Refinancing a mortgage can be a great financial move for homeowners to potentially lower monthly mortgage payments, tap home equity, or build equity more quickly by shortening the term of the loan.
Refinancing can save you money — but it can cost you money too. Before you start the refinancing process, you should know how it works, the benefits and drawbacks, and the steps you’ll need to take.
What Is Mortgage Refinancing and Why You Might Want to Refinance?
Refinancing a home mortgage is basically replacing your existing mortgage with a new one, typically with a different principal and interest rate.
There are many reasons why borrowers choose to refinance a mortgage, including:
To take advantage of lower market interest rates
To shorten the term of their loan
To withdraw a portion of their equity
To lower their monthly payments with a longer repayment term
To convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage
To remove or add another person to the mortgage
Choosing the Right Type of Mortgage Refinances
There are three main types of mortgage refinances: rate-and-term, cash-out, and cash-in.
Rate-and-term refinance: This type of refinancing allows the borrower to change the interest rate, the term of the loan, or both without advancing any new money.
Cash-out refinance: A cash-out refinance takes advantage of the built-up equity in the home and gives the borrower cash in exchange for a larger mortgage.
Cash-in refinance: A cash-in refinance allows homeowners to pay a large sum towards their principal balance during the refinance process.
4 Benefits of Refinancing a Mortgage
Your decision to refinance your home mortgage ultimately depends on your goal. Do you want to lower your monthly payments? Are you hoping to shorten the length of your loan?
Here are some common reasons that people choose to refinance:
Changing the length of your loan. By refinancing from a 30-year mortgage into a 15-year mortgage, you could pay it off in half the time. This also results in paying less interest; however, your monthly payment may go up.
Switching to a different loan type. Some homeowners choose to refinance their mortgage to change their loan types. For example, refinancing from an adjustable-rate mortgage to a fixed-rate mortgage. The interest rate for an adjustable-rate mortgage can go up and down over time but the interest rate for a fixed-rate mortgage doesn’t change.
Tapping into your home equity. Want to do some home improvements, pay off debt, or even take a trip? You can do a cash-out refinance to borrow more than you owe on your current mortgage.
Getting a lower interest rate. Interest rates fluctuate for a variety of reasons. Refinancing could make financial sense if you can get a lower interest rate than when you originally took out your mortgage. If you can secure a lower interest rate, you could potentially save money and pay off your mortgage faster.
Calculate how refinancing might affect your monthly payments with Total Mortgage’s Refinance Calculator and see how much you can save.
How to Refinance a Mortgage: 4 Key Steps
Refinancing a mortgage is very similar to purchasing a home; however, it’s a little less complicated. But how exactly does refinancing your home work? Here is a simplified step-by-step guide:
Understand your reasons for refinancing. Before you refinance, you need a clear goal. What do you want out of your refinance and what type of loan will help you achieve that goal?
Apply for a refinance. Once you’ve selected your lender, you’re ready to complete your refinance application, lock your interest rate, and submit any necessary documents. Keep inmind that you don’t have to refinance with your current lender. Exploring other landers’ options could increase your chances of finding a better interest rate with more favorable loan terms.
Appraisal and underwriting. The underwriter will review the application and documents and offer conditional and/or final approval of the loan. The lender will also order a home appraisal to verify the current home value.
Close on the loan. The home closing is when you and your lender will go over the loan documents and finalize all details. You’ll need to sign documents and pay closing costs listed in the Loan Estimate and the Closing Disclosure.
The time it takes to refinance a mortgage depends on several factors, such as credit checks, appraisals, and the lender. Refinancing a mortgage can take anywhere from 15 days to 45 days or longer, with an average of 30 days to close.
Costs of Refinancing a Mortgage
Refinancing isn’t free — but depending on your circumstances, it can be worth it. Closing costs typically include origination fees, home appraisal, and recording. Depending on where you live and your lender, there could also be an attorney fee and title search, and insurance.
Closing costs are generally a percentage of your loan amount —about 2% to 5% — though these are just estimates and costs may vary depending on the state and county where you live as well as your lender.
Not every closing will cost you money at the closing table. You could also have a no-closing cost refinance.
This is a refinance where instead of paying upfront, closing costs are either rolled into the new loan or the lender may raise your interest rate. While this does mean that you need to come up with less money at closing, you could end up paying more over the long run.
Explore Total Mortgage’s Refinancing Options
Unsure if you should refinance? Refinancing a mortgage could potentially lower your monthly payments with more favorable terms. Another option is to use a mortgage refinance to tap your home’s valuable equity and use the cash as you please.
If you’re looking to refinance a mortgage, be sure to check out Total Mortgage’s list of branches across the US and find the one nearest to you. You can also apply online and get a free rate quote.
A few weeks ago, I wrote about how I refinanced my mortgage for the second time in a year. The second refinance wasn’t actually part of my master plan, but I ended up having to refinance in order to remove my private mortgage insurance. And although refinancing our home again proved to be a huge pain, we are now saving $135 per month by no longer paying private mortgage insurance premiums.
Thankfully, we managed to secure a no-cost refinance that only cost us in time and effort. It’s a huge relief that the process is finally over, and I am fairly hopeful that this is the last time we will ever have to refinance.
Refinancing Has Its Perks
Luckily, I am no stranger to the benefits of refinancing. Not only did we refinance our primary residence, but we also refinanced our two rental homes within the past 18 months. We did so in order to take advantage of record low interest rates and to shorten the terms of their loans.
Now that we have refinanced our rental properties, they will be paid off much faster. In fact, our two rental properties are due to be paid off in about 13 years. Once they are completely paid off, we will then have another (somewhat) passive income stream and will be that much closer to our lifetime dream of early retirement.
Since I have refinanced properties so many times, I decided to write about some of the reasons that people choose to refinance. Like me, you may find that refinancing could save tens of thousands of dollars in interest and years of mortgage debt repayment. Unfortunately, it does take some effort to get the process started. However, the time and effort spent could easily be worth it depending on your situation. Here are some reasons that you may want to consider refinancing your home loan.
5 Reasons You May Want to Refinance
Refinance to shorten the term of your loan. If you have a 30-year mortgage, now may be a great time to consider refinancing. With record low interest rates, you may find that a 15-year mortgage is not much more expensive than the 30-year loan payment you have been paying.
Start by entering your information into a mortgage calculator to see what your new payment might be. If your new estimated payment is feasible, consider contacting a mortgage professional. (When we first refinanced our home from a 30-year mortgage at 5 percent to a 15-year mortgage at 3.25 percent, our payment only increased by about $200. Since the increase fit easily into our budget, the decision was a no-brainer.)
Refinance to lower your interest rate. As I mentioned before, interest rates are near a record low. And as I write this, 30-year mortgage rates are hovering above 3 percent and 15-year loans can be secured for an even lower rate. If your home is now financed at a higher interest rate, it may be a great time for you to consider refinancing. You could literally save tens of thousands of dollars just by taking the time to fill out the necessary paperwork and gather the needed documents.
Refinance to lower your payment. Refinancing your mortgage at a lower interest rate could mean drastically reducing your payment and saving tens of thousands of dollars in interest. Lowering your mortgage payment could also free up hundreds of dollars per month that could be saved or invested. Although refinancing to lower your payment could increase the term of your loan, it could make sense in your particular situation.
Refinance from an adjustable-rate mortgage to a fixed-rate loan. If you currently have an adjustable-rate mortgage, now may be the perfect time to refinance into a fixed-rate loan. Interest rates are low now, but they may not stay this low forever. Locking into a low, fixed rate can protect you from rising interest rates in coming years. Additionally, a fixed payment is easier to plan for and budget.
Refinance to cash out home equity. It’s a tempting proposition to cash out your home equity by refinancing your home. It could even be a great financial move in some circumstances. For instance, it may make sense to cash out some of your home equity in order to buy an investment property or start a business. It mostly depends on what you are trying to achieve and if you are someone who can manage your debts responsibly.
Can Refinancing Help You Meet Your Goals?
Before refinancing, consider what your goals really are. Do you want to lower your monthly mortgage payment? Do you want to pay off your mortgage and get out of debt faster? Only you can answer these questions.
