Topics:Homeowner Tips Downpayment Home Improvement First-Time Homebuying Working With An Agent Successful Selling House Hacking Best Mortgage Rates Companies real estate investing Closing Costs Home Loan Research
November 5th, 2021
July 28th, 2021
After hours spent researching and comparing mortgage options, you’ve finally closed on your loan with your chosen mortgage company. But after a few months, you receive notice that your loan has been sold. At first, this news may seem like a reason to worry, but it really isn’t. The truth is that mortgage companies buy and sell loans all the time. It’s a common practice in the industry that makes it possible for companies to offer home loans in the first place. But let’s answer some big questions that you might have: Why did my lender sell my loan?What does it mean for me that my loan has been sold?Which mortgage companies don't sell loans? For answers to other questions you may have, jump down to the FAQ section. Why did my lender sell my loan? Before you can understand why your mortgage lender sold your loan, let’s take a look at some of the key players in the mortgage industry: Mortgage lender — Your mortgage lender is who lent you the money to purchase your home and who typically works with you directly on anything related to your mortgage. Loan servicer — Your loan servicer handles your mortgage after closing on your home loan. You make your payments to your loan servicer, typically facilitated by your lender. Investor — Investors purchase mortgages from lenders. After a mortgage is sold to an investor, a lender may retain servicing rights, which means that you’ll continue making payments to the same company even though they don’t technically own the loan anymore. While each of these entities are involved in helping you purchase a home, it is important to remember that they don’t view your mortgage loan the same way that you do. For you, your mortgage is a big personal investment, perhaps a step closer to achieving important life goals. For mortgage lenders — banks or other financial institutions — your mortgage loan is solely a financial asset. search Lenders typically sell loans for two reasons: Free up capital to offer mortgage loans to other homebuyers Generate cash while retaining servicing rights to a loan When you get a mortgage you will be required to pay interest on your loan. Interest will be combined with your principal loan amount into a monthly payment — payments that you will be making for the next 15 to 30 years depending on your loan term. While the lender will make money from these payments each month, it typically isn’t enough money to support further lending opportunities to other homebuyers at the same time, which is the case for many brokers and small lenders. Lenders would quickly max out how many people they could lend to if they had to wait three decades to get all their money back, so they sell loans to free up cash and continue offering mortgages to other homebuyers. In addition to interest, lenders also charge various fees, but selling loans is a much faster way to make more money and replenish funds to lend to others. It’s important to understand that your loan broker/bank/lender doesn’t make money by lending money. They’re in the business of wholesaling loans and collecting a fee for their efforts. Your “lender” makes money on origination fees and the incentives they are paid by larger lenders. Let’s use a simple example. Suppose your local bank has $1,000,000 to lend. How many home loans can they make with a limited amount of cash? Maybe three or four home loans. However, what if they could sell your loan, replenish their money and receive a few thousand dollars for their efforts? — Robert Taylor, The Real Estate Solutions Guy In most cases, your lender will sell your loan to a large mortgage company like Fannie Mae or Freddie Mac, two U.S. government-sponsored entities that buy loans from banks and lenders. Loans are also frequently sold between private mortgage lenders and banks. Whether your loan is sold to Fannie Mae, Freddie Mac, or another private mortgage lender, you don’t get to choose to whom your loan is sold. For the most part, who your loan is sold to won’t make a difference, but for some borrowers this can be cause for frustration if their loan is sold to a company or lender that they aren’t familiar with. When you get a mortgage loan, there is a high chance that it will be sold, creating a cycle that has a significant impact on the availability of mortgages to other homebuyers and the economy as a whole. What does it mean for me that my loan has been sold? When your mortgage is sold, not much should change on your end. If your mortgage has been sold, resist the need to obsess. The loan's terms, such as the interest rate, monthly payment, and remaining debt, will remain constant.The primary responsibility you should prioritize is data management. Keep an eye out for reminders regarding the need to update your payment details. You may need to reroute an ACH withdrawal or mail a check to a new address. And you will not be penalized if you recently made a payment to the former owner of the mortgage. There is a 60-day grace period following the sale of service rights. — Jennifer Harder, CEO and Founder of Jennifer Harder Mortgage Brokers Your loan rate and term will remain the same. The only change you may need to worry about is if your loan servicing has been transferred. search If your mortgage loan is sold, two payment scenarios may occur: You continue making payments to your original lender You begin making payments to your new loan servicer If you neglect to confirm where you’re making payments moving forward, you run the risk of sending payments to the wrong place and then incurring late payments. If your payment circumstances change, requiring you to either mail payments to a new address or set up an online account elsewhere to make direct payments, your lender will alert you and provide