Save Money On Taxes With These Mortgage Deductions

Soon Uncle Sam is going to be knocking on your door with his hand out. While April 15^th is perhaps our least favorite day of the year, there are things you can do to save on your taxes. For example, you can save a bundle on your taxes by using mortgage interest deductions.

I would never recommend buying real estate because of the tax deductions that you will receive; but since you already have this property, let’s make sure it works for you. One way your house can save thousands of dollars every year is to make sure you are taking all of the allowable IRS deductions.

What is the Mortgage Interest Deduction?

This IRS tax deduction allows you to claim all of the annual interest payments you have made on your mortgage. This can substantially lower your tax bill. It is sort of the IRS’ way of rewarding you helping the economy by buying a home instead of renting.

Your largest mortgage interest deduction is going to be right at the start of your mortgage – now how nice is that? Since you pay more interest than principle in the beginning of your mortgage, your tax deduction will also be larger.

For example, say you financed $250,000 last year when you bought your house. The 30 year mortgage carried an interest rate of 4.5 percent. Your payment is $1,267 per month. During the year of 2016, you will have paid $11,167 in interest. Now wouldn’t you say that is a nice IRS deduction? But as time passes and you start paying less interest and more principle, your deduction is going to diminish. For example, 10 years later, your deduction is only going to be $8,881.

How to Deduct Your Mortgage Interest?

First, if you want to use the mortgage interest tax deduction, then you will have to itemize your deductions instead of taking the standard deduction. What is nice is that most of the online or tax software programs will allow you to test out both scenarios to see which total deduction is higher.

What Other Home Expenses can I Deduct?

Your mortgage interest is, by far, the largest single deduction you will make. But while you are itemizing all your deductions, you might as well include all of the other deductions allowed from owning a home.

On your itemized deduction sheet, you can also claim your property taxes and mortgage insurance. There are also deductions such as installing a home office or renovation work – but just make sure you consult with your CPA first to get all the details.

You need a place to live. You have to pay the interest on your mortgage. You might as well make that money pay you something back. Itemizing your tax deductions, so that you can include all your mortgage interest and other allowable living expenses, is an ideal way to do that.

The Full Story About Low and No Down-payment Home Loans

Article submitted by: Wendy Thompson, Bank Of England Mortgage

A no down payment mortgage allows first-time home buyers and repeat home buyers to purchase property with no monies required at closing. Other options, including the FHA Home Loan, the HomeReady™ mortgage and the Conventional 97 loan offer low down payment options with a little as 3% down. Mortgage insurance premiums typically accompany low and no down payment mortgages, but not always.

Is A No Down Payment Mortgage Right For You?

It’s a terrific time to buy a home.

Sales are rising, supply is dropping, and prices have increased in many cities and neighborhoods. Compared to next year, today’s market may look like a bargain.

Rates for 30-year loans, 15-year loans, and 5-year ARMs are cheap, which has lowered the monthly cost of owning a home.

The Down Payment Hurdle

However, it’s not the monthly payment that scares off new buyers these days — it’s the prospect of having to put 20% down.

Buyers are earning good incomes, but few have much saved in the bank.

The good news is that there are a bevy of mortgage programs requiring little or no money down and they’re available to the general public — no hoops required.

Want to buy a home with little or nothing down? You can.

Home Buyers Don’t Need to Put 20% Down

In today’s U.S. housing market, home buyers don’t need to make a 20 percent down payment. Many believe that they do, however.

It’s a common misconception that “20 Percent Down” is required to buy a home. And, while that may have true at some point in history, it hasn’t been so since the advent of the FHA loan, which occurred in 1934.

The likely reason why buyers believe a 20% down payment is required is because, with one specific mortgage type — the conventional mortgage — putting twenty percent down means private mortgage insurance (PMI) is not required.

PMI Is Not Evil

Paying PMI is neither good nor bad, but consumers seem to abhor it.

The purpose of private mortgage insurance is to protect the lender in the event of foreclosure — that’s all it’s for. However, because it costs money, private mortgage insurance gets a bad rap.

It shouldn’t.

Because of private mortgage insurance, home buyers can get mortgage-approved with less than 20 percent to put down and, eventually, private mortgage insurance can get removed.

At the rate at which today’s homes are increasing in value, a buyer putting 3% down would pay PMI for fewer than four years.

That’s not long at all. Yet, many buyers — especially first-timers — will put off a purchase because they want to save a larger down-payment.

Meanwhile, home values are climbing.

For today’s home buyers, making a down payment should be consideration, but it shouldn’t be the only consideration.

This is because home affordability is not about the size of your down payment — it’s about whether you can manage the monthly payments and still have cash left over for “life”.

A large down payment will lower your borrowed amount and, therefore, will give you a smaller monthly payment to make each month. However, if you’ve depleted your life savings in order to make that large down payment, you’ve put yourself at risk.

Don’t Deplete Your Entire Savings

When the majority of your money is tied up in a home, financial experts refer to it as being “house-poor”.

When you’re house-poor, you have plenty of money “on-paper”, but little of it available for the everyday emergencies of life.

And, as every homeowner will tell you, emergencies happen.

Roofs collapse, water heaters break, you become ill and cannot work. Insurance can help you with these issues sometimes, but not always.

That’s why you being house-poor can be so dangerous.

Many people believe it’s financially-conservative to put 20% down on a home. If that 20 percent is everything you have, though, putting twenty percent down is the opposite of being financially-conservative.

The true financially-conservative option is to make a small down payment.

Being house-poor is no way to live.

No Down Payment: VA Loans (100% Financing)

The VA loan is a no-money-down program available to members of the U.S. military and surviving spouses.

Guaranteed by the U.S. Department of Veteran Affairs, VA loans are similar to FHA loans in that the agency guarantees repayment to lenders making loans which means VA mortgage guidelines.

VA loan qualification are straight-forward.

VA loan qualifications are available to active duty and honorably discharged service personnel are eligible for the VA program. In addition, home buyers who have spent at least 6 years in the Reserves or National Guard are eligible, as are spouses of service members killed in the line of duty.