It is also important to take all closing costs and fees into consideration. Depending on which new loan you choose, you may have to pay thousands of dollars in fees for your new mortgage. It may take several years to recoup the costs of refinancing, and it is important to identify your breakeven point. If you plan on moving in the near future, it may not make sense to refinance your home loan at all.
Do You Even Qualify For a Refinance?
Due to government-backed programs, you may be able to refinance your home even if you owe more than your home is worth. The Home Affordable Refinance Program, known as HARP, loosens requirements for traditional refinancing. According to MakingHomeAffordable.gov, your loan must meet several requirements in order to qualify:
The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
The current loan-to-value (LTV) ratio must be greater than 80%.
The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.
Consider Refinancing Decisions Carefully
There are many things to consider before refinancing your mortgage. Most importantly, you should weigh the pros and cons of your particular situation and act according to your own best interest. With some thorough research and planning, refinancing your mortgage could turn out to be the best thing for your family and for your pocketbook. Have a look at the table below for the best mortgage rates.
Have you considered refinancing your mortgage? If so, why did you decide to refinance? If not, why haven’t you?
By Peter Anderson12 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited August 19, 2022.
The last few years have been tough ones, with the economy going through recession, millions of people becoming unemployed and businesses going under left and right.
The economy has shown some signs of improving, but indications are we still have a lot of rough road ahead of us.
With the economy being so unsure, now is as good a time as any to start thinking about how to cut back on your regular monthly bills. For many, once you’ve cut out some of the more obvious expenditures, it doesn’t feel like there are that many other places that can be cut. The truth is, however, that most people have a lot of places that they can still cut back and save money.
Today I thought I’d look at some of the main areas of spending that people have every month – their regular monthly bills.
Often people take those monthly bills for granted, not even thinking about how they can save money on those regular expenditures, just taking it on faith that they can’t get those bills any lower.
So today’s post is all about how to save money on just about all of your regular monthly bills.
How To Save On Your Phone And Wireless Bills
There are a variety of ways that you can save on your cell phone, home phone and mobile internet charges. Here are a couple of the options that we’re using – or plan to start using in the coming year to save on our phone bills.
Landline phone service
: For years we’ve had a landline because my wife prefers talking on that versus a cell phone, and also because we needed the landline for our home security system. We recently made changes that mean we can now opt for a cheaper VOIP option for our landline service. After doing some research a lot of other bloggers are talking about the Ooma phone service, which is apparently very good. All you have to do is pay upfront to buy an Ooma Telo device for around $140, which then allows you to make unlimited calls in the U.S. for free over your existing broadband connection! All you have to pay is local taxes in your area (about $4.50 for us). You can port your current landline phone number over as well, for a $39.99 fee. Read my full review of Ooma here, and my post talking about setting Ooma up here.
Prepaid Cell Phones: One way that we’ve been saving a ton of money over the years is by using prepaid cell phone service, instead of more costly contract plans. We have no contract phone service from Republic Wireless, and we pay on average about $40/month for two phones. Both of them are Android smartphones with tons of minutes and unlimited text with 1GB/data ($20/month). The only downside is the up front cost of the cell phone – it isn’t subsidized like on contract plans. There are a variety of other low cost prepaid cell services out there that many people recommend including Tello and a Gen Mobile. Check out the related content below for a full article talking about saving on your cell phone bill using prepaid services. Want to use a traditional phone service? Check out Bill Shark, BillFixers or Rocket Money to negotiate a reduction in your monthly cell phone bills.
Low Cost Hotspots: A while ago I had a need to have Internet access on the go while traveling. At the time I settled on buying a mobile hotspot from Virgin Mobile via their prepaid wireless broadband plan. You just buy the hotspot, and then pay $35/month for 1GB of data. I was in a rush so I bought the hotspot and used it while on my trip. When I got back I became aware that there are quite a few companies that offer mobile hotspots for much lower cost, or phones and phone plans that can be used as hotspots – for much less. Do your research.
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How To Save On Your Housing Costs
One place that you can save hundreds of dollars every month is in your housing costs. Most people are aware that they could probably save by refinancing, but there are other ways you can save as well.
Refinance your mortgage: The most obvious way to save on your housing costs is simply to refinance your home mortgage. Rates are so low right now, and by refinancing you can often save hundreds of dollars off of your regular monthly payment. I’m in the middle of looking for a refinance right now, and we stand to save in the neighborhood of $200-300/month.
Appeal your property taxes: A lot of people don’t realize that you can actually appeal your property taxes in many counties by appealing the county’s tax appraisal value. I have successfully appealed our value once a couple of years ago, saving $363/year. Find out how I did it below via the related content.
Get cheaper homeowner’s insurance: I go into this more in the insurance section below, but if you shop around you can often find hundreds in savings every year just by switching insurance companies. We saved almost $1000/year by doing this just a couple of months ago.
Remove mortgage insurance: If you’re paying mortgage insurance with your regular monthly payment, and you have already reached 20% equity in your home, you may want to look into having that insurance removed by your mortgage company. It isn’t there to protect you, but the bank. Often you can have it removed after getting 20% equity in the house, and in many cases it may be required that they remove it. In some cases, if you’re a high risk borrower or if you have a FHA loan, you may need to keep the mortgage insurance longer.
Downsize your house: If you’re really trying to lower your bills a sure fire way is to downsize your house. Not only will your payment go down, but your insurance, taxes, maintenance costs and other costs will go down as well. Of course any costs associated with moving also need to be taken into account.
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How To Save On TV, Movies And Entertainment
There are a lot of ways that you can cut costs when it comes to your entertainment dollar.
Shop around and sign up for deals on premium TV: First, if you’re determined to keep your premium TV because of sports or programming only available on cable, you can at least make sure that you get the best possible deal on your cable TV package. Make sure to shop around once your introductory deal runs out and you can usually end up saving hundreds every year by switching companies! Or you can use a bill negotiation service like Bill Shark, BillFixers or Rocket Money to negotiate a reduction in your monthly bills.
Cancel un-needed services: Another thing you can do is check to make sure you’re not doubling up on any services. When we were cutting back a while ago we realized that we were paying for both Netflix streaming and Amazon Prime – which has a good video streaming option. We realized most of the same TV shows and movies were available on both sources, so we canceled Netflix – saving us $7.99/month.
Cut the cord: If you’re a bit more ambitious and aren’t very particular about receiving certain channels or waiting to see content the night it airs, you might want to make this the year that you cut the cord. Cancel your cable or satellite TV packages and move to something more affordable. Instead of paying for a TV package you can use free or low cost video streaming services like Hulu or Philo, shows streamed by the networks, and more. Use a software like Playon to stream the shows directly to your TV using an existing gaming console like the Xbox One or Playstation 4, or a cheap device like the Fire TV or Roku. The options are pretty numerous, and we’ve used options like this in the past to get most of our TV entertainment. Check out the related content below for a couple of exhaustive posts on how to set this up.
Use cheap movie rental alternatives: Don’t really watch TV or movies too much – and a monthly Netflix or Amazon subscription doesn’t make sense for you? Use a cheap rental alternative like Redbox, where you can rent a new release movie for a dollar. You can often find coupon codes to get free rentals every now and then. If you rent infrequently enough for it to matter, use cheap pay per view video options on Itunes, Amazon and Xbox to rent movies without leaving the comfort of your home. Amazon often gives away free credits on social media for their MP3 and Video stores, so follow them on Twitter and Facebook to get deals!
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How To Save On Your Internet Costs
If you’re looking to save on your internet costs, the best thing you can do, similar as with TV deals, is to shop around, or use a bill negotiation company.
Search for the best deal: Find out where you can get the best deal. For us our internet options include DSL service from a couple of different companies and cable internet. You can usually find competing deals and introductory offers that you can use to hop from company to company and always have the best deal. Other times you can bundle with other services and save. It can be a pain, but it can save you a ton of money too.
Get reduced rate internet: Another thing you can do if you live in certain areas is us a free 4G internet service. Of course to do this you’d have to live in an area with good 4G coverage.
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How To Save On Insurance
The best way to save on your insurance costs is just to shop around on a regular basis. I like to do it at least every 1-2 years for my homeowner’s insurance, auto insurance, life insurance and less often for other types. We found our best deal by using an insurance broker because they were able to compare rates at multiple companies and compare quotes for us.