direction on how to proceed. In addition, your new loan servicer is also required to notify you within 30 days of the service transfer. When you receive notice that your mortgage has been sold, the most important thing you can do is check — and double check — the information provided. When you receive notice that your loan has been transferred, double check the loan details, such as the loan number, to make sure it’s not a scammer trying to dupe you into sending them money. You can (and should) call your previous lender as well, to confirm the loan transfer. Beyond that, just start making your monthly payment to the new lender each month. — Brian Davis, Founder of SparkRental It's important to remember that when your loan is sold to a different lender, your interest rate and loan terms always stay the same. The only thing that can actually change is when and where to send your monthly payments, which is why the first thing you should do after receiving the ownership transfer notice is to read it very carefully; make sure that all your personal information and loan terms are correct. You should also look for the date from which your new lender will take over as well as the new billing information so that you can set everything up for your next payment. Overall, there's nothing major or negative that you should worry about when having your loan sold, just make sure all the information is correct and you can continue paying your mortgage as normally do. — Chris McGuire, Owner of Real Estate Exam Ninja search When you receive notice from your new loan servicer, look out for the following details: Name, address, and phone number of the new loan servicer Loan details (loan type, loan number, etc.) Date of loan sale Date of when the new loan servicer takes possession of the loan New loan billing information Contact information for the party who can resolve loan disputes and receive legal notices Your contact information — make sure it is all correct If you take the time to carefully read your mortgage transfer notice, and contact your previous and new lenders, your payment transition should be smooth, and you will continue making your mortgage payments as before. Which mortgage companies don’t sell loans? Most mortgage companies buy and sell loans — there is no guarantee, no matter your lender, that your loan won’t be sold. However, some lenders strive to service all loans that they underwrite and process. We analyzed the more than 4,600 mortgage company reviews on BestCompany.com and took a deep dive into 114 reviews mentioning a customer’s loan being sold or bought. From this analysis we learned that two companies stand out from the rest for being more likely to fully service your loan without selling. Quicken Loans On BestCompany.com, 3 percent* of customers mentioned in their review that they chose/like Quicken Loans because the company doesn’t sell loans: Quicken Loans, via Rocket Mortgage, states that it is proud to service the majority of loans that it originates. However, there is no guarantee that your loan will not be sold if you choose this lender. *Taken from a sample of 114 customer reviews on BestCompany.com. New American Funding In mortgage company reviews left on BestCompany.com, 3 percent* of customers mentioned that they chose/like New American Funding because the company doesn’t sell loans: While New American Funding can’t guarantee that it won’t sell your loan, the company strives to service the majority of loans that it originates. *Taken from a sample of 114 customer reviews on BestCompany.com. Additional company review insights From our customer review analysis, we also discovered the following insights about the customer experience when a loan is sold: 31% of customers don’t like their new loan servicer — due to a variety of reasons including, but not limited to, poor customer service and difficulty in making payments. 19% of customers are happy with their new loan servicer. 10% of customers mention that their loan was sold almost immediately after closing, which was often unexpected. 10% of customer reviews are for the mortgage company, Better.com. 3% of customers mention that they didn’t receive notice that their loan was sold. Fifty percent of reviews remark on whether or not a customer likes their new loan servicer after their loan was sold. Although you can’t necessarily control who your loan will be sold to, there are some things you can do to help prevent your loan being sold to a servicer that you don’t like or trust: Take time to research mortgage companies and ask about their servicer/investor networks. While companies aren’t obligated to disclose this information, it never hurts to ask. Better.com, for example, states on its website that it has a robust network of banks, government-sponsored entities, and publicly traded companies. In addition to this, Better.com states that it collects third-party reviews on the service their partners provide to ensure a quality experience for customers. Carefully read your mortgage agreement. Mortgage companies are required to disclose whether or not they’ll sell your loan in your mortgage agreement. While this may not provide you with specific information on your lender’s servicer/investor network, it gives you an opportunity to approach the subject with your lender. One of the most important things you can do to secure a more enjoyable mortgage experience, whether or not your loan is sold, is to do your research and ask your mortgage lender as many questions as you can before signing on the dotted line and closing on a loan. The bottom line It is very likely that your mortgage loan will be sold at least once during your mortgage term. But, there's no reason to worry. If your loan is sold, carefully read the notice sent to you by your lender and make sure you understand where you will be making payments. And if you have further concerns, speak to your original lender and new servicer to make sure that you’re all on