Some key benefits of the VA loan are :

You may use intermittent occupancy
Bankruptcy and other derogatory credit do not immediately disqualify you
No mortgage insurance is required

VA loans also allow for loan sizes of up to $636,150 in high-cost areas. This can be helpful in areas such as San Francisco, California; and Honolulu, Hawaii which are home to U.S. military bases.

No Down Payment: USDA Loans (100% Financing)

No Money Down options exist for non-military borrowers, too. The U.S. Department of Agriculture offers a 100% mortgage. The program is formally known as a Section 502 mortgage, but, more commonly, it’s called a Rural Housing Loan.

The good news about the USDA Rural Housing Loan is that it’s not just a “rural loan” — it’s available to buyers in suburban neighborhoods, too. The USDA’s goal is to reach “low-to-moderate income homebuyers”, wherever they may be.

Many borrowers using the USDA Single Family Housing Guaranteed Loan Program make a good living and reside in neighborhoods which don’t meet the traditional definition of rural.

Some key benefits of the USDA loan are :

You may include eligible home repairs and improvements in your loan size
There is maximum home purchase price
Guarantee fee added to loan balance at closing; mortgage insurance collected monthly

Another key benefit is that USDA mortgage rates are often lower than rates for comparable, low- or no-down payment mortgages. Financing a home via the USDA can be the lowest cost means of homeownership.

Low Down Payment: FHA Loans (3.5% Down)

The FHA mortgage is somewhat of a misnomer because the FHA doesn’t actually make loans. Rather, the FHA is an insurer of loans.

The FHA publishes a series of standards for the loans it will insure. When a bank underwrites and funds a loan which meets these specific guidelines, the FHA agrees to insure that loan against loss.

FHA mortgage guidelines are famous for their liberal approach to credit scores and down payments. The FHA will typically insure a home loan for borrowers with low credit scores so long as there’s a reasonable explanation for the low FICO.

The FHA allows a down payment of just 3.5 percent in all U.S. markets, with the exception of a few FHA approved condos.

Other benefits of an FHA loan are :

Your down payment may consist entirely from “gift funds”
Your credit score requirement is 500
Mortgage insurance premiums are paid upfront at closing, and monthly thereafter

Furthermore, the FHA supports homeowners who have experienced recent short sales, foreclosures or bankruptcies through the agency’s Back to Work program.

The FHA insures loan sizes up to $636,150 in designated “high-cost” areas nationwide. High-cost areas include Orange County, California; the Washington D.C. metro area; and, New York City’s 5 boroughs.

Low Down Payment: The HomeReady™ Mortgage (3% Down)

The HomeReady™ mortgage is special among today’s low- and no-downpayment mortgages.

Backed by Fannie Mae and available from nearly every U.S. lender, the HomeReady™ mortgage offers below market mortgage rates, reduced mortgage insurance costs, and the most innovative underwriting idea on more than a decade.

Via HomeReady™, the income of everybody living in the home can be used to get mortgage-qualified and approved.

For example, if you are a homeowner living with your parents, and your parents earn an income, you can use their income to help you qualify.

Similarly, if you have children who work and contribute to household expenses, those incomes can be used for qualification purposes, too.

Furthermore, via HomeReady™, you can use boarder income to help qualify; and, you can use income from a non-zoned rental unit, too — even if you’re paid in cash.

HomeReady™ home loans were designed to help multi-generational households get approved for mortgage financing. However, the program can be used by anyone in a qualifying area; or who meets household income requirements.

Read this complete HomeReady™ Q&A for more on the program.

Low Down Payment: Conventional Loan 97 (3% Down)

Editor’s Note : The Conventional 97 program was originally discontinued in December 2013. It was later reinstated by the Federal Home Finance Agency in late-2014. This section has been updated to reflect the new product’s guidelines.

The Conventional 97 program is available from Fannie Mae and Freddie Mac. It’s a 3 percent downpayment program and, for many home buyers, it’s a less-expensive option as compared to an FHA loan.

Furthermore, the Conventional 97 mortgage allows for its entire three percent downpayment to come from gifted funds, so long as the gifter is related by blood or marriage; or via legal guardianship or domestic partnership; or is a fiance/fiancee.

The Conventional 97 basic qualification standards are :

Loan size may not exceed $424,100, even if the home is in a high-cost market.
The subject property must be a single-unit dwelling. No multi-unit homes are allowed.
The mortgage must be a fixed rate mortgage. No ARMs via the Conventional 97.

The Conventional 97 program does not enforce a specific minimum credit score beyond those for a typical conventional home loan. The program can be used to refinance a home loan, too.

Low Down Payment: The “Piggyback Loan” (10% Down)

The “piggyback loan” program is typically reserved for buyers with above-average credit scores. It’s actually two loans, meant to give home buyers added flexibility and lower overall payments.

The beauty of the 80/10/10 is its structure.

With an 80/10/10 loan, buyers bring a ten percent down payment to closing. This leaves ninety percent of the home sale price for the mortgage. But, instead of giving one mortgage for the 90%, the buyer splits the loan into parts.

The first part of the 80/10/10 is the “80”.

The “80” represents the first mortgage and is a loan for 80% of the home’s purchase price. This loan is typically a conventional loan via Fannie Mae or Freddie Mac; and it’s offered at current market mortgage rates.

The first “10” represents the second mortgage and is a loan for 10% of the home’s purchase price. This loan is typically a home equity loan (HELOAN) or home equity line of credit (HELOC).

Home equity loans are fixed-rate loans. Home equity line of credits are adjustable-rate loans. Buyers can choose from either option. HELOCs are more common because of the flexibility they offer over the long-term.

And that leaves the last “10”, which represents the buyer’s down payment amount — ten percent of the purchase price. This amount is paid as cash at closing.

80/10/10 loans are sometimes called piggyback mortgages because a second loan “piggybacks” on the first one to increase the total amount borrowed.

80/10/10 loans are meant to give buyers access to the best pricing available, so lenders may sometimes recommend an alternate structure. For example, for buyers of condos, a 75/15/10 is advised because condo mortgages get better rates with LTVs of 75% or less.

As another example, interest rates on HELOCs are sometimes better at larger loan sizes. Your lender may recommend that you increase the size of your HELOC, then, to lower your overall loan costs. The choice of your loan’s structure, though, remains yours.