Within the past few weeks we shopped around for new homeowner’s insurance after the premium skyrocketed. We ended up saving almost $1000/year when we switched our homeowner’s and auto insurance to a new company. That’s not the first time we’ve been able to do that! We did the same thing about 4 years ago, comparing rates and saving over $1000 that time!
Not sure where to start in getting quotes? Check out our insurance page to get quotes from a bunch of different companies.
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Save By Getting A Better Bank Account
You may have had your old bricks and mortar checking or savings account since you were in high school, but have been noticing lately that they’ve started charging you fees for various things. You’ve also noticed that the fees for your brokerage account have gone up, and mysterious inactivity fees started popping up. Whatever the case, people often find that their bank account is no longer useful to them, and that they can save money on fees (or make more interest) by moving somewhere else.
Save money by closing old accounts: Often old accounts start charging inactivity fees for dormant accounts, or just start charging fees because they think they can get away with it. Closing an account can be a pain, but it can also save you money (and headaches) in the long run.
Sign up for better bank accounts: Signing up for a better bank account will mean not only savings because of no fees and no minimums, but also can mean you’ll end up making more money interest, cash back and other perks. For example, a while back we Chime a great online bank. We’ve saved quite a bit in account fees that we no longer pay. Our old account at a traditional bricks and mortar was charging us fees for all sorts of things, and customer service wasn’t great. We have also switched our savings account to online banks with accounts from Capital One 360 and CIT Bank Not only are we making more in interest, but the features available at those banks surpass our old bank.
Lower interest on your credit card accounts: If the interest on your credit card is getting unreasonably high, consider closing the account after signing up for a card with a lower interest rate, 0% balance transfer and no fees. Just be wary of big charges to actually transfer balances.
Different account types to consider closing if the fees or features aren’t up to snuff? Savings accounts, checking accounts, brokerage accounts, mutual fund company accounts, credit cards. Go down the list and figure out which ones just aren’t cutting it anymore.
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How To Save On Energy Bills
Saving on energy bills often can’t be done by switching to another provider because there is often only one option for water, gas or electricity in many areas. That means the savings usually has to come from being creative and saving in other ways.
Some ways to save on your energy bills:
Get a programmable thermostat
: A good portion of your utility bills every month are going to come from your heating and cooling bills. By buying a programmable thermostat like the smart Nest thermostat, you can have your heat turned down at night, turned low when you’re gone and even control it remotely. They advertise an annual savings average of $173, so it may take about 18 months to pay back the $249 cost – unless you can find it for less. Other options include regular programmable thermostats which can run $50-70 or more.
Get (slightly) out of your comfort zone: Be willing to turn the temp down slightly in the winter, and up in the summer. You can save a ton of money just by turning the temp up or down even a few degrees!
Use a power saving device: A lot of the electronic devices we use these days have phantom power drain even when you’re not using them. Get around this by getting an auto-sensing power strip that will turn off all power when the unit is off, or energy saving power plugs that have on off switches for things like coffeemakers or toasters.
Save at your water heater: The water heater can account for 14-25% of your energy bills every year. Often the heat on your water heater is turned up higher than you need it to be. A temp of 120-140 degrees is hot enough, and every 10 degrees you lower it you’ll save 3-5% on your bill. Some experts say not to go below 120 degrees, however, because bacteria can grow in the tank. You can also save by putting a fiberglass insulating blanket on the water heater to save money on heat loss.
Get a home energy audit to find energy leaks: Local utilities will often come out to do a home energy audit free of charge or a small fee to help you find where your home is leaking energy. Plug up the leaks and save!
Maintain your appliances: Doing things like cleaning your AC condensor coils or changing furnace filters regularly can save you money on your energy. If you don’t, appliances can work harder than they need to, and drain more energy.
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Save On Bills By Negotiating Them
One way you can save money on your regular, recurring monthly bills is to negotiate them.
If you have the time to do a little research, and make a few phone calls you can often reduce your monthly bills by hundreds of dollars every year.
If you don’t have the time, there are quite a few companies that will do it for you, for a small cost.
Conclusion
So there you have it, how to save money on just about all your possible monthly bills. I could probably go on, but the point is there are no shortage of ways to save money on your regular monthly expenditures. You can save on your housing costs, your phone and wireless broadband costs, your insurance costs, your energy costs, your bank accounts and even on your spending on entertainment. You just have to be creative, find cheaper alternatives and cancel un-needed services.
So what ways to save on your regular monthly bills can you suggest? Tell us your money-saving strategies in the comments!
When you set out to get a mortgage, you’ll find many options, from well-known banks to online lenders. Here are Bankrate’s picks for the best mortgage lenders, including borrower requirements — so you know which you might qualify for — and loan terms, so you can figure where you might get the best deal.
Best mortgage lenders
PNC Bank
PNC Bank mortgage review
Availability
Available in all U.S. states
Loans offered
Conventional, jumbo, FHA, VA, USDA
Credit requirements
620 for conventional, jumbo and FHA loans; 640 for USDA loans
Down payment minimum
3% for conventional loans; 3.5% for FHA loans
Where to find
Branch locations and online
Cardinal Financial
Cardinal Financial mortgage review
Availability
Available in all U.S. states
Loans offered
Conventional, jumbo, FHA, VA, USDA
Credit requirements
580 for conventional and USDA loans; 550 for FHA and VA loans
Down payment minimum
3% for conventional loans; 10% for jumbo loans; 3.5% for FHA loans; none for VA and USDA loans
Where to find
Branch locations and online
NBKC Bank
NBKC Bank mortgage review
Availability
Available in all U.S. states
Loans offered
Conventional, jumbo, FHA, VA
Credit requirements
620 for conventional, FHA and VA loans; 680 for jumbo loans
Down payment minimum
3% for conventional loans
Where to find
Branch locations (limited) and online
U.S. Bank
U.S. Bank mortgage review
Availability
Available in all U.S. states
Loans offered
Conventional, jumbo, FHA, VA, USDA
Credit requirements
620 for conventional loans; 740 for jumbo loans
Down payment minimum
3% for conventional loans; 3.5% for FHA loans; none for VA and USDA loans
Where to find
Branch locations and online
Valley Bank
Valley Bank mortgage review
Availability
Available in all U.S. states
Loans offered
Conventional, jumbo, FHA, VA, USDA
Credit requirements
Undisclosed
Down payment minimum
3%-5% for conventional loans
Where to find
Branch locations (limited) and online
Veterans United Home Loans
Veterans United Home Loans review
Availability
Available in all U.S. states
Loans offered
Conventional, jumbo, FHA, VA, USDA
Credit requirements
620 for conventional and VA loans
Down payment minimum
3% for conventional loans; 3.5% for FHA loans; none for VA and USDA loans
Where to find
Branch locations and online
Summary: Best mortgage lenders of May 2023
Lender
Credit requirements
Down payment minimum
Bankrate review
PNC Bank
620 for conventional, jumbo and FHA loans; 640 for USDA loans
3% for conventional loans; 3.5% for FHA loans
PNC Bank mortgage review
Cardinal Financial
580 for conventional and USDA loans; 550 for FHA and VA loans
3% for conventional loans; 10% for jumbo loans; 3.5% for FHA loans; none for VA and USDA loans
Cardinal Financial mortgage review
NBKC Bank
620 for conventional, FHA and VA loans; 680 for jumbo loans
3% for conventional loans
NBKC Bank mortgage review
U.S. Bank
620 for conventional loans; 740 for jumbo loans
3% for conventional loans; 3.5% for FHA loans; none for VA and USDA loans
U.S. Bank mortgage review
Valley Bank
Undisclosed
3%-5% for conventional loans
Valley Bank mortgage review
Veterans United Home Loans
620 for conventional and VA loans
3% for conventional loans; 3.5% for FHA loans; none for VA and USDA loans
Veterans United Home Loans review
How to compare mortgage lenders
Your first step to finding the best mortgage lender is to comparison shop. Borrowers who do more upfront research tend to save more money than those who go with the first lender they find. It’s best to get quotes from three lenders, at minimum. Because rates fluctuate frequently, it’s best to get these quotes on the same day so you have an accurate basis of comparison.
