely to be accepted by creditors. Before you send a pay for delete letter, here are some tips to help you avoid common mistakes.

  • Consider the status of your credit reporting time limit. Is the debt several years old and about to expire? If so, a pay for delete letter isn’t necessary—the debt will no longer impact your credit score after the time limit has expired. If the credit reporting time limit is still far away, you may want to send a pay for delete letter. In addition, if you want to purchase a home or a car, the lender may require that the collection items are paid off, so you may want to send a pay for delete letter.
  • Verify your debt. Before making a pay for delete offer, it’s imperative that you’ve sent a debt validation letter within 30 days of initial contact with the debt collector and received verification of debt from them. In some cases, collectors could request payment even if your state’s statute of limitations on overdue accounts has run out.
  • Reassess your financial situation. If your pay for delete letter is approved, you often will only have a short window of time to make the payment. Only send one if you’re confident you can pay the agreed-upon amount.
  • Save details for your records. Before sending the letter, be sure to keep a copy for your records. Then when the recipient accepts your terms (hopefully), keep a copy for your records and include a copy with your payment. Also, try to utilize a method that you can verify shipping and delivery, such a “return receipt” or Registered Mail. In the event of any complications, you’ll be glad you did these things.

Pay for delete letter template

Your pay for delete letter doesn’t need to be long and complicated—or even full of legal jargon. Be sure to provide all the relevant information like dates, payment amounts and other details specific to your scenario.

The template below can help you write your own pay for delete letter. Simply update the bolded portions with your own information.

<Your Name>

<Your Address>

<Your City, State, Zip Code>

<Collection Agency’s Name>

<Collection Agency’s Address>

<Collection Agency’s City, State, Zip Code>

<Date>

Re: Account Number <XXXXXXXXXXX>

Dear <Creditor’s Name>,

I am writing this in response to your recent correspondence related to account number <XXXXXXXXXXX>.

I accept no responsibility for ownership of this debt; however, I’m willing to compromise. I can offer a settlement amount in exchange for your written agreement to the following terms:

  • You agree to accept this payment as satisfying the debt in full (once you receive the agreed-upon amount).
  • You agree to not list this debt as a “paid collection” or “settled account.”
  • You agree to completely remove any and all references to this account from the credit reporting agencies (Equifax, TransUnion and Experian) that you have reported to and validated this account.

I am willing to pay the <full balance owed / $XXX as settlement for this debt> in exchange for your agreement to the above terms within fifteen calendar days of receipt of payment. Understand that this is not a promise to pay. This is a restricted settlement offer and you must agree to the terms above in order for payment to be made.

Should you accept, please send a signed agreement with the aforementioned terms from an authorized representative on your company letterhead. Once I receive this, I will pay <$XXX> via <cashier’s check/money order/wire transfer>.

If I do not receive your response to this offer within fifteen calendar days, I will rescind this offer and it will no longer be valid.

I look forward to resolving this matter quickly.

Sincerely,

<Your Name>

<Your Address>

<Your City, State, Zip Code>

Sample letter to remove collection from credit report

Now that you have a template to write your own pay for delete letter, let’s take a look at a sample letter to make sure you’re fully set up for success.

What happens if a pay for delete letter is rejected

You should always be prepared for the event that the collection agency rejects (or ignores) your pay for delete letter. Not all agencies will see the value in agreeing to your terms or the practice of pay for delete letters as a whole.

It’s also worth noting that any acceptance of your offer must be made and returned to you in writing. In the event of a solely verbal agreement, you won’t have the ability to prove that an agreement was reached if the collector doesn’t follow through and remove the information from your credit report.

If your letter was rejected, there are still some other routes you can take to repair your credit.

Other ways to potentially have negative credit report entries removed:

  • Send a goodwill letter
  • Negotiate a settlement
  • Wait out the credit reporting time limit
  • Hire a professional

Common questions surrounding pay for delete letters

Pay for delete is a unique credit repair strategy, so it’s understandable if you have some lingering questions about it. Below, we address some of the most common ones.

Does pay for delete increase credit score?

Pay for delete can potentially increase your credit score if your negotiation is successful, but its impact largely depends on your overall credit profile. If you have several accounts in collections, your score is less likely to increase much from a single negative item being removed.

If you have a single account in collections, on the other hand, your chances of improving your score via pay for delete improve.

Which collection agency owns my debt?