You can’t be forced into borrowing more money on your second mortgage than makes you comfortable.

Mortgage Down Payment FAQ

How can I buy a house with no money down?

In order to buy a house with no money down, you’ll just need to apply for no-money-down mortgage. If you don’t which mortgage loan is your best zero money down option, that’s okay. A mortgage lender can help steer you in the right direction. There are multiple 100 percent mortgages available for today’s home buyers.

Can cash gifts be used as a down payment?

Yes, cash gifts can be used for a down payment on a home. However, when you’re receiving a cash gift, you’ll want to make sure you follow a few procedures.

For example, make sure the gift is made using a personal check, a cashier’s check, or a wire; and keep paper records of the gift, including photocopies of the checks and of your deposit to the bank. Also, make sure that your deposit matches the amount of the gift exactly.

Your lender will also want to verify that the gift is actually a gift and not a loan-in-disguise. Cash gifts do not require repayment.

What are the FHA down payment assistance programs?

FHA down payment assistance programs are available to home buyers and 87% of U.S. single-family homes potentially qualify. Programs will vary by state, so be sure to ask your mortgage lender for which programs you may be eligible. The average home buyer using down payment assistance receives $11,565.

Are there any home buyer grants?

Home buyer grants are available to U.S. home buyers and all are eligible to apply, which are also known as down payment assistance (DPA) programs. DPA programs are widely-available but seldom used — 87% of single-family homes potentially qualify, but less than 10% of buyers think to apply. Your mortgage lender can help you determine which DPAs are best for you.

What are the FHA loan requirements?

The FHA loan requirements are; 1.) You must have a credit score of at least 500; 2.) Income which can be verified using W-2 statements and paystubs, or federal tax returns; 3.) No history of bankruptcy, foreclosure, or short sale within the last 12 months. 4.) You must not be delinquent on your federal taxes, your federal student loans, or any other federal debt.

What are the benefits to putting more money down?

Just as there are benefits to low and 0 money down mortgages, there are benefits to putting more money down on a purchase. For example, when you put more money down on a home, the amount you need to mortgage is less, which reduces your monthly mortgage payment. Additionally, if your mortgage requires mortgage insurance, with more money down, your mortgage insurance will “cancel” in fewer years.

If I make a low down payment, do I pay mortgage insurance?

When you make a low down payment, you’re more likely to pay mortgage insurance (MI), but not necessarily. For example, the VA Home Loan Guaranty program doesn’t require mortgage insurance, so if you use a VA loan, making a low downpayment won’t matter. Conversely, FHA and USDA loans always require mortgage insurance so even with large down payments, you’ll have a monthly MI charge.

The only loan for which your down payment affects your mortgage insurance is the conventional mortgage. The smaller your down payment, the higher your monthly PMI. However, once your home has twenty percent equity, you’ll eligible to have your PMI removed.

If I make a low down payment, what are my lender fees?

The size of your down payment doesn’t relate to your lender fees. No matter how large or how small your down payment, your lender fees should remain equal. This is because mortgage lenders are prohibited from charging higher fees based on the size of your down payment . It should be noted, however, that different loan types may require different services (e.g.; home inspection, roof inspection, home appraisal), and this may affect your total loan closing costs.

What is the minimum down payment for a mortgage?

The minimum down payment for a mortgage are:

VA loan: 0% down payment
USDA loan: 0% down payment
Conventional 97 mortgage: 3% down payment
HomeReady™ mortgage: 3% down payment
FHA loan: 3.5% down payment

In addition to the above programs, down payment assistance programs are often available and provide, on average, more than $11,000 to today’s buyers of homes.

How can I fund a down payment?

A down payment can be funded multiple ways, and your lender will often be flexible. Some of the more common ways to fund a down payment is to use your savings or checking account; or, for repeat buyers, the proceeds from the sale of your existing home.

However, there are other ways to fund a down payment, too. For example, home buyers can receive a cash gift for their down payment or can borrow from their 401k or IRA (although that’s not always wise).

Down payment assistance programs can fund a down payment, too. Typically, down payment assistance programs grants money to home buyers with the stipulation that they live in the home for a certain number of years — often 5 years or fewer.

Regardless of from where you fund your down payment, though, make sure to keep a paper trail. Without a clear account of the source of your down payment, a mortgage lender may not allow its use.

How much home can I afford?

The answer to the question of “How much home can I afford?” is a personal one, and one which should not be left to your mortgage lender.

The best way to answer the question of how much can you afford for a home is to start with your monthly budget and determine what you can comfortably pay for a home each month. Then, using your desired payment as the starting point, use a mortgage calculator to work backwards in order to find your maximum home purchase price.

Note that today’s mortgage rates will affect your mortgage calculations so be sure to use current mortgage rates when you’re doing your calculations. When mortgage rates change, so does home affordability.

Zero Down Mortgage Loans

Zero down mortgages are 100% financed loan types offered by the U.S. Department of Agriculture (USDA loan or “Rural Housing Loans”) and the Department of Veteran Affairs (VA loan). Additionally there are several low down payment options like the FHA loan (3.5% down), the conventional 97% (3% down) and the HomeReady mortgage (3% down).

Note: Find out which low down-payment mortgage loans you qualify for – Quickly, with no pressure: Click here

See How Home Appraisals Impact Your Purchase – It’s A Big Deal…

You have spent months searching for the perfect home and now you have found it. You haggled with the seller and you finally agreed on a price. While you are getting your home inspection completed, your lender has hired a real estate appraiser to appraise your purchase. It looks as if everything is finally going your way – but then you get the phone call.

The lender calls to say that the appraised value is less than your purchase price. Oh isn’t that just great! The lender informs you that he cannot write the loan unless you come up with the difference. But you have everything you own into this deal already. What happened? And what is more, what can you do about it?

How the Appraisal Process Works

An appraiser is not out to ruin your deals. He wants you to close on this as much as the other guy. But he has been hired as a neutral third party to make sure that the market value of the property is equal to or greater than your purchase price. You do not want to overpay for the house, no matter how much you love it, and your lender doesn’t want you to over pay either.