As you compare loan estimates, look at the APR (annual percentage rate) and interest rate quoted by each lender. Consider what’s important to you as far as experience, too. For some, how fast a lender can turn around a preapproval letter or close a loan is critical. If you have specific needs or financing preferences — for example, you want an FHA loan — you might also want focus on the top mortgage lenders who specialize in those products.
Once you determine what your needs and preferences are, get started by comparing mortgage rates and finding a lender in your area through Bankrate.
Current mortgage rates
Bankrate regularly publishes mortgage rates for purchases and refinances, based on its latest lender surveys. They include:
FAQ about mortgages
There are five main types of mortgage loans: conventional loans; jumbo loans; government-insured loans (FHA, VA and USDA loans); and fixed- and adjustable-rate mortgages. Conventional loans, offered by private financial institutions, are ideal for borrowers with strong credit scores. Jumbo loans are for higher-priced homes that exceed Federal Housing Finance Agency borrowing limits. FHA, VA and USDA loans are backed by the government and designed for borrowers with lower credit scores and low or no down payment, or military members (VA loans) or those buying in a rural area (USDA loans). Fixed-rate mortgages have the same interest rate for the life of the loan, while the rate on an adjustable-rate mortgage (ARM) can fluctuate.
Before applying for a mortgage, it’s important to bolster your credit score and savings and have a clear understanding of how much you can afford and what type of loan would best fit your needs. In addition, gather documentation about your finances so you’re prepared to complete a mortgage application when the time comes. Once you’ve taken these initial steps, begin comparing mortgage lenders based on factors such as annual percentage rate (APR), fees and your overall experience. It’s best to get rate quotes from at least three different lenders. When you know which lender you want to work with, get preapproved so you can start house-hunting with financing in hand.
The minimum down payment requirement varies based on loan type. If you qualify, you can obtain a 3 percent-down conventional loan, a 3.5 percent-down FHA loan or a no-down payment VA or USDA loan. If you want to avoid paying mortgage insurance, however, you’ll need to make a down payment of 20 percent.
Methodology
To determine the best mortgage lenders, Bankrate evaluates more than 85 lenders for factors relating to affordability, availability and customer experience, assigning each a Bankrate Score out of five stars. Based on this methodology, the best mortgage lenders generally have a Bankrate Score of 4.9 stars or higher. Note: The Bankrate Score considers a mortgage lender’s products and services only; it is not a reflection of a lender’s internal operations or practices.
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Taking out a home equity loan could make sense if you need cash for home improvements, repairs or other expenses. You might be wondering if you can refinance home equity loan debt to get a lower interest rate or change your payment terms. The short answer is yes, refinancing a home equity loan is possible, though there are some requirements you’ll need to meet to qualify.
Talking to your financial advisor can help you decide if home equity loan refinancing makes sense.
Understanding Home Equity Loan Refinancing
Home equity loans allow you to tap into your equity value for cash. A home equity loan is a type of second mortgage that you repay with interest, in addition to your primary mortgage loan. Home equity loans typically have fixed interest rates and repayment terms can extend up to 30 years.
Refinancing a home equity loan means taking out a new loan to pay off the old one. You’d then make payments to the new loan at the terms set by the lender. And you’d still be responsible for making payments to your primary mortgage as well.
Reasons for Refinancing Home Equity Loan
There are several scenarios when refinancing a home equity loan or any type of mortgage could make sense:
Changing your rate. First, you might refinance if it would allow you to get a lower interest rate. Reducing your interest rate could save you money on the loan and it may result in a lower monthly payment as well.
Getting different loan terms. For example, say that your original home equity loan has a 20-year term, but you’d like to extend it. You could refinance it into a 30-year loan instead. You can also do the reverse and refinance a longer loan for a shorter term, though that can mean a higher monthly payment.
Switching loan types. If you have a variable rate home equity loan you might refinance to a fixed rate. Doing so could give you some predictability where your payments are concerned since you don’t have to worry about interest rate fluctuations affecting what you pay.
Taking out more equity. If your equity has increased since you took out a home equity loan, you might refinance it to draw out more cash. Just keep in mind that doing so means you’ll have a larger mortgage debt to repay.
Advantages of Home Equity Loan Refinancing
Refinancing a home equity loan can offer some benefits to homeowners. Here are the main pros to know about home equity loan refinancing.
Refinancing a home equity loan could save you money if you’re able to get a lower interest rate.
You might be able to lower your monthly payment, either by reducing the interest rate or changing the loan terms.
Choosing a shorter repayment term could help you pay off a home equity loan faster, freeing up money for other financial goals.
It’s helpful to understand what you hope to get out of refinancing home equity loan debt before making a move. That can also help you decide what kind of loan terms make the most sense.
Disadvantages of Home Equity Loan Refinancing
While there are some good reasons to refinance home equity loan balances, there are a few cons to know.
Refinancing may save you money on interest but you’re essentially just shuffling debt around.
Your lender may expect you to pay closing costs on the refinance loan and there may be a prepayment penalty if you decide to pay it off early.
Qualifying for home equity loan refinancing might be difficult if you don’t have sufficient equity or meet the lender’s minimum credit score and income requirements.
It’s important to note that refinancing into a longer loan term may not save much money, even if you’re getting a lower interest rate. The longer you pay on the loan, the more you’re paying in interest overall.
Using an online mortgage refinancing calculator can help you estimate your savings with different loan terms.
How to Refinance a Home Equity Loan
If you’d like to refinance your home equity loan, a good first step is calculating how much equity you have in the property to determine how much you might be able to borrow. Lenders will look at your loan-to-value (LTV) ratio, which is the loan amount divided by the property value. Generally speaking, a good LTV for mortgage refinancing is 80% or less.
Once you’ve done that, you can move on to the next phase which includes:
Shopping around to find the right lender to work with.
Applying for a refinance loan and submitting the required documentation
Completing the appraisal if the lender requires one.
Reviewing the loan disclosures to make sure you understand them.
Closing on the loan and paying any costs due.
When comparing lenders, it’s helpful to look at the minimum requirements to qualify for a home equity loan refinance, including LTV and credit score requirements. It’s also a good idea to check the costs. For example, will you need to pay closing costs out of pocket or are they rolled into the loan? Will you be charged a prepayment penalty if you pay the refinance loan off early?
In terms of documentation, the lender may ask for the same things that were required to get your first mortgage loan. The list can include tax returns, W-2s, bank statements and investment account statements. The more documentation you have to demonstrate your ability to pay, the better.
If the lender gives you the option to roll closing costs into the refinance loan, consider the pros and cons before agreeing. On the one hand, you won’t have to pay any money out of pocket to complete the refinance process. However, you’re still going to pay those closing costs over time and with interest since they’re included in the loan.
The Bottom Line
Refinancing a home equity loan is something you might consider if you’re ready to make changes to your existing loan or want to draw more equity out of your home. Estimating the costs and the potential long-term savings is a good starting point. And of course, keep in mind that your new payments need to fit your budget, so you don’t run the risk of falling behind.
Mortgage Tips
When you’re not sure whether refinancing a home equity loan is ideal, talking to your financial advisor can help. Your advisor can help you evaluate the pros and cons of refinancing and what kind of terms might work best. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Your bank might offer home equity loan refinancing options, but you may consider working with an online lender instead. An online lender may be able to offer lower interest rates for a home equity loan refinance, charge fewer fees or close on the loan in a shorter time frame. You may also be able to get pre-approved for a home equity refinance loan online, without affecting your credit scores. Keep in mind, however, that a hard credit check might be required if you decide to go ahead with submitting a full loan application.
Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Despite the changes in the market, including increased home values and higher interest rates, the dream of homeownership is still alive, according to Mountain America Credit Union.
We invited Kara Loftus, Vice President of Mortgage Lending at Mountain America Credit Union, to help us understand the different types of loans available that can make homeownership within reach for all of us.
She says there are several loan programs available that require little or zero down, which is one of the most significant barriers to homeownership.
On the federal level you can look for a loan from the FHA or Federal Housing Administration. This kind of loan only requires 3.5% down when you have a FICO credit score higher than 580.
Another type of loan available to military service members who meet specific criteria is a Veterans Affairs (VA) loan. A VA loan can come with financing up to 100% loan-to-value .