the same page. Frequently asked questions How quickly will my loan be sold after closing?What do I do if I don't like my new loan servicer?What if I don't receive notice that my loan has been sold?Can my new loan servicer charge me additional fees?How many times can my loan be sold?Can I do anything to prevent my loan from being sold?Can I choose who my loan who is sold to?Are there mortgage companies that don't sell loans? How quickly will my loan be sold after closing? Your loan can be sold at any time — immediately after closing to 10 years after the fact. From customer reviews on BestCompany.com, many customers mention that their loan was sold much faster than they anticipated. It is worth preparing yourself for this reality, especially if you are borrowing from a small broker or lender. What do I do if I don’t like my new loan servicer? You don’t have any control over who your loan is sold to, which can be problematic if your loan is sold to a servicer that you don’t like or trust for any reason. If you don’t like your new servicer, there is the option to refinance with a different lender, which will change the rate and term of your original loan. Refinancing is a good idea if you can secure a lower interest rate and/or more favorable loan term, helping you save money on your mortgage overall. If you won’t be able to secure more favorable loan terms, it might not be worth refinancing just to get out from under your loan servicer. What if I don’t receive notice that my loan has been sold? Mortgage companies are required to give you notice if your mortgage loan is sold. In addition, your new loan owner is required to notify you within 30 days of the service transfer. Ensure that your contact information — mailing address, email address, and phone number — are correct before closing on a loan to make sure that the company can reach you for any reason. If you don’t receive any notice or you have any questions about the mortgage selling process, speak with your original mortgage lender and new servicer. You also have a 60-day grace period when your loan is sold in case you send payments to your old lender instead of the new one, allowing time to take care of any discrepancies in the loan transfer process. Can my new loan servicer charge me additional fees? In most cases, no, you will not be charged any fees when your loan is sold. How many times can my loan be sold? There isn’t necessarily a limit to how many times your loan can be sold. In many cases, homeowners don’t experience their mortgage being sold more than once or twice. Can I do anything to prevent my loan from being sold? The short answer is no, there isn’t anything you can do to prevent your loan from being sold. Can I choose who my loan is sold to? Mortgage companies have specific servicer/investor networks from which they buy and sell loans, and you don’t get to choose which company your loan is sold to. Are there mortgage companies that don’t sell loans? There aren’t any companies that never sell loans. However, some companies strive to service a majority of the loans they originate, such as Quicken Loans or New American Funding. However, even these companies sell loans, so there is no guarantee that your loan won’t be sold.
In 2019, first-time homebuyers made up 33 percent of all homebuyers in the United States. That's an average of 1.5 million Americans. Millennial-aged consumers make up the largest demographic of first-time homebuyers and they're facing a different housing market than their parents, as well as increased student debt, making it more difficult to buy a house. However, that doesn’t mean that millennials, or anyone else for that matter, can’t or shouldn’t buy a house. Instead, it is important to ask the right questions: How much money do I need to buy a house? Should I pay off debt before buying a house? How do I get a mortgage? Click on the links above to find the answers to these questions. While these three questions obviously aren't exhaustive, they do offer a solid foundation and place to start in the home buying journey. To get an inside look at the first-time home buying process, we touched base with Rebecca Hunter, CEO at The Loaded Pig, who purchased her first home back in the summer of 2019. From her experience, Hunter recommends asking the right questions about potential mortgage lenders; in particular, how you would be communicating with your lender: “I guess the main pain point that could have been avoided was that we picked an online lender so that we didn't have to deal with a person in an office or on the phone, but we ended up having to talk on the phone multiple times a day during the entire closing period. So asking, what is your main way to communicate during the closing process? Since your company is an online lender, does that mean that we will only communicate online?” Many of the top mortgage lenders today are online, making it easier to apply for and manage your home loan. But, if problems arise or you have questions, it is important to know how you’ll most easily be able to communicate with your lender. Once you have chosen a lender, or at least whittled down your list to your top two or three, there are some more important questions that you can ask about each lenders’ expertise and experience, which could potentially save you from stress later down the road. “The huge issue that our lender brought to our attention exactly one week from closing was that they miscalculated the taxes and we had to pay off a $10,000 auto loan in order to close on the house,” Hunter describes. “This seemed like a lack of experience, so some questions I might have asked are: How experienced are your underwriters? How many years has this lender been in business? What percentage of loans that are approved actually close on time?” Beyond figuring out how a mortgage and down payments work, when it comes to buying your first house, it can be hard to know what questions you should be asking, especially once you start looking at homes. Asking the right questions and taking time to do your research may seem like a long and painstaking process, but it can help ensure that you really do find the right house for you. Questions to ask when buying a house: How Much Money Do I Need to Buy a House? Should I Pay Off Debt Before Buying a House? How Do I Get a Mortgage? First-Time Homebuyer Guide A complete guide for first-time homebuyers including key terms, the step-by-step process of buying a house, and helpful FAQs. Download