After inspecting the property, a real estate appraiser will head back to his office and determine the value of the property. He will look at the value of the land and the construction value of all of the improvements, less the depreciation. This is called the Cost Approach.

Then he will go find at least three recent sales that are in as close proximity, size and construction quality as possible. If there are any differences between these comps and the subject property, he will make monetary adjustments to each of the comps. For example, let’s say the house you are buying has 2,300 square feet but the comparable has 2,600. The appraiser will multiply the additional 300 square feet by the market value and then subtract it from the sales price of the comparable. From these adjusted figures, he determines a value to your property.

Why is the Appraisal Less than the Purchase Price?

If the appraisal comes in for more, we are all ecstatic and praise the merits of the appraiser. But, if he says the property is worth a little less than the purchase price, we freak out and claim that the appraiser is an idiot. Well, it is not that simple.

The reality is that the appraiser thinks of homes in a range of value rather than one concrete number. For example, say your offer on the 2,300 square foot 3 bedroom/2bath is $198,000. If 100 hundred people made an offer on that property would all of the offers be $198,000? No but I bet that 80% of them would fall between 5% either side of the purchase price say $188,100 to $207,900. In reality, that property is worth between $188,100 and $207,900. Any offer in that range would be reasonable.

That makes sense, right? But the problem here is that the lender wants one number to work off of. What is more, lenders also have their own guidelines on what makes an appraisal acceptable for underwriting. The appraiser is balancing between all of these factors. If he lacks perfect comps and his adjustments are too high or too many, the lender may not accept his appraisal at all – even if he meets the sales price. Which is still a problem for you.

What Can You Do with a Low Appraisal?

The first thing is to ask yourself if the appraiser is correct, do you want to still purchase the home at your purchase price? Should you negotiate a lower price? Speak to your real estate agent about it.

The next step would be to have your lender contact the appraiser and see if there is some “wiggle-room.” Could he perhaps use a different comp? Could an adjustment be altered just a smidge to push up the value? Is the purchase price within the appraiser’s range of value? Often a little tweak is all that is needed.

If those fall through, then the choice is to either pay more out of pocket to close the loan or to start shopping for another home. That choice is entirely up to you, but regardless of your decision, aren’t you glad you know the true worth of the property?

Questions regarding the home loan process? Get quick answers here: Click Here

Horrible Mortgage Advice You Need To Stop Believing

Getting a mortgage in Tennessee can be a long, complicated affair, so naturally home buyers appreciate all the help they can get to make the process a little easier. Many people who may or may not have knowledge or experience with mortgages will throw their advice into the hat with all the best intentions, but what worked for them might be completely wrong for you.

Before you risk losing your dream house over what a friend of a friend’s cousin did when they got their own mortgage, make sure you read this list of bad advice to the very end.

“You don’t really need to bother with getting pre-approved”

Why people say this: From their perspective, you haven’t even found the house you want, so why get ahead of yourself and bother with all that paperwork? Besides, getting pre-approved doesn’t even mean you’ll get a loan. You might as well wait for an underwriter to take a good look at your full application.

Why you shouldn’t listen: While they are right in saying that getting pre-approved isn’t final, it reduces the risk of running into problems later in the process. Getting pre-approval from a bank will help you avoid the heartbreak that comes from falling in love with a house you can’t buy. Pre-approval actually sets you apart if there is more than one offer on the house. Sellers feel more assured when they see that a prospective buyer has been evaluated buy a bank.

Start the process early to put yourself in the best position to receive the loan you want.

“Don’t apply for a mortgage at a bank you don’t have an account in”

Why people say this: They imagine that you will get better rates just because you’ve had an account with that bank for sometime. Surely, this will make the process much quicker.

Why you shouldn’t listen: Before you buy a house, you look at many different options to find the one that’s perfect for you. It’s no different with your mortgage. Experienced real estate attorneys will tell you that although your bank will promise a faster, easier process with them. In reality that isn’t always the case. Sometimes another bank might have more favorable rates for your situation. Always go with the place that gives you the best terms.

“Forget about the fine print, it’s not that important. It’s all about how much they’re giving you”

Why people say this: There’s so much paperwork involved. Are you really going to read through all of it? You probably won’t understand most of it. Everyone gets pretty much the same contract anyway. Just look at a few key figures and sign.

Why you shouldn’t listen: The fine print is where all the juice is! You are entering into a long term contract with a financial institution. If anything goes wrong, you risk losing your house. You definitely want to read every single word of the contract and highlight any parts you don’t fully understand. Many homeowners have discovered items that they had to dispute buried in the fine print of their contract. Yes, it might take you longer, but you will be sure nothing has gone over your head.

“Just go with whoever has the lowest interest rate”

Why people say this: If the interest rate is low, the monthly payments will be low. Duh…

Why you shouldn’t listen: This isn’t that straightforward. Your terms might include a lower interest rate, but often with adjustable-rate mortgage. You need to read the fine print to make sure the lower interest rate means what you think it does.

Adjustable-rate mortgages actually aren’t so bad in some situations. Wendy Thompson from Bank Of England Mortgage in Memphis advises that home buyers should be cautious when lenders push interest-only adjustable mortgages. It can put you in a bad position if rates increase later on.

Before, the value of homes was going up as interest rates came down. In that circumstance, adjustable-rate mortgages made sense for people–especially people who weren’t planning to extend the loan past its first term. Interest rates might seem low now, but they’re quite likely to go up soon so be extra careful.

To find out what you qualify for, click here

Your Credit Report Can Affect Your Loan Even After It’s Approved…

…And it’s all Fannie Mae’s fault.

The Loan Quality Initiative

Now, we all know Fannie Mae doesn’t create any loans. Instead, it purchases loans from different banks and turns them into securities backed by mortgages. It is therefore in Fannie Mae’s best interest to make sure all the loans it buys are up to its standards. That way, the quality of their securities is guaranteed.

This is exactly what happens when your loan is approved for closing– it (most likely) meets Fannie Mae’s standards. We say “most likely” because in the past, Fannie Mae had to conduct an audit on its loans after the rate of foreclosures began to rise year on year. It discovered that some loans weren’t underwritten according to it guidelines which put its security business at risk and affected their profits.