A USDA loan may be an option if you’re hoping to own a home in a rural area. USDA loans require no money down and often have lenient credit score requirements.
Finally, Mountain America Credit Union has a first-time homebuyer loan [ with as little as $1,000 down and 100% loan-to-value financing on approved credit.
Another common barrier to owning a home is simply being able to afford a monthly mortgage payment, but it’s tricky because renting is expensive, too.
Kara says there are loans available that can make homeownership a reality.
Mountain America offers several home loan options, starting with the 40/15 balloon mortgage. This loan allows first-time homebuyers to pay less each month—as it’s spread over 40 years instead of the typical 30.
But instead of being locked into that mortgage for 40 years, you can pay off the entire balance at year 15 or refinance into a new loan once you’ve built equity.
For this type of loan you aren’t required to have a down payment, and you don’t need to worry about a penalty should you refinance your home or sell it before the 15-year term ends.
You do have to meet specific requirements, though. For example, you must qualify with a minimum 660 credit score and two years of work history.
Mountain America Credit Union believes every hero in the community deserves a home, so they have other benefits lik 100% loan-to-value financing, competitive rates, and other discounts for first responders, K-12 teachers, and medical professionals.
Kara suggests meeting with a mortgage loan officer to get more information on the different loan programs you may qualify for.
You can also learn more about Mountain America’s home loans and schedule an appointment at macu.com/mortgage.
Loans on approved credit. Membership required–based on eligibility. Equal Housing Lender NMLS ID 462815 To obtain additional cost information, please call 1-800-277-7703.
VA loans are exclusive to veterans, active military personnel and their families. It’s a government-backed loan program designed to make homeownership more affordable for these individuals by offering flexible financing options with competitive interest rates. Additionally, VA loans do not require any down payment or private mortgage insurance (PMI). These loans serve as an important tool to help those who have served our country gain access to their dream of homeownership.
If you are an active-duty military personnel or a veteran, there are many VA loan lenders out there, including New American Funding. The company offers lower interest rate mortgages with excellent terms exclusive to service members and military spouses.
Read on for our review of New American’s VA loan offerings.
Best for Low-Credit Borrowers
New American Funding provides a range of benefits that make homeownership more accessible to U.S. service members, veterans and their spouses. As with all other VA loan programs, New American doesn’t require a down payment, and interest rates are usually lower than those of mortgages not guaranteed by the government. Credit score requirements are not published on New American’s website, but they do mention on their blog that VA loans are a good option for “buyers with less-than-perfect credit.”
Additionally, New American Funding doesn’t require any monthly mortgage insurance payments and has no prepayment penalty, meaning borrowers can refinance or sell without having to pay additional fees.
New American VA Loans Pros and Cons
Good for borrowers with challenged credit
Focuses on lending to minority groups
High BBB rating
Offers a closing guarantee
APR information and interest rates are not publicly accessible
Unavailable in Hawaii
Pros explained
An option for borrowers with challenged credit
New American Funding’s VA loan is ideal for service members and veterans looking to become homeowners without needing perfect credit or a large down payment. Even with a credit score of around 580, you can access a wide range of mortgage loans and low-interest VA loan rates. VA loans also come with a funding fee, which is a percentage of the loan amount that goes toward funding the VA Home Loan program. This fee helps VA lenders to take on customers with lower credit and no or low down payments.
Additionally, New American’s VA loan allows you to sell or refinance your home at any time with no penalty or restrictions on cash-out refinances, unlike conventional or FHA loans, which require you to have 20% equity left over after the refinance.
Heavy focus on lending to minority groups
New American Funding is committed to offering clients from all backgrounds a variety of mortgage products and services. Being the nation’s largest home loan company founded by a Latina, New American Funding is dedicated to hiring Hispanic personnel and helping minority groups.
This company lends with an emphasis on social responsibility, as special attention is paid to minority groups whose access to financing may be limited by traditional lenders. New American Funding also brings mortgage education to underserved communities and works with them to overcome income, credit score and race-based barriers to attain home loans. This includes the company’s Latino Focus initiative, which works to improve the experience of Hispanic clients when obtaining a home loan and its New American Dream initiative, which seeks to increase homeownership in African American communities.
As part of the company’s commitment to serving all communities, New American Funding offers FHA, VA and USDA loans designed specifically for first-time homebuyers. It also offers options for adjustable-rate mortgages, fixed-rate mortgages, jumbo loans and more.
BBB accredited with an A+ rating
The company has accreditation and an A+ rating from the Better Business Bureau. This is an indication that it meets all of the BBB’s high standards for operating with integrity and fairness. New American Funding maintains a 4.04 out of 5 stars from 606 customer ratings on BBB with an overwhelming number of customers giving the company a full 5-star rating.
Many of the negative reviews seem to be related to customers not being approved for a loan rather than issues with customer service. Even for these reviews, the company is quick to respond in a respectful and helpful manner.
Offers a closing guarantee
This guarantee is available for all VA mortgages processed with New American Funding. The borrower will receive a full refund of their loan origination fee if the loan fails to close within the specified timeline.
Cons explained
APR information and interest rates not publicly available
New American Funding does not provide publicly available information about its APR or interest rates. To get an accurate estimate on the cost of a loan, you must provide contact information for a quote.
Not available in Hawaii
New American Funding is not available in Hawaii. This means that military families seeking a mortgage loan in this state won’t be able to take advantage of the company’s services.
New American VA Loans Offerings
New American offers a wide range of VA Loans, including 30-year fixed-rate and adjustable mortgages. Below, we explore the types of mortgage loans offered at New American Funding to help you identify which loan is right for you.
VA streamline refinance loan
Also known as the Interest Rate Reduction Refinance Loan (IRRRL), the Streamline Refinance Loan provides an opportunity for veterans and active military members currently carrying VA home loans to take advantage of lower interest rates, reduce mortgage payments and increase overall savings.
If your home has increased in value or you owe less than 80% of its worth, you can refinance. Additionally, a VA Streamline Refinance loan can be done with no money out of pocket. This means you can cover all of the upfront costs of refinancing by rolling them into the total loan amount or adjusting the interest rate.
The IRRRL can also be used to refinance your mortgage from a fixed-rate loan to an adjustable-rate loan, from one type of adjustable-rate loan to another or to convert a non-VA loan into a VA loan.
The table below shows the typical refinance costs.
Refinancing requirements:
Average cost
Loan discount points
0 to 3% of your home loan amount
Appraisal fee
$300 – $500 (could be more for larger homes)
Inspection fee
$175 to $500
Title search and title insurance
$400 – $900
Survey fee
$150 – $500
Prepayment penalty
2% of the loan balance for the first two years and 1% of the loan balance for the third year
VA purchase loan
New American’s VA purchase loans are available to eligible military borrowers with no down payment required. This can be an ideal solution for those who may not have enough funds to cover a large upfront cost.
A purchase loan offers further benefits, such as no PMI requirement or prepayment penalty. With VA purchase loans, borrowers can also finance closing costs up to 4% of the purchase price and receive funds for improvements that enhance the home’s value or energy efficiency.
VA loan type
Loan amount
Interest rate
Annual percentage rate
30-year fixed VA purchase
$295,000
5.250%
5.717%
VA cash-out refinance
A VA cash-out refinance loan can be a great way to use the equity in your home.
With this type of loan, you get a new mortgage to convert some of your home equity into cash. This option may also provide tax benefits since it is typically considered a form of debt consolidation rather than income generation. For example, if you itemize your deductions, you may be able to deduct some of the mortgage interest paid on a VA cash-out refinance. This can result in a lower taxable income and a lower overall tax burden.
VA cash-out rates change daily based on market conditions. The following cash-out rates are current as of April 2023:
VA loan type
Interest rate
Annual percentage rate
30-year fixed VA cash-out
6.750%
7.103%
30-year fixed VA cash-out
6.990%
7.349%
VA energy-efficient mortgage (EEM)
VA loans for energy efficiency improvements can cover items such as storm and thermal windows, solar heating, cooling systems and heat pumps. These loans are not intended for non-permanent purchases such as appliances or window air conditioning units. VA loans can provide up to an additional $6,000 for qualifying energy efficiency improvements, helping you reduce monthly utility bills while improving the value of your home.