Buying a house is a large investment, and it can be daunting, especially if you have existing debt that you are paying off; credit cards, auto loan, student loan(s), etc. So you may be asking yourself, should I pay off debt before buying a house? You would think that the answer to this question would be a simple yes, since having less debt is better when taking on a new debt, right? In reality, the answer is a little more nuanced. While paying down, or completely paying off debts can be helpful in freeing up some extra cash that can be put towards a down payment, closing costs, and subsequent monthly mortgage payments, it is important to understand the relationship between debt and the mortgage process. First-Time Homebuyer Guide A complete guide for first-time homebuyers including key terms, the step-by-step process of buying a house, and helpful FAQs. Download Jason Gelios; REALTOR®/Author Industry Expert Having some debt can be good: It's always better to have less debt when applying for a mortgage, however not having any debt can also backfire because lenders like to see some responsibility managing debt. Sometimes I meet with first-time homebuyers who may need to establish debt to qualify for a mortgage. On the other hand I have seen some home buyers have to pay down or pay off debt to be approved for a mortgage that will fit within their budget by getting them the more attractive rate. A helpful place to start is understanding what mortgage underwriters are looking for. Underwriting is a crucial part of the mortgage process, and is ultimately the deciding factor in whether or not you’ll be approved for a home loan by a lender. Generally, underwriting occurs behind the scenes while home appraisal is taking place. An underwriter will carefully assess your finances to give the lender an idea of how much of a risk you are, resulting in an approval decision. Underwriters often look at the following: Credit history — Your credit report will be pulled and the underwriter will carefully review your current credit score, as well as your credit history, including things like payments and your overall use of credit. Income — You will be asked to provide proof of employment and income. Savings — The underwriter will take a look at your savings to ensure that you have enough money in addition to your income. Having strong savings is important in the case of an emergency or if you need some extra cash to make a down payment on a home. Home appraisal — An appraiser will inspect the property that you wish to buy and place a value on the property. This process is generally required in the home purchasing process. Assets — Your assets can be sold in case of loan default to make mortgage payments. Since the down payment and closing costs can be a substantial amount of money, underwriters will often look at this information to ensure that you can make your monthly mortgage payments. Debt-to-income (DTI) ratio — Your DTI is how much credit you use in relation to your income, and it is presented as a percentage. This ratio allows an underwriter to see how much debt you currently have and if you have enough cash flow to take on another large debt, in this case a mortgage. So how does your debt affect these and other important mortgage process factors? Let’s take a closer look. Debt and your credit score No debt is equal to a better credit score, right? Well, no actually. A higher credit score requires some responsibly managed debt, meaning that you always make payments on time. Your credit score is calculated based on your debts and how you manage them. If you don’t have any debt, you won’t have a credit history, and lenders won’t be able to verify how you manage borrowed money. However, lowering debt, instead of eliminating it, could be a helpful practice, particularly to help meet the costs of buying a house and to continue making your mortgage payments. But you should be careful in how you go about lowering debt, because doing too much too soon could have an adverse affect on your credit score. When you pay off a loan, or any other type of debt, your credit score will temporarily drop; the same occurs if you close credit card accounts. While it may not always be wise to maintain debts for the sole purpose of achieving a high credit score, it is important to understand the timing of paying off debt in relation to applying for a mortgage. Therefore, a good rule of thumb may be to not pay off debts or close credit card accounts immediately before applying for a mortgage. Underwriters, who are scrutinizing your credit, generally don’t like to see credit changes immediately before funding a home loan, and so it could be in your best interest to hold off on paying down your debts and/or closing credit card accounts. And, a healthy credit score is required if you want a lower interest rate. But, how do you know whether or not it’s a good idea to pay off your debts or not? “People looking to purchase a home for the first time should meet with a mortgage professional who will look at their credit and income to see if it makes sense for them to pay down or pay off debt to get approved for a better loan,” says Gelios. “If a first-time homebuyer can get approved for a higher amount they want or need while getting a better rate if they pay off debt and increase their credit scores, then that is the route they should go.” Debt-to-income ratio As was mentioned earlier, your DTI ratio is how