The Loan Quality Initiative was created to reduce the number of “bad loans”. The initiative has an incredibly wide scope. For the banks it buys from, it adds extra precautions (read: paperwork) to the underwriting process. Now, details like occupancy and social security numbers need to be validated which of course takes more time.

At this point you might be wondering what all this has to do with you. Unlike Fannie Mae, you don’t need to be concerned about how the banks make loans. You only need to be concerned about one thing–your credit rating.

Your Credit Is Pulled Up Again Just Before You Get The Funds

Under the Loan Quality Initiative, lenders need to verify credit ratings again just before they close to make sure nothing has changed. This means that although your lender has looked at your credit profile and given you the okay, Fannie Mae will need them to take another look–just to be sure nothing has changed.

These extra checks ensure that loans are given at the right price, and are funded based on your risk at the close of the application, rather than at the open. Many loans take some time to process and a lot can change in that time especially if the borrower knows they have gotten past the first hurdle of approval.

All this means that you have to be extra careful to make sure nothing affects your credit score while your loan is processing. Here are some of the questions they will be asking when they re-pull your credit rating:

Have you applied for any new sources of credit (eg credit cards) while your loan was processing?
Have you maxed out any of your existing credit cards while your loan was in process?
Have you taken any vehicle financing while your loan was processing?
Have you made any other major purchase while your loan was in process?
Have you taken on any debts that you haven’t disclosed while your loan was processing?

If the answer is yes to any of these questions, your lender’s alarm bells will immediately start to go off. Your final credit profile needs to match your original credit profile, otherwise your mortgage might need to be underwritten again and worse still, your application could be rejected. You definitely don’t want to go through all the trouble of getting your finances in order at the beginning of the application, only to get denied at the end because you made a bad decision.

The 3 Things Your Lender Will Look At When Your Credit Is Re-pulled

So far, we’ve explained what the Loan Quality Initiative is, why Fannie Mae needs banks to re-pull credit profiles just before closing and what that means for you. It’s easy to avoid putting yourself in a bad situation if you know exactly what the lenders do when they go through your credit. Here are 3 of the most important items and how the lender will react to them:

The bank will: Use your new minimum payment to calculate your DTI (debt-to-income ratio) again. If it is larger than Fannie Mae’s maximum DTI allowance, the mortgage will be rejected.

You should: Ensure you are not running up credit cards before your loan is approved. Give yourself extra insurance by paying more than the minimum required where possible.

The bank will: Compare your new credit score to Fannie Mae’s minimum credit score criteria. If yours falls below this number, the price of your loan might change, or your loan could be denied altogether.

You should: Pay all your bills on time, avoid taking on unnecessary debt and avoid looking for new credit while your loan is processing to avoid reducing your credit score. You can keep an eye on your credit rating by requesting an analysis from a local mortgage loan officer…

The bank will: Check the ‘Credit Inquiry’ section of your credit profile to see if there are any undisclosed liabilities. If they find anything, they will request documentation to support the inquiry and use this information to underwrite your mortgage again.

You should: Not look for new credit until the funds from your loan are in your account. I repeat, do not look for new credit until your loan is fully funded.

Remember that all this happens after your loan has technically been approved. Nothing is final until the loan is funded, so you want to do all you can to protect your credit score. Avoid buying anything on any kind of credit during this time. That credit offer on the new sofa or lease on your second car can wait.

Getting Your Loan Funded Is Hard, But It Can Be Done.

Fannie Mae’s Loan Quality Initiative has indeed reduced the number of “bad loans” it buys. Unfortunately, this has also meant that more mortgage applications have been rejected even after reaching ‘cleared to close’ status.

We wouldn’t want you to be another casualty of the Loan Quality Initiative, so make sure you are extremely careful with your credit from the time your application opens until the time it is closed. If you really can’t avoid making a big purchase, pay in cash, or consider waiting till after your application is closed.

Haven’t Applied? Find a Mortgage With Low Rates

If you apply for one of Fannie Mae’s loans, then you have to meet the requirements of Fannie Mae’s Loan Quality Initiative. There are other options out there; you can apply for USDA loans, VA loans, jumbo loans or FHA mortgages which all have different requirements. Even if you don’t go for a Fannie Mae loan, it’s still a smart idea to keep your credit rating high while your loan is being considered.

The first step is to arrange a mortgage strategy session with a qualified loan officer. You can do so here

Buying a New Home? Here Are 4 Ways A Mortgage Lender Can Help

The journey to buying a home can be a long and sometimes stressful one. In this journey, lenders are often painted as the bad guys who are killing people’s dreams of becoming homeowners.

In reality, lenders are the ones who made it possible for so many Americans who couldn’t afford to buy their houses outright to become homeowners by giving them a mortgage. You can think of them as white picket fence fairies if you like.(Or not…) In situations where a customer has a bad credit score, or can’t come up with a down payment and therefore isn’t eligible for a loan, lenders are often the best people to help them get back on track.

If you are willing to reach out to your mortgage lender, they might actually be the ones who help you get the loan you’re looking for. Here are 5 ways they can assist you:

Lenders can help you get pre-approval

Before you start considering neighborhood and number of bedrooms, it is a good idea to get pre-approved by a lender. They will comb through your finances and decide how big a loan they are willing to give you. Wendy Thompson from Bank Of England Mortgage in Memphis, TN says that it is best to apply before you have made an offer on a house. If you wait till then, you could run into big problems.

Getting pre-approved acts as an extra guarantee to sellers, realtors and yourself that you will be able to secure a mortgage once you find your dream house. According to Jean, it’s a good idea to get approval 1-2 months in advance. Be careful not to set out for approval too far in advance though, as they are only valid for 30-60 days.

If the house search takes longer than you expected and your pre-approval expires, don’t worry. Getting it renewed isn’t difficult. In most cases you would just need to run your credit again, get an up to date bank statement and you’re good to go!

If you don’t get pre-approved, lenders can show you how to get back on track

We understand that rejection is painful, but buying a house is a process. You have to be in it for the long haul. A lender is in the best position to tell you exactly what you need to do, or show to get approval the next time you apply and they’re often quite happy to do so.