If you’re unsure which collection agency is holding your debt, there are a few strategies you can use to try to learn more. Consider the following:

  • Check if you have any missed calls or voicemails from collection agencies
  • Ask your original creditor for help with tracking it down
  • Get your credit report and check the details surrounding your debt

Can I send a pay for delete letter to the original creditor instead of the collection agency?

You should send a pay for delete letter to the original creditor as long as they haven’t sold your debt to a collection agency. If the original creditor has already sold your debt to a collection agency, you can contact them to see if they are willing to reclaim your debt from collections; however, there’s no guarantee that they will agree to this proposal.

Is a pay for delete letter legal?

Sending a pay for delete letter is a legal way to negotiate to have negative items removed from your credit report. However, it’s important to note that creditors aren’t legally required to respond or accept the request. 

Oftentimes, creditors have contracts with the credit bureaus that prohibit them from removing accurate information from credit reports. If that’s the case, the creditor may not be able to enter into a pay for delete agreement with you.

Are pay for delete letters still common?

In recent years, pay for delete letters have become less common. This is partially because the latest credit scoring models, FICO® 9 and 10 and VantageScore® 3.0, do not take paid collection accounts into consideration when determining your credit score. There’s a chance these letters, even if approved, won’t impact your score at all.

Credit reporting agencies also discourage pay for delete efforts, strongly recommending that only inaccurate information be removed from reports. For these reasons, pay for delete is becoming a much less common practice.

That being said, if you’re in a more stable financial position now and expect collections activity to harm your credit, a pay for delete letter may be a good option for you to try DIY credit repair.

If you’re still not sure how to proceed or your pay for delete letter was rejected, consider equipping yourself with some personal finance tools and working with a credit consultant for a free credit report consultation.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Reviewed By

Nature Lewis

Associate Attorney

Before joining Lexington Law as an Associate Attorney, Nature Lewis managed a successful practice representing tenants in Maricopa County.

Through her representation of tenants, Nature gained experience in Federal law, Family law, Probate, Consumer protection and Civil law. She received numerous accolades for her dedication to Tenant Protection in Arizona, including, John P. Frank Advocate for Justice Award in 2016, Top 50 Pro Bono Attorney of 2015, New Tenant Attorney of the Year in 2015 and Maricopa County Attorney of the Month in March 2015. Nature continued her dedication to pro bono work while volunteering at Community Legal Services’ Volunteer Lawyer’s Program and assisting victims of Domestic Violence at the local shelter. Nature is passionate about providing free knowledge to the underserved community and continues to hold free seminars about tenant rights and plans to incorporate consumer rights in her free seminars. Nature is a wife and mother of 5 children. She and her husband have been married for 24 years and enjoy traveling internationally, watching movies and promoting their indie published comic books!

Source: lexingtonlaw.com

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Lately, new home sales have surged as existing housing supply continues to be hard to come by.

This is partially because mortgage rates more than doubled in less than two years, effectively locking in existing homeowners.

With many of these homeowners unwilling to budge, home builders have gained a lot more market share.

After all, they need to move their inventory, and there isn’t a borrower living in the property with a low interest rate to worry about.

To boost sales in spite of high rates, many builders have offered impressive mortgage rate deals that everyday lenders just can’t seem to match. Does this mean there’s no need to look anywhere else?

Most Home Builders Have Their Own Financing Department

Despite being in the business of building homes, many home builders also operate financing divisions.

This means they are also fully-fledged mortgage lenders with the ability to offer home loans on the properties they sell.

And several of them are quite large. For example, D.R. Horton’s DHI Mortgage is a top-25 mortgage lender in the nation. The same goes for Lennar Mortgage.

Both companies originate tens of billions of dollars in mortgages annually to their home buyer customers.

On top of this, they also operate title/escrow companies and insurance agencies. This means a prospective home buyer can do one-stop shopping.

Convenience aside, these builder lenders are also able to offer aggressive financing offers that outside lenders often can’t beat.

So if you’re buying a new home, why look anywhere else?

It’s Wise to Speak with More Than One Mortgage Lender

Even if your home builder doubles as a lender, it’s always prudent to get more than a single mortgage rate quote.

There are studies that prove those who obtain 2-3 quotes (or even more) wind up with a lower rate and monthly savings for years to come.

So even if the home builder’s lender is offering you a spectacular deal, it’s still beneficial to shop your rate.

Sure, you might speak with a third-party lender (or two) and find that they just can’t come close. But if you don’t take the time to do that, you won’t know what else is out there.