much credit you use in relation to your income, and is typically presented as a percentage. This ratio is the second largest factor, after making on-time debt payments, that makes up your credit score. “Most lenders like to see an applicant's Debt-to-Income ratio at or below 43 percent when applying for a home loan. This is the monthly debt obligation divided by the gross monthly income.” says Gelios. “For example, if an applicant has $1,000 (Monthly Debt) and $2,000 in Gross Monthly Income, their DTI would be 50 percent. So at this point an applicant would need to pay down or pay off debt to bring that percentage down.” This ratio is particularly important to underwriters because it is common that individuals with too much debt (or a high DTI ratio) are more likely to default on their loan. Thus, if you have too much debt, you may need to pay it down before applying for a mortgage. You may be thinking that it would be best to just eliminate debt entirely and not worry about this ratio, but remember that some debt is good and is important for maintaining a healthy credit score. Debt and your savings What do you do when you have some extra income? Would it be better to pay down your debts or put that money aside in savings? While it can be helpful to consider the cost of interest on your debts, or simply splitting your income in half to cover all your bases, one important consideration is whether or not you already have an emergency fund or not. An emergency fund is exactly what it sounds like: savings put aside for an emergency. Especially when buying a house, it is important to have some money set aside for unexpected circumstances from roof repair after a storm, to medical expenses that you wouldn’t be able to easily cover while also making mortgage payments, or even to unexpected job loss. In general, it is always advisable to be prepared and have some extra money in the bank. In most cases, experts advise having three to six months worth of expenses in an emergency fund. While this can vary depending on your circumstances, as well as the debts that you are paying off, setting aside whatever you can is a good idea. In the end, the decision to pay off debt or save money is a personal decision and will depend on your circumstances. The bottom line Should I pay off debt before buying a house? Whether you have existing student loan debt or credit card debt, it is generally a good idea to pay debt down before buying a house. But there are three things to keep in mind that can help you determine the best ways to pay down and/or manage your debts: Having some debt is good. Making drastic changes to your debt (paying it down drastically, paying it off, or closing credit card accounts) can impact your credit score. Underwriters don’t like to see a lot of changes before funding a loan. Building or fortifying your emergency fund is always a good idea. You never know what might come up. If in doubt, talking to a mortgage professional or loan officer can be a helpful way to more accurately assess how to approach your debts before buying the house of your dreams. Choose a Mortgage Lender Once you've got your debts and finances in order, it's time to choose the best mortgage lender for your needs. Compare Expert contributor: Jason Gelios is an award-winning, top producing REALTOR® and author.
Guest Post by G. Brian Davis One of the huge advantages of rental properties over stock trading or other paper assets through an investment brokerage is the ability to predict returns accurately. With stocks, you buy and hope the price goes up. With rental properties, you know the precise cash flow you can expect each year. Before you invest, however, make sure you understand exactly how to forecast rental cash flow. Cash flow and cash-on-cash return Far too many novice real estate investors think their cash flow equals “rent minus the mortgage payment.” It's a good way to lose your shirt in real estate. In fact, non-mortgage expenses generally add up to around half the monthly rent. Most of these expenses don’t hit you every month, so novice investors ignore them. But they add up, when averaged over time — rental investors refer to this as the “50% Rule.” To calculate the monthly cash flow of a rental property, you need to first add up all expenses, many of which must be calculated as a long-term average. Subtract the total average monthly expenses from the market rent to calculate the average monthly cash flow. Note that cash flow is not the same as your cash-on-cash return for a property. To calculate cash-on-return, divide your annual net cash flow by the total cash you personally invested to acquire the property. That includes both your down payment and closing costs, plus any renovations you paid for out of pocket. For example, if you paid $30,000 in closing costs and the down payment, and the property nets you $3,000 per year in cash flow, then it’s earning you a 10 percent cash-on-cash return. Use a free rental cash flow calculator to run the numbers quickly for both monthly cash flow and cash-on-cash return for any given property. But remember, your results will only be as accurate as your expense estimates. Forecasting rental property expenses To accurately forecast cash flow on a property before buying, you need to get the expense estimates right. Here’s how to forecast every expense accurately — before shelling out money for a rental property or even an ADU. Mortgage payment Being able to leverage other people’s money to build your own portfolio of income-generating assets is one of the great advantages of investing in rental properties. Real estate investors can borrow a mortgage, typically at 70 to 80 percent LTV (loan-to-value ratio). While they don’t have as many options as homeowners, they can borrow from a conventional mortgage lender, take out a rental property loan from a portfolio lender (many of whom are crowdfunded in today’s world), or even borrow money from friends and family