Lenders can help you get a higher credit rating

I bet I’ve caught your attention now. Low credit scores are often the reason people’s approval requests are rejected. Simply put, the higher your score, the more likely you are to get that mortgage. The opposite is also true.

The great news is that credit ratings aren’t set in stone. They can be improved. And who better to help you do that than a lender who understands more than anyone else how a low credit score affects your chances of being approved. Credit repair companies offer the same assistance but at a high cost to you.

In most cases, lenders would be happy to tell you the things you need to do to improve your score. These changes might not kick in for months, but lenders can do what we call a ‘rapid re-score’ that will update your information in days. You definitely want a lender in your financial corner.

Lenders can help uncommon borrowers

Majority of the people looking to get a mortgage for a house will be earning a regular monthly income from which they can make the repayments. If you are an entrepreneur, a contractor, or a freelancer whose income structure looks a little different, having a relationship with a lender can help you understand what you need to do to show that you are loan-worthy.

Wendy says, “We’re basically just going to look at the last 2 years of tax returns, instead of W-2’s and pay stubs.” She also suggests applying quite early if your income is prone to fluctuation since your finances have to be looked at more thoroughly. On top of all this, you might have to consider timing more than others. If for example tax returns for the year are almost due and you had a great year, it would probably be in your advantage to wait until after you’ve filed your taxes to apply for a loan.

Regardless of the circumstance you find yourself in, to get the most help and create a great relationship in the process, you will have to call or speak to someone in person. That personal touch can make a huge difference, so pass over the online forms and reach out to someone on the phone.

To get answers to your most pressing mortgage questions, here’s the single best resource I’ve seen yet for mortgage answers: Click here

Don’t Ever Do These 5 Things With Your Down Payment

You’ve finally saved up enough money for a down payment on a decent house in a nice area. You’re proud of yourself (#success) and well, you should be. But here comes the tricky part.

You don’t have a house just yet, but you have this big stash of cash (hopefully) in an account somewhere. A lot can happen to that money between now and the day you get the keys to your dream home if you aren’t careful.

What do I mean, you ask? Well.. Have you ever said you’d do something on a certain day at a certain time and not done it? That’s exactly what I mean. In this case, the consequences could mean you are under a stack of extra paperwork, or worse still, your mortgage request gets denied.

If you’re doing any of the 5 things below, I suggest you stop right this minute!

Hide it under your bed

Having a piggy bank when you were younger was cute and more importantly, it helped develop a savings habit. Storing cash in a box under your bed as an adult is a different story entirely. Nothing against having a physical reminder to save–particularly if you earn tips in cash and only take them to the bank once it’s a substantial amount.

But having large amounts of money lying around is risky not just because it could get stolen or misplaced, but because you are missing out on money you could be earning through interest. If you put your cash in an account that earns interest, you put your money to work for you – Far better than letting it depreciate in value right?

Another reason to deposit your cash in an account regularly is that some lenders see large deposits before escrow and assume it is a loan you got elsewhere unless you prove to them that it isn’t. It’s never a good idea to raise red flags prior to closing. You want a smooth transaction right? This leads to our next point…

Large last minute deposits

This is a big no no. Even if you know you will be getting a large portion of the down payment from your parents on your wedding day for example, make sure you don’t deposit it all at once a week before your meeting with the lender. As mentioned above, lenders will assume that a large sum of money coming in at once means that you’ve just received a loan. Letting the money ‘season’ in the account for some time (we’d recommend 60 days) will make sure no red flags are raised.

In our experience, most lenders will look at 2, or 3 months of bank statements to understand your financial situation before they can approve a mortgage. So if you want to dump a huge pile of cash into your account, just make sure it’s before those all-important 60 days.

Invest in high-risk products

Having all that money in your account might make you think you should do something smart with it so it isn’t just sitting there. If you can multiply it, then you’ll have even more money for a down payment, right? Well not really.

We aren’t saying you shouldn’t invest your money, we’re just saying you shouldn’t invest this money. You want to stay as far away as possible from stocks and other high-risk investments. If something happens and the stock price crashes, you’ll end up in a worse position than when you started out. You’ll then have to start saving all over again. If you must do something, we would suggest a money market account, or a Certificate of Deposit (CD).

Although an interest-earning money market account won’t make you rich, it’s the best place to store your money until you need it.

Keep your funds in another person’s account

Now this might seem obvious, but it happens quite often. If your family or partner for example is contributing to the down payment, you might keep all the money in their account until you need it. This can be a real obstacle to getting your loan. The lender wants to see that you, the buyer, can afford the down payment.

As we mentioned before, they usually look at 2 months of your statements before deciding to approve a loan. If these funds are kept in someone else’s account, that could raise a flurry of red flags and give the lender a reason to reject your request.

In cases where you and your partner have a joint account and you both have decent credit scores, you’re good to go. If however, one person’s credit rating is less than stellar, it would be in your best interest to move the funds to a separate account.

Last minute consolidation

Buying a house is a big decision which often takes a few weeks to finalize. The last thing you want to do is gather the money from your different accounts and make one big transfer 2 weeks before you go to the mortgage office. This is a paperwork nightmare for your lender and trust us, you want to keep your lenders happy.

Instead, prepare ahead of time and put your money together 1 – 2 months before you apply. We’re not saying this alone will get your loan rejected, but as discussed earlier, ‘seasoned’ funds will help shorten the time it takes for you to get a decision.

All in all, make sure you keep an eye on that money in the months before your loan application to avoid getting rejected after you’ve put in so much effort into saving up.

Have mortgage questions you’d like answered in a hurry? Click here to view the single best mortgage answers resource in Tennessee

Planning to use your last paycheck for a down payment? Think again

Looking to buy a house? Here’s something you might not have considered: Putting money aside from your regular paycheck could delay your mortgage. It may seem counter-intuitive, but I’ll explain.

The decision to purchase a house is a big one. You need strategic planning, an above average credit rating, a good handle on any debt and a good income. Being able to put aside up to 3.5% of the whole price can make all the difference in some cases. In other situations, you might need to put down as much as 20% of the total price of your dream home.