The following energy-efficient upgrades are eligible for the VA EEM Program:
Solar energy systems
Caulking, weather stripping and vapor barriers
Upgrades to furnace and heating systems
New thermostats
Upgraded insulation
Upgrades to windows and doors
Water heater upgrades and insulation
Heat pumps
VA Native American Direct Loan
The Native American Direct Loan (NADL) is a program for Native American veterans and their families that allows them access to the same financial advantages of conventional mortgages, including no down payment or monthly mortgage insurance.
Additionally, the NADL offers the ability to build or purchase a home on federal trust land and make repairs on an existing property. This provides Native Americans with more flexibility in choosing where they want to settle.
New American VA Loans Pricing
New American Funding VA loans offer fixed-rate mortgages with repayment options of 15, 20 and 30 years. The shorter the term, the lower the rate — however, your monthly payments will be higher. For adjustable rate loans, adjustable rate caps can be as low as 2% for initial adjustment periods and 5% for subsequent adjustments.
Borrower credit history is a major factor in determining your New American Funding loan rates. Loan and down payment amounts also affect mortgage rates. Larger loan amounts can result in higher interest rates due to increased risk to the lender. Lenders also consider your debt-to-income ratio.
If you’re a low-income borrower, you may be eligible for the Freddie Mac Refi Possible program, which includes a $500 credit toward your appraisal cost and five years of no interest.
The table below shows New American Funding’s VA loan rates:
VA loan type
Interest rate
Annual percentage rate
30-year fixed mortgage
5.250%
5.882%
15-year fixed mortgage
5.000%
5.645%
30-year VA cash-out refinancing
6.625%
6.978%
30-year fixed VA purchase loan
5.250%
5.717%
VA Native American direct loan
6%
6%
New American Funding Financial Stability
New American Funding has seen a recent shift in its Fitch Ratings outlook, a common measure of financial stability, from negative to stable. This upgrade reflects improvements the company has made to its management team and risk environment and investments in compliance management systems. As a result, New American Funding is now better positioned to ensure consumers and businesses access to reliable and secure mortgage services.
New American Funding Accessibility
Availability
Unlike some lenders that offer 24/7 live customer support, New American Funding is more limited. Customers can contact the company Monday through Friday from 8:00 a.m. until 9:00 p.m. CST or on Saturdays from 10:00 a.m. until 2:00 p.m. CST. You can also make payments through your account on New American Funding’s website.
Contact Information
You can reach customer support via phone at 1-800-893-5304 or by email: at [email protected].
You can also use New American’s branch locator tool to find a loan office near you. You can review your loan application status or your account through the online portal.
User experience
New American Funding’s online portal makes it easy to stay up-to-date on your loan application with real-time tracking. Additionally, you can access various New American Funding loan payment options through a secure online system.
You can also browse the company’s Mortgage Resource Center to find information about mortgage payment assistance programs, the latest mortgage news and tips for getting a good VA loan rate.
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New American Funding Customer Satisfaction
New American Funding mortgage reviews from customers significantly exceed industry standards for mortgage servicing satisfaction. New American Funding reviews have a 4.90 out of 5 in customer ratings on Zillow based on more than 8,800 reviews. Additionally, it scored 695 out of 1,000 in J.D. Power’s 2022 U.S. Mortgage Servicer Satisfaction Study — well above the industry average of 607.
New American VA Loans FAQ
What’s the difference between a VA loan and a conventional loan?
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A VA loan is a type of mortgage backed by the U.S. Department of Veterans Affairs and is available to qualifying veterans, their surviving spouses and active duty personnel. These loans offer competitive interest rates and no down payment requirements. They also don’t require private mortgage insurance. It’s important to note that a funding fee can be rolled into the loan amount or paid at closing.
In contrast, New American Funding’s conventional loan is not backed by the government and typically has stricter credit requirements than a VA loan. Additionally, these loans usually require a higher down payment and more expensive fees.
What are the benefits of a VA home loan?
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When you take out a VA loan from New American Funding, you can take advantage of the following benefits:
Up to 100% financing, even for those with less-than-perfect credit
No private mortgage insurance
Funding fees rolled into the loan
Quick loan closings
No down payment required
Lower interest rates
No monthly mortgage insurance premiums
No prepayment penalty
Reduced funding fees
What are the eligibility requirements for a New American VA loan?
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To be eligible for a New American VA loan, you must have a Certificate of Eligibility (COE) and sufficient income. To get a COE, you must be an active service member, veteran, National Guard, or Reserve member.
Spouses of veterans may apply for a VA home loan if they meet specific requirements. If a spouse’s partner is missing, is a prisoner of war or if remarriage has not occurred after a service-induced disability or death, they may qualify for a loan.
How do I apply for a New American VA loan?
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To apply for New American loans, you must:
Apply for a Certificate of Eligibility (COE) that verifies your eligibility status for a VA loan.
Work with a mortgage specialist to choose the best loan for your needs.
Apply for the loan, either online or with the support of New American’s specialists.
Your lender will then take care of the home appraisal process for you.
How we evaluated New American VA Loans
We looked into VA loans from 20 major mortgage lenders to find the best options for veterans and their families. We compared New American Funding mortgage loan reviews and evaluated rates, repayment options, fees, customer service, closing times and additional benefits.
Summary of Money’s New American VA Loans Review
Military service members, veterans and military families looking to qualify for a VA loan to buy a house may find New American Funding appealing. You can finance up to 100% of the home’s value and take advantage of quick closing times, even with a lower-than-average credit score.
On the other hand, New American Funding does not list its credit and income requirements online. Check out the best VA loans from top mortgage companies if you’re looking for a lender that provides in-person assistance or is more transparent about its rates and fees.
Thinking about retiring early? The idea can be tempting, but before making any decisions, you’ll want to carefully consider your financial situation.
It is possible to retire early at age 55, but most people are not eligible for Social Security retirement benefits until they’re 62, and typically people must wait until age 59 ½ to make penalty-free withdrawals from 401(k)s or other retirement accounts.
People with 401(k)s at work may be able to to withdraw money early from those accounts penalty-free — if they leave their jobs at age 55 and up (this is often called the “rule of 55”).
Can I collect Social Security and other retirement benefits at age 55?
If you retire at age 55, you probably won’t be eligible to receive Social Security retirement benefits for several years or be able to withdraw money from your retirement accounts without paying a 10% early withdrawal penalty. Additionally, for most people, Medicare won’t kick in for another 10 years.
Typical minimum age for benefits
Social Security
Individual retirement accounts, or IRAs
Although you can begin receiving Social Security benefits at age 62, that’s often not the best time to start. The Social Security Administration reduces your check by as much as 30% for life if you start taking benefits before you reach full retirement age. However, you’ll receive 100% of your benefit if you elect to wait until full retirement age, and you’ll get a bonus for every year (up to age 70) that you delay taking benefits
.
One other thing to note is that the more you pay in Social Security tax (typically through payroll taxes withheld from your paychecks), the higher your Social Security retirement benefits are. Accordingly, leaving the workforce early could affect the size of your eventual Social Security retirement benefit
.
Estimate your Social Security retirement benefits
Your actual benefit may be lower or higher than estimate made with this calculator, because it does not take into account your actual earnings history.
We assume you have earnings every year until you begin receiving Social Security benefits. If you had several years of noncovered employment or your earnings changed significantly from year to year, this calculator will overestimate or underestimate your benefit.
How can I bridge an income gap if I retire at 55?
Although retiring early at age 55 doesn’t make you eligible for Social Security or most government benefits for retirees, there are a few exceptions and strategies to know that could help you bridge an income gap.
Exceptions to 401(k) early withdrawal rules
In most cases, you’ll be subject to a 10% early withdrawal penalty if you take money from your 401(k) before you’re 59 ½. But according to the IRS, these circumstances may allow you to skip the penalty:
Exceptions to IRA early withdrawal rules
Generally, money taken out of an IRA before age 59 ½ is subject to a 10% early withdrawal penalty unless one of these exceptions applies:
You become totally and permanently disabled.
You have qualified higher education expenses.
You agree to take “a series of substantially equal periodic payments over your life expectancy.”
You are a first-time home buyer (for withdrawals up to $10,000).
You had tax-deductible medical expenses that exceeded 7.5% of your adjusted gross income.