once they’ve established a track record of success. As a final thought, the monthly mortgage payment is the only expense that will stay fixed even as your rents rise. The other payments below typically go up over time, as your rents and property values rise. Vacancy rate No rental property is occupied every single day of every year, forever. You will have vacancies as a landlord, as you make repairs, advertise the unit for rent, screen tenants, and sign new leases. So, you need to learn the vacancy rate for the neighborhood, to estimate how long you can expect future vacancies to last for your unit. It’s a question you should ask your Realtor, as you run the cash flow numbers before making an offer. Which means you need a knowledgeable real estate agent, intimately familiar with the neighborhood and accustomed to working with investors. Repairs and maintenance Real estate is, well, real. Buildings are physical assets, unlike stocks or bonds, and they need ongoing repairs and maintenance. These costs vary based on many factors: the age and size of the building, how well the tenants treat it, and even its geography, as home maintenance costs vary across the United States. As a general rule, maintenance and repair costs typically fall between 10 to 15 percent of the rent, when averaged over time. Property management costs It takes time and effort to manage a rental property. You can incur those labor costs yourself, or you can outsource them to someone else, but either way they’re still labor costs. Most property managers charge 7 to 10 percent of the rent collected, plus one month’s rent for each vacancy filled. Some nickel and dime you for other fees as well. Set aside at least 10 percent of the rent for total property management costs, even if you plan to manage the property yourself in the beginning. It’s a labor cost for you, and eventually you’ll likely outsource it to a pro when you get sick of tenants calling you to complain that a light bulb went out. Insurance At the very least, property owners need landlords insurance. Landlords insurance works similarly to homeowners insurance, although it doesn’t cover the belongings inside the home. It only covers the building itself. Like homeowners insurance, your lender will require it, if you finance your rental property. You can optionally also purchase rent default insurance. These policies kick in if the tenant stops paying the rent: the insurance pays you the rent until you replace the tenant with someone more responsible. Property taxes The government always gets their due. Landlords pay property taxes, just like homeowners do. But when you calculate cash flow, don’t use the current property tax bill. Instead, calculate the updated property tax bill based on the purchase price. The current assessment may be significantly lower than the purchase price, and the local government will bump up the assessment after you record the change in ownership and sales price. Of course, landlords and homeowners alike should be prepared to appeal property tax assessments if they feel they’re too high. Which they often are, as local governments want to squeeze every tax dollar they can by estimating property values on the high side and putting the onus on property owners to contest them. Utilities Most landlords don’t include utilities like water, gas and electric in the rent, and require tenants to pay for their own utility bills. But that doesn’t mean landlords never get stuck with utility bills. Landlords pay for utilities while the property is vacant of course, and also sometimes get slapped with delinquent tenants’ utility bills. After all, it’s much easier for utility companies to collect from landlords than tenants, since they can simply attach a lien to the property. Accounting, travel, legal, and miscellaneous expenses Then there are all the other expenses that landlords incur. Their tax preparation gets more complicated, which means higher accounting bills. They frequently have to visit their properties, which means gas and travel expenses. They incur legal expenses from evictions to lease agreement costs. It all adds up, typically to an extra 2 to 4 percent of the rent. Sample cash flow calculation Laura Landlord is thinking about buying a property for $100,000, that rents for $1,200. She gets preapproved for a loan of $80,000 at 5 percent interest for 30 years. After doing her due diligence, she forecasts the monthly expenses as follows: Mortgage Payment — $429 Vacancy Rate — $72 (6%) Repairs & Maintenance — $144 (12% of the rent) Property Management Costs — $144 (12% of the rent) Insurance — $50 Property Taxes — $150 Utilities — $20 Accounting, Travel, Legal, Misc. — $24 Total Expenses — $1,033 Laura’s average monthly cash flow is therefore $167 per month ($2,004 per year). If she paid $5,000 in closing costs in addition to the $20,000 down payment, then her cash-on-cash return would be 8 percent ($2,004/$25,000 = 8%). Final thoughts In this example above, as often happens in real life, her non-mortgage expenses totaled around half the rent (in this case $604 per month). Laura won’t get hit with vacancy expenses or repairs every month, but when they occasionally hit, they’ll be expensive. Over the long term, they’ll average out to equal these monthly costs. Don’t ignore these expenses simply because they don’t hit you every month. Account for them before buying, and you’ll be able to accurately forecast your cash flow and returns for every rental property you buy. Which means you’ll never make a bad investment again. G. Brian Davis is a real estate investor and founder at SparkRental.com, which helps middle-class people replace their day job with rental income. They offer a wealth of free courses and tools, along with online landlord software that’s (mostly) free for landlords. He spends 10 months out of the year traveling overseas with his family and has an insatiable appetite for reading, hiking, and perfectly paired wine and food.