In addition, having other quotes in hand allows you to negotiate your mortgage rate with the home builder.

If the builder knows you haven’t looked elsewhere, they might not offer you their lowest rate. With other offers in hand, their deal might get better.

You can also learn a thing or two by speaking to different lenders, mortgage brokers, and so on.

This can make you a more confident home buyer who knows the ins and outs of the process better than someone being led by just one company.

Home Builder Mortgage Rates Are Typically Hard to Beat

Now, from what I’ve seen lately, home builder mortgage rates are hard to beat. They’re buying down their rates aggressively to draw in buyers.

They’re also doing this out of necessity because home prices are so high. This allows more borrowers to qualify for a mortgage and keep their DTI ratio below maximum thresholds.

Remember, they have to move their inventory. Otherwise it sits and costs them money. At the same time, they don’t want to lower their prices.

If they sell homes for less, it could hurt appraised values on subsequent home sales. So it’s more beneficial for them to offer you a lower mortgage rate instead.

This allows them to keep the purchase price intact, while providing you monthly payment relief.

It’s a win-win for both home buyer and home seller. And it makes it very difficult for outside lenders to compete.

They’re able to sell the home more easily and win the loan at the same time.

Lately, home builders have offered both temporary and permanent buydowns, or even a combination of both.

For example, I’ve seen home builder lenders offer 30-year fixed rates as low as 5.5%, with a temporary 2-1 buydown for the first two years.

This means a home buyer gets a rate of 3.5% in year one, 4.5% in year two, and 5.5% for the remainder of the loan term.

Chances are an unaffiliated mortgage lender just won’t be able to compete.

Consider Using Credits from a Home Seller to Buy Down Your Rate

One strategy you can employ if you don’t want to buy a new home is to ask for a credit from the seller.

Known as seller concessions, these can be used to buy down the mortgage rate to something that resembles what new home builders are offering.

Instead of asking for a home price reduction, you can use these credits to pay discount points, which in turn lower the mortgage rate.

This is essentially what the home builder lenders are doing, and there’s really no reason it can’t be done on an existing home.

If you want to go a step further, you could also ask for a credit fro the real estate agent as well.

This may allow you to snag a lower mortgage rate and reduce your closing costs at the same time.

In the end, you might have a deal that resembles that of the builder’s, but on an existing home.

While home builders like to refer to existing homes as “used homes,” they are often located in more desirable, central locations. And they might be bigger too.

As such, it can be in your best interest to purchase a used home as opposed to a newly-built one.

So if the financing is holding you back, the use of seller concessions can make the deal pencil.

There Are Other Advantages to Using the Builder’s Mortgage Lender Beyond Price

While I’ve mostly focused on price, or mortgage rates specifically, there are other perks to using the builder’s captive lender.

For one, they are affiliated businesses, so communication should be strong. There should be a direct line between builder and lender throughout the loan process.

They should know each other’s timelines and processes in and out, which ostensibly means fewer hiccups and issues.

Conversely, an outside lender could have difficulty getting in touch with the builder to check status. And this could result in unnecessary delays and problems.

Of course, that’s how it’s supposed to work. In reality, this might not be the case given the many mixed reviews I’ve come across from builder lenders.

Despite their close relationship with the builder, somehow lots of customers still walk away upset. But this could just boil down to home buying being very emotional in general.

And it could be even worse when using an outside lender if the two companies don’t cooperate well.

In summary, if buying a new home you’ll likely be pushed to use their in-house lender. You are not required to do so. You can use any lender, bank, credit union, or broker you choose.

But there are certainly perks, including mortgage rate specials (the #1 reason to use them) and perhaps the convenience of one-stop shopping.

However, even if you like what the builder’s lender has to offer, you should still take the time to speak with outside lenders and gather additional quotes.

Pros and Cons of Using the Home Builder’s Lender

The Pros

  • The convenience of one-stop shopping
  • Get your new home and mortgage all in one place
  • Affiliated lender might communicate better with the builder
  • Can offer special mortgage rates to home buyer customers
  • Mortgage process is short-lived, rate stays with you for decades potentially
  • Long rate locks that match the longer home buying/building process
  • Often operate their own title/escrow and insurance agencies as well

The Cons

  • Lots of mixed/negative reviews for home builder lenders
  • Mortgage rate specials are often limited to certain homes
  • May be enticed to buy in an area because the financing alone
  • May offer limited loan choices

Source: thetruthaboutmortgage.com