You were a reservist called to active duty
.
Pension plans
Depending on where you’ve worked, you may be able to take withdrawals from a pension on or before you turn 55. Check with your employer to see if you’re eligible. Teachers in California, for example, might be able to retire at age 55 if they have at least five years of service credit
. Members of the U.S. military, meanwhile, typically can retire at any age after 20 years of service.
Nonretirement accounts
Although most types of retirement accounts limit how much you can contribute in a year, there are usually no limits to how much you can invest in high-yield savings accounts, stocks, bonds, mutual funds, exchange-traded funds or other investment vehicles. In particular, bonds, bond funds, dividend stocks and dividend funds might provide monthly income regardless of your age.
HELOCs
Do you own a home? If so, a home equity line of credit, or HELOC, may be an option. These loans let you borrow against the equity in your home without needing to sell or refinance your home. The fees for a HELOC vary, and you must repay the loan.
Many people want to buy investment properties because of the fantastic returns they can provide. However, many people do not have the 20 percent down payment (or more) that most banks require. There are ways to buy an investment property with little money down. The easiest way to buy an investment property with less than 20 percent down is to buy as an owner-occupant and later rent out the house, but there are many other options for investors as well. Using a line of credit, refinancing your home, house hacking, the BRRRR method, or even credit cards can provide ways to buy investment properties for less money. Seller financing is a great way to put less money down on a rental property if you can find sellers who are willing. A more advanced technique is to use hard-money financing that you can refinance into a conventional loan. Whatever way you choose to buy a rental property, research the method to make sure that it is legal in your state, your lender approves it, and that you are not stretching your finances too thin.
How much money down do most banks require?
An investor will have to put down at least 20 percent to buy a property from a typical bank. If you own more than four properties, that figure can increase to 25 percent down, providing that they are even willing to finance more than four properties. On top of the down payment, an investor will have to pay closing costs, which can range from two to four percent of the loan amount. It is very expensive to buy an investment property using financing from a typical bank. I have found a great portfolio lender who will finance as many properties as I want with 20 percent down, but they are not easy to find. Once you factor in repairs, carrying costs, down payment, and closing costs it can cost as much as $30,000 to buy a $100,000 rental property.
The video below goes over ways to buy with little money down as well:
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How to buy as an owner-occupant
The easiest way to buy an investment property with little money down is to buy as an owner-occupant, satisfy your loan requirements, rent out the property, and keep it as an investment. Most owner-occupant loans require the buyer to occupy the home for at least a year. Once that year is up, you can rent out the house and turn it into an investment property. There are many owner-occupied loans available, with down payments ranging from 0 to 5 percent down. You can put as much money down as you want if you want to put 20 percent down or even 50 percent down. USDA and VA have great no-money-down programs and little to no mortgage insurance, which will save an investor a lot of money each month. You will have more costs with little money down loans because mortgage insurance is required. Mortgage insurance can add hundreds of dollars to your house payment and eat away at your cash flow. The process of buying as an owner-occupant and then turning the house into an investment property is as follows:
1. Buy a house as an owner occupant, which will cash flow when you rent it out.
2. Move into the house and live there for at least a year.
After the year is up, find another house that will cash flow and purchase that home as an owner-occupant.
4. Move out of the first house and keep it as a rental. Move into the new house and repeat the process every year!
Eventually, you will be building up equity and extra cash flow, which will enable you to buy properties with a 20 percent down payment. Repeating this process 10 times would be an excellent way to get started, but no one wants to move ten times in ten years. It can also be tough to convince your family to live in a home that would be a great rental.
Low down payment owner occupant loans
If you are going the owner-occupant route there are many loans available that have from very little to nothing down required.
FHA loan
FHA loans are government-insured loans that can be obtained with as little as 3.5 percent down. You can only have one FHA loan at a time unless you have extenuating circumstances like a job relocation. You do have to pay mortgage insurance on FHA loans, which I will discuss later in this article. There are limits to the amount an FHA mortgage can be, which varies by state and even city.
USDA loan
USDA is a loan that can be used in rural areas and small towns. The loan can’t be used in medium-sized towns or large towns/metro areas. The loan is a fantastic loan for those that qualify and want to buy a home in the designated areas. USDA loans can be had with no money down, but do have mortgage insurance as well.
VA loans
VA loans are run through the United States Veterans Administration. You have to be a veteran to qualify for the loan, but they also can be had with no money down and no mortgage insurance! VA is a great option for those that qualify because the costs are so much less without mortgage insurance.
Down payment assistance programs
Many states have down payment assistance programs. In Colorado, we have a program called CHFA. The program helps buyers get into owner-occupied homes with very little money down. CHFA actually uses an FHA loan but allows for less than a 3.5 percent down payment. Check with lenders on your state to see if you have any programs that help with down payment assistance.
Conventional mortgages
Even conventional mortgages have low down payment loans available for owner-occupants. For owner-occupants, conventional loans have down payments as low as 3 percent. You will most certainly have to pay mortgage insurance with any conventional loan that has less than 20 percent down. Unlike some of the other loan options available, you can have as many conventional mortgages in your name as you want as an owner occupant.
FHA 203K Rehab loan
An FHA 203K rehab loan allows the borrower to finance the house they are buying and repairs they would like to complete after closing. This is a great loan for homes that need work, but the buyer has limited funds to repair a home. There are more costs associated with this loan upfront because two appraisals are needed and lenders have higher fees for 203K loans.
NACA Loans
NACA is a non-profit program with:
No down payment
No closing costs
No points or fees
No credit score consideration
Below market 30-year and 15-year fixed-rate loans
This sounds like it is too good to be true, and it is a great program. However, you do not simply apply for the loan and hope the lender approves you. You must take classes, and even host classes when in the loan program.
More details are on the NACA site.
What loan costs does a buyer need to consider besides the down payment?
On almost any loan you will have more costs than just the down payment. The lender will charge an origination fee, appraisal fee, prepaid interest, prepaid insurance and possibly prepaid mortgage insurance. Plus you may have more costs the title company charges like a closing fee, recording fees, and possibly title insurance. In most cases, the seller pays for title insurance, but with HUD and VA foreclosures the buyer has to pay for title insurance. These costs can add up to another 3.5 percent of the mortgage amount or sometimes more. When you talk to a lender they can give you an estimate of exactly how much these costs will be before you get your loan.
Can you ask the seller to pay closing costs?
Even though the lenders and title company will charge you more fees than just the down payment, that does not mean you have to pay that upfront. You can ask the seller to pay closing costs for you. If you can get the seller to pay your closing costs for you, loans like VA and USDA may be obtained with no out-of-pocket cash. You may still have to put down an earnest money deposit, but that can be refunded at closing in some cases. When you ask the seller to pay closing costs, it reduces the amount of money they are getting from the sale so you might actually be paying more for the home than if you didn’t ask for closing costs. But in my mind paying a little more for the house and financing those costs to save cash is better than paying more money out-of-pocket for a little cheaper home.
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House Hacking
House hacking is when you buy as an owner-occupant but you buy a multifamily property instead of a house. By purchasing a multifamily property you can live in one unit while you rent out the other units. This strategy allows you to rent the property faster, which may mean the bank will be more willing to give you a new loan as soon as you are ready to move out. You will also have help from the other tenants to pay your mortgage. In some cases, you may be able to live for free while you own the house because the other rent covers your costs.
Virtual real estate
Yes, you can now buy virtual real estate! This is land in the metaverse that only exists digitally. Some pieces of virtual real estate have sold for millions of dollars and others can be bought for almost nothing. Here is some more information on getting started!
BRRRR Method
BRRRR stands for buy, repair, rent, refinance, and repeat. It is a great way to get into rentals with less money down. You will need to get an awesome deal to make this strategy work, but you may be able to get all of your money back. You buy a house that is an amazing deal, fix it up, rent the property, and then refinance it. Once the refinance is done you repeat over and over! The key to making this strategy work is getting an awesome deal with plenty of equity. You also need to be prepared if things do not go perfectly. Appraisals can come in low, the banks may not want to finance you, you may not get the property rented or repaired as fast as hoped, etc.