Guest Post by Baruch Mann (Silvermann) When you've fallen in love with a prospective home that checks off your "must haves" — the extras from your wishlist, the neighborhood you really love, the garage space you've dreamed about — it is time to move on to the next steps. While you’ll get more important details about the property, it must pass the inspection process. Additionally, since you’ve fallen in love with the property, others may feel the same way, so you’ll want to move on with the process as quickly as possible. If the property is attractive, there may be a lot of competition from other buyers. So, is it possible to deal with both tasks — passing a home inspection and beating out competing buyers — simultaneously? Can you learn if it’s the right location for your specific needs? Can you win a bidding war? How do you deal with the inspection process? And what about your finances? Figure out the final details Now that you’ve found the home that you’re interested in, use these strategies to figure out a bit more about the home and your new location: Ask the right questions — You can obtain lots of information with some basic questions. You should start by asking why the seller is selling the home and how long they lived there. Start to build a relationship that could be helpful during the negotiation process. If you're looking to buy a house that has been frequently moved out of, it could be a sign that there is something wrong in the area that requires closer attention. Are there any problem neighbors? Are there traffic issues, crime, or local businesses that could pose a difficulty? You may notice the neighborhood has lots of litter or bright lights. Conversely, there could be barking dogs at all times of the day and night and broken street lamps. Any of these issues could be a warning sign not to buy, so it is crucial to ask early on and avoid homebuyers' remorse from not asking enough questions. Talk to an agent — While you should know what's going on in the area, you may lack local knowledge. It is crucial to talk to a real estate agent to gain real insight into the area. If you're new to the area, you may not be comfortable with certain aspects of the neighborhood. Ask about issues such as school catchment areas, litter problems, parking, traffic, and noise. Think about all the things that could bother you and ensure you ask the agent about the possibilities. Visit the property at different times of the day and night, so you can get a realistic picture of the neighborhood. Use online neighborhood comparison tools — Numerous online tools can give you a general overview of new neighborhoods. Realtor and HomeFinder will not give you the skinny about the home, neighborhood, crime, schools, and more. GreatSchools.org, on the other hand, can help you to find out where the schools rank. You can compare new neighborhoods with where you currently live. This will help you to find a similar neighborhood or one with better schools or lower crime rates. Win a bidding war on the house you really want How do you win a bidding war on the house you want? It’s a very important question to consider, and here are some steps you can take to help ensure that the home will be yours: Make a good impression when you initially visit the home. Be polite, ask questions, and develop a rapport. Real estate can be a highly emotional process — the seller may be emotionally attached to their property, so it is nice to express what you like about it and why you want their home. Work with your realtor to compare listings in the area, so you can determine the right amount to offer. Generally, the more competitive the market, the nearer to the asking price you'll need to be. Come with cash. Not everyone is able to do this, but if you're in a position to make an all cash offer, you'll have an advantage. In very hot markets, with heavy investors, there are usually cash offers on the table. Sellers will be reluctant to deal with the possibility of loans now coming through, or they may not want the delay needed for mortgage processing, so cash is preferred. Develop a relationship with the seller. In the end, real estate is all about people. As we touched on above, a good relationship with the seller could help you to win a bidding war. So, you should start working on your relationship from the moment you initially visit the house. You could try writing a personal letter to the seller, explaining why you want to buy the house. If you have a young family, you could write about picturing your kids enjoying the cozy family room or playing in the yard. You could also write about how much you love the neighborhood and are looking forward to becoming an active part of it. Use the win/win perspective when negotiating Your best strategy is to position yourself as a strong buyer who’s serious about getting to the closing table. However, don't skip negotiations and be ready to walk if necessary. One of the worst things you can do is get over emotional and overextend yourself. Many people make the mistake of starting each negotiation like going into battle. This will not only annoy the listing agent you're likely to work with again in the future, but it could hurt you in the long run. Instead, focus on solutions. This will help you to avoid turning every point into an adversarial crisis. Understand what is important