Unfortunately, certain types of savings are better than others. When you put aside money from your paycheck (a great way to build financial discipline), that money is not necessarily eligible to be used as a down payment. In the mortgage world, it is referred to as ‘income from assets’ (the asset being your paycheck), and this type of income is generally frowned upon.

Let’s imagine your earnings after tax for that month is $6000. That $6000 would need to remain in your bank account for at least 60 days for it to be deemed ‘seasoned’ enough for the down-payment. This is a way for banks to be sure that you aren’t just using your earnings to close the deal, but can save on your own. If you are in the middle of closing a deal on a house, this ‘unseasoned’ money might stall that process. In the event that this is your only option for the down-payment, we suggest you make sure the funds have been in your account for at least 60 days.

Now, while this is in no way the biggest consideration in the whole process of buying a home, it is definitely something that your banker will look into. You don’t want to give them any reason to delay your dreams of being a homeowner. Using your latest paycheck in particular will be a red flag to any bank’s underwriter. It’s like putting your hand between the elevator doors just before they close rather than pressing the button and waiting for it like everyone else.

If your main obstacle to getting a mortgage right now is cash, don’t worry; all is not lost. One option might be to create a new savings plan and wait until you do have enough money saved up. Another is to ask for a contract over a longer term. Your lender will have his own targets, so he/she could help you come up with a plan to get your cash ready.

P.S., Mortgage lenders will be looking for applicants with good credit ratings, so it is in your best interest to find out whether you are one of them. A high credit score can also get you lower monthly payments and better rates.

I recommend you watch the tutorial videos here, and request a FREE 15 minute Home Buying Strategy Session afterwards: Click Here To Watch Tutorials

Why the 80/10/10 Piggyback Mortgage Is Often The Cheapest Option

Piggyback Mortgages: The Low Down

Many lenders have increased their offering of low- and no-down payment mortgage options to assist home buyers. One of the latest additions is the “piggyback mortgage”. Piggyback mortgages, commonly called piggyback loans, became a popular option in the last decade. The fall in house prices from 2007-2010 saw a fall in the popularity of the piggyback loan, sometimes referred to as the ‘80/10/10’.

With home values steadily rising over the last 3 years, banks are now offering 80/10/10s again. This is part of an effort to increase the number of homeowners across the nation–particularly among homeowners who need to buy a house before the one they live in is sold off.

With a piggyback mortgage, you can get a loan with a down payment of just 10% and avoid having to pay the mortgage insurance payments that usually come with low- and no-down payment loans

Thinking of buying a house but can’t afford to put down 20%? The piggyback mortgage might be perfect for you.

How Does A Piggyback Loan Work?

A piggyback loan is essentially two separate mortgage loans. The first is a mortgage that covers most of the total borrowed amount, the second mortgage covers the remainder. This loan structure is called a ‘piggyback’ because the second loan is set up to “piggyback” on the first one, adding up to a mortgage size that is equal to the total amount being borrowed.

You can get a piggyback loan for up to 90% Loan-To-Value (LTV) on the total price of your house. The first loan will typically cover 80% of the price, while the second ‘piggyback’ loan covers another 10%, hence the name ‘80/10/10’.

The 80 in 80/10/10 represents the value of the first mortgage, the ‘10’ represents the second mortgage and the other ‘10’ represents the 10% down payment made by the home-buyer. In a standard piggyback mortgage, the 80 is set up as a fixed rate mortgage over a 30 year term and the 10 is usually a HELOC (Home Equity Line of Credit).

Another common arrangement for the piggyback loan is the 75/15/10. With this structure, the first loan covers 75% of the total purchase price, the second covers 15% of the total purchase price and the last 10% represents the 10% down payment made by the home-buyer.

The 75/15/10 is a popular choice for people looking to buy condominiums because mortgage rates for this type of home are often higher when the LTV of the first loan is more than 75%. In order to avoid those higher rates, condo buyers will reduce the size of the first loan to 75%. The other 15% is covered by the HELOC.

Other home buyers use piggyback loans when the price of the home they’re buying exceeds their local mortgage loan limit. Through the piggyback loan, they can borrow as much as $417,000 on their first loan, then borrow the remainder through the second loan.

For example, a home buyer in Memphis, TN wants to put down 20% on a home that’s valued at $600,000. He may opt for a first mortgage of $417,000 and add a second, ‘piggybacked’ mortgage of $63,000 for a total of $480,000, which is 80% of the total price of the house.

There are several other situations like this where a piggyback loan is ideal.

You Don’t Have To Pay PMI With a Piggyback Loan

Because your first loan is capped at 80% LTV, piggyback loans might be a great way to pay a low down payment (10-15%) on a house without having to pay PMI. For a lot of home buyers, this is the main reason they choose the piggyback option.

To show you exactly how the piggyback mortgage works, imagine a home buyer in Houston who has good credit and would like to buy a home that costs $400,000 with a 10% down payment. Assuming that this buyer is not in the military and therefore wouldn’t qualify for a VA loan, here are a few mortgage options he can choose from:

An FHA mortgage loan that allows for a 3.5% down payment
The conventional 97 program that allows for a 3% down payment
A Home-Ready loan that allows for a 3% down payment
A conventional loan at 90% LTV
An 80/10/10 piggyback mortgage loan

We can immediately rule out the Conventional 97 as the rates for a borrower making a down payment of just 3% are higher than for a borrower making a down-payment of 10%. The Conventional 97 is thus not the most ideal option for our buyer.

An FHA loan might not be the most suitable either, because, with a down payment of 10%, it’s usually cheaper to just use a conventional loan at 90% LTV. This leaves the buyer with the options of conventional financing, the HomeReady loan and the piggyback loan.

With conventional financing at 90% LTV, our buyer will have to pay monthly PMI fees on top of the higher rates he will be charged for putting down only 10%. Although PMI is a temporary charge, the higher rate isn’t.

To qualify for a Home-Ready loan, your house must be within certain areas; or, your income must be within specified limits. This too, isn’t ideal for our buy so the piggyback is a clear winner.

Our buyer can get a first mortgage loan of $320,000 and an additional piggyback loan of $40,000 to make the full $360,000.