Hard money loans
Using hard money can save you a ton of cash in the short-term, but it is more expensive in the end. Fannie Mae lending guidelines, allow you to refinance a home with no seasoning period, which means you do not have to wait six months or a year after you purchase a home, to refinance at a higher value than what you bought it for. Fannie Mae guidelines base the refinance amount on a new appraisal, and they will allow a 75 percent loan-to-value ratio. Fannie Mae guidelines do not allow a cash-out refinance, but they do allow the refinance to pay off any existing loans. Many hard money lenders will allow a buyer to borrow up to 100 percent of the purchase price and to finance repairs as well.
Since Fannie Mae guidelines allow a 75 percent loan-to-value refinance, theoretically an investor could buy a home for $100,000 and get a loan with a hard money lender for $100,000 plus $30,000 in repairs for a total loan amount of $130,000. The investor could refinance the home for as much as 75 percent of a new appraisal. If the appraisal came in at $180,000, then 75 percent loan-to-value would allow a refinance of $135,000. Fannie will not allow a cash-out refinance, but the investor could refinance the full $130,000 loan amount. This strategy can be costly due to hard money fees, but it allows the investor to refinance the entire purchase price and repairs!
This strategy can also be very risky because you are depending on a high appraisal to get your money out. Most hard money loans are only one year and you must pay off the loan after that year. Refinance appraisals are not always as high as we would like them to be. Make sure you have an exit strategy if the appraisal comes in lower than you expect.
Private money loans
One legitimate way to buy real estate with no money down is to use private money. Private money is from a private investor, friend, or family member. The private investor will give you money at a certain interest rate to buy a flip or rental property. Private money rates can vary from very cheap to very expensive depending on the relationship, investment, and terms of the loan. I use private money from my sister for my fix and flips. She charges me six percent interest. It is a great way to reduce the amount of cash I have into the properties.
I have used private money to buy commercial rentals and then refinance into a long-term loan with a local bank.
Can being a real estate agent help?
There are many advantages to having your real estate license, but the biggest benefit is you can keep your commission on almost every house you buy. On a $100,000 house, your commission could be $3,000 dollars or more. Here is an article that details why it is an advantage to become a real estate agent if you are an investor. Being a real estate agent also gives me an advantage in finding and purchasing great deals. I detail how hard it is to get your real estate license here. I saved more than $270,000 a year on commissions by being a real estate agent. That does not include the money I made on deals that I got because I was an agent.
Turnkey rentals
A new trend in the US is buying turnkey rental properties that are purchased, repaired, rented, and managed by a turnkey provider. Turnkey properties are a great opportunity for investors to buy rental properties out-of-state when homes are too expensive in their area. There are turnkey providers who offer as little as 5 percent down for investors, but they tend to have very high-interest rates. Here is a great article about turnkey providers or send me a request here for turnkey providers I know of. I bought a turnkey rental in Cleveland a few years ago.
Line of credit
I have had many lines of credit in my career. I have had lines of credit against my personal house (the house I live in) and my investment properties. It is much easier to get a line of credit against your personal house and some banks will not even offer lines of credit on investment properties. A line of credit is basically a loan against a home, but you do not have to use the money all the time. If you do not need the money you can pay it back to the bank and not be charged interest on it. When you need the money again, you can borrow it very quickly as long as the line is open.
Off-market properties
Off-market properties are purchased through direct marketing or by word of mouth. Buying off-market usually means less expensive properties and in some cases, owners with flexible terms such as owner financing. Many investors wholesale off-market properties, which you can purchase with no down payment. Wholesaling is a process of buying and selling properties very quickly. The properties must be very good deals and are usually found by direct marketing for properties. Many investors make a great living by only wholesaling properties to other investors.
Seller financing
Some sellers may be willing to finance the house they are selling or finance a second loan on a home that allows a buyer to put less than 20 percent down. If your bank is willing to offer 80 percent loan-to-value, the seller may offer to loan the other 20 percent, which would amount to no money down for the buyer. The seller may also offer a number of other loan-to-value percentages to help a buyer get into a home for less than 20 percent down.
Finding seller-financed properties is the tricky part. Most sellers are not looking to finance a loan when they sell. To find seller financed listings, look for homes that have no loans against them or an MLS listing description that say seller financing is available. The seller’s terms can vary greatly depending on how desperate they are to sell and what exactly they are looking to get out of the deal. Do not expect to pay four percent interest on a seller-financed loan; they will want a premium on any money they lend. It is also harder to find great deals with seller financing, which is key to my strategy.
There are many new restrictions on financing thanks to the recent Dodd-Frank Act.
Refinance
In most areas of the country, home values are rising and interest rates are at record lows. You may be able to refinance your home and get enough money to buy an investment property. Once you are able to buy an investment property, you can refinance it in one year (sometimes less with the right bank). With rates as low as they are, if you bought the home below market value, you should be able to take out as much as you put into the house and still cash flow. I use this refinance technique all the time. Getting lenders to do a refinance is tricky when you own multiple investment properties. I use a portfolio lender who has allowed me to use a cash-out refinance on as many properties as I want.
Below is a property I refinanced:
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Move in ready Houses
A move-in ready property means all the repairs are completed and it is ready to rent as soon as you buy the home. There can be many advantages to buying a nice home. The biggest advantage is you do not have to pay for repairs. You also do not have to spend time waiting for repairs to be done, which saves money on mortgage payments, utilities, and other carrying costs. The downside of a move-in ready property is that it is usually more expensive and provides less cash flow than a home that needs work.
Credit cards
A few other ways to get quick cash can be very expensive and are usually reserved for people looking to do a quick flip. If you have a killer deal you cannot pass up, you may want to consider these options, but I do not recommend using them unless it is necessary. The easiest way to get quick cash is with credit cards. You can get a cash advance or pay for repairs using your credit card. If you use a credit card to finance your down payment or repairs and cannot pay it off right away, do not pay the 17 percent interest rate. Do your best to get another card that will allow a balance transfer. Many times, you can transfer all of your balance and pay little to no interest for up to a year. That may give you enough time to pay off the card and not to be stuck with a high-interest rate eating all of your profits. I also suggest using a rewards card for repairs on your investment properties. If you pay the balance off every month, this is a great way to make a little extra money.
Self-directed IRA
If you have money invested in an IRA, you are not limited to investing in stocks or mutual funds. There are special self-directed IRAs that you can use to purchase an investment property. You can use your IRA for down payments and repairs and then collect rent in the IRA.
401K
Some 401ks allow an investor to take out a loan against them. You usually have to pay back the loan relatively quickly and pay interest on the loan. You have to be very careful when borrowing from a 401k because the money you borrow is no longer earning interest or growing in your retirement fund. If you lose your job, you also may be required to pay back the loan within 60 days or pay a 10 percent penalty and income tax on the loan.
Subject to loans
With a subject to loan, you buy a house without paying off the previous owner’s mortgage. This is another tricky situation; investors must be very careful with it. Most bank mortgages are not assumable; when the homeowner sells the house, they have to pay the loan in full. The bank most likely will have a due-on-sale clause that says the loans must be paid in full, once the property transfers ownership. With subject to loans the new investor buys a house subject to an old mortgage and does not pay off the loan. There is a chance that the bank will require the loan to be paid off if they find out that the home has been sold.
Investors buy homes subject to a mortgage so that they do not have to get a new loan. It may be hard for the investor to qualify for a mortgage or they may be maxed out on being able to get new loans. If you buy a home for $80,000 that has a $75,000 mortgage in place, the investor would only need $5,000 to buy the house instead of the normal 20 percent or more.
Fannie Mae Homepath program
The Fannie Mae Homepath program on their REO properties allows investors to put only 10 percent down and allows up to 20 financed loans in one person’s name, which is also a huge bonus. It is very difficult for many investors to get loans on more than four properties.
This program has been discontinued.
Conclusion
Rental properties can be expensive, but there are ways to purchase them with less than 20 percent down. If you are short on cash, buying properties with little money down can accelerate the purchasing schedule and increase your returns. However, you will most likely make less money on each property, because borrowing that last 20 percent can be much more expensive than the first 80 percent.
My book Build a Rental Property Empire, goes over how to buy investment properties with little money down. It also covers how to find deals, finance rentals, manage them, and much more! It is available as a paperback and ebook on Amazon or as an audiobook on Audible.