Financial Safety and Future Planning

Piggyback mortgage loans also offer one huge advantage over single-loan programs — they are fantastic tools for financial planning. This can be attributed to the piggyback’s structure. Remember that the first loan is for up to 80% of the total price of the house and the second is usually a home equity line of credit (HELOC).

HELOCs work in almost the same way a credit card does, except that instead of starting out with a zero balance like you would with a credit card, you start “maxed out”. This means you have the capacity to borrow if you need to because you can pay off your HELOC at any time.

For instance, if you reduce your HELOC balance by $10,000 during its term, at any point in the future, you can easily write a check of $10,000 to yourself. At the end of the day, it’s your money. You can completely pay off your HELOC if you want and just keep it as an option in the future.

This is a trick that home-buyers who need to secure a new place before moving out of their current one use often. They purchase the house on an 80/10/10 loan and then use the funds from the sale of their house to pay off their HELOC. The safety net that 10% provides will come in handy in the event of any emergency or unexpected expense. Similar to a credit card, no interest is accrued if no money is borrowed, which makes the ‘open’ HELOC a fantastic tool for financial planning.

I strongly recommend that you click here to find out which mortgage loan programs you qualify for

How To Get Out Of Paying Private Mortgage Insurance (PMI)

Avoiding Private Mortgage Insurance When You’re Buying a House

If you put at least 20% down, you can get out of paying PMI. If your mortgage already includes PMI, your lender can cancel it once they see that the principal balance of the loan is 80% or less of the house’s original assigned value; or, 80% of the market value of the house.

You Can Put Down Less Than 20%

For the last 10 years, lenders have gradually reduced the requirements for mortgages, making it easier than ever to borrow more money with a smaller down payment. We have written about several no- and low-down payment mortgages that are accessible to homebuyers today. These include the FHA loan, the Conventional 97 loan, the USDA and VA loans–both of which can provide up to 100% financing.

The impact of these programs led the National Association of Realtors to carry out a study which showed that the average home buyer in 2015 put down just 10%, and had the other 90% of the house price financed by a mortgage.

If you make a down payment that is less than 20%, you have to pay for Private Mortgage Insurance (unless you got a VA loan). PMI is a charge that is added to your monthly mortgage payment and is mandatory until your equity on your house reaches 20%. While PMI is seen as an extra burden, it’s what has allowed buyers from the U.S. get houses with a down payment that’s less than 20%.

What Exactly Is PMI?

PMI is an insurance policy that was set up to safeguard your mortgage lender in the event that you aren’t able to pay back your loan. PMI is usually charged when a buyer’s home equity is lower than 20%. PMI can therefore be assigned to both refinance and purchase money loans.

PMI was created because homes which defaulted and were then sold at an auction for example, wouldn’t recover the full value of the home because of damage, wear, neglect etc. The lender therefore needs to offset the amount of risk taken by requiring PMI from homeowners with less than 20% equity. PMI is “private” in the sense that it’s a service offered by private companies rather than the government. Unlike with FHA MIP, you stop having to pay PMI once your equity in the house gets to 20%. With a standard FHA loan, the only way to cancel this insurance charge is by refinancing.

How Much Is PMI?

The cost of PMI depends on how much risk you pose to the bank. A smaller down payment is likely to increase your PMI costs. As a rule of thumb, PMI costs start at 30 basis points (0.30%) of the total annual loan balance and can go up to 115 points (1.15%). Factors such as size of down payment, credit score and total loan term contribute to your final rate.

The total PMI cost is divided into 12 and added to your monthly mortgage payment. For example, a buyer with a credit score of 740 who is putting down 5% and lending $250,000 over a 30-year fixed-rate mortgage term would pay about $110 in PMI every month. Note that the PMI premiums change often. Each state will have different PMI cost, and so will each provider. If you know you will require PMI, it is best to ask your lender to do a comparison so you get the best deal.

Can I Cancel PMI?

Of course you can! And it’s a much simpler process than cancelling the standard FHA MIP. You can cancel PMI once the principal balance of your loan falls to 80% of your house’s original, or market value.

Your lenders are legally required to inform you of all your options at least once a year. This includes letting you know about the Homeowners Protection Act (1998) that made it the lender’s duty to cancel PM as soon as the homeowner’s principal reaches 78% of the purchase price of the home.

The only thing to note with this is that you have to be current on the loan when it falls to 78% Loan-To-Value (LTV) for your PMI to be cancelled. If you aren’t current at that time for some reason, you will still have to pay PMI until the first day of the first month after you get current.

The Homeowners Protection Act also permits homeowners to ask for PMI cancellation once they’ve gotten to 80% LTV, based on the original value of the house. In this case you will have to contact your lender, not the other way around.

Is there a way to just not pay PMI at all?

Glad you asked. And yes, there are many ways to avoid your PMI altogether. PMI was set up to assist home buyers who could only put down less than 20% down for their homes, however, some home buyers would rather just avoid it. If you’re one of them, here are a few ways to go about it:

The simplest, most straightforward answer is to put down 20% or higher as PMI doesn’t apply on down payments of 20% or more.

The second solution is limited to military borrowers. If you have served in the military, you might be eligible for a VA loan which doesn’t charge PMI.

Beyond these, there are a few clever ways to get out of PMI. Most lenders will offer Lender-Paid Mortgage Insurance (LPMI) as an option. LPMI is pretty much the same as PMI, except that the burden of payment falls on the lender. In exchange for paying your PMI, your lender will likely ask you to take on a higher mortgage rate (usually an increase of up to 75 points (0.75%)). Make sure you discuss this option thoroughly with your lender as LPMI can’t be canceled.

One other option is to use something called “piggyback financing”, which will require you to put down 10%. With piggyback financing, you the buyer will need to put 10% down at closing and instead of getting a mortgage for the other 90% of the home’s value, you take on two mortgages that are “piggybacked” on each other.

Most piggyback loans are arranged as a 10% down-payment with a first mortgage of 80% and a second mortgage of 10%. This arrangement is commonly known as the ‘80/10/10’. If you’re buying a condo, the ‘75/15/10’ arrangement might be more suitable.

PMI isn’t such bad thing when you can’t make that 20% down payment. Here’s how to find out exactly how much PMI would cost you on your mortgage: Click here