for the seller and aim to allow them to feel that they also won. For example, if there is a roof issue, but the seller wants to sell and move now, you could ask for a discount and do the repair yourself. If the seller is unwilling to compromise on the price, you could request extras that were not included in the home inspection report. Dealing with a rejected offer If your offer is rejected and there is no counter offer, you need to ask the seller’s agent for a reason why. There are limitless reasons why sellers choose not to move forward with an agreement. For example, the seller may have received several offers, and yours may not be the most attractive. Alternatively, the seller may decide to wait for an even better offer. If you discover your offer was rejected due to a better offer from someone else, find out if the other offer has been accepted. If the offer has already been accepted, you’ll need to start shopping for a new home. However, if the offer is still in the negotiation stage, there may be time to present a new offer. This will mean working with your agent in a bidding war. If you’re a first-time home buyer, reach out to your agent for tips on making an attractive offer. An agent familiar with the local market, who has negotiation experience will provide an invaluable resource for you during the home-buying process. Managing the inspection process When dealing with inspection, it’s recommended to have someone who understands the process with you. Understanding the inspection process is mainly based on experience, but if you know someone who deals with inspections this can be even better. When I bought my first home, I had no real idea of how it worked, so I called my father. He had a lot of experience and knowledge, so he paid attention to the details, asked the right questions, and helped me to understand potential problems. Although you'll get a report, it will be easier to understand a problem that's been explained to you, so you can see what the issue is. To negotiate for credits or repairs, you should start by obtaining a local contractor or construction professional estimate for how much the repairs should cost. If you're working with a real estate agent, they can handle the negotiations on your behalf. Supply your agent with a copy of the inspection report, so they can use it as leverage when working with the listing agent and the sellers. Make sure you get the right mortgage for your needs You need to ensure you weigh things out appropriately, and you work on which mortgage lender will be best for you and your family in the long term. This may be paying equally from the beginning or paying a little now and more later. This is based on three different things: The mortgage term — The loan term has an impact on every aspect of the loan. It affects how much you pay every month, the interest costs, and other expenses. With a longer term, you will have lower payments, making it attractive for many people, but you need to be prepared to pay more in the longer term. Interest rates and types — A fixed rate means that there will be no change in how much you'll pay. Adjustable rates are subject to interest changes, usually at specified times. Which type is preferable will depend on your specific circumstances. Mortgage types — In addition to choosing between a fixed and adjustable rate mortgage, you should look at conventional mortgages versus government loans. Each of these has drawbacks and benefits, so carefully consider these before you make a final decision. Buyers should have their funds for closing costs readily available. You'll need to be ready to wire the funds or present a cashier's check on the day prior to closing. Lenders require proof of sufficient funds for a down payment and closing costs before closing. You should also bring copies of the paperwork you received or signed during the home-buying process, plus two forms of ID and the payments you need to make. Top Mortgage Lenders Compare rates, terms, and mortgage types, and find the best mortgage lender for you. Compare Baruch Mann (Silvermann) is a personal finance expert and founder of The Smart Investor, a financial online academy for millennials that helps thousands invest smartly and make better financial decisions.
A mortgage is a type of loan that is used to finance a home purchase and gives your lender the right to take your property if you fail to make your payments. Most homebuyers need to get a mortgage, unless you can pay for the full cost of the home out of pocket. Julie Aragon, a trusted mortgage expert at Julie Aragon Lending Team, explains that getting a mortgage should always be your first step in the homebuying process: “Talk to a licensed loan officer (aka mortgage lenders) as soon as possible (definitely before you fall in love with a property) so you can understand how much you can qualify for and what types of up-front and monthly payments scenarios you'd be looking for at different purchase price points. If you're already using a real estate agent, get a recommendation from them.” To qualify for a mortgage loan, certain eligibility requirements must be met, including having a good credit score (generally at least a 580), and a low debt-to-income ratio of less than 50 percent. First-Time Homebuyer Guide A complete guide for first-time homebuyers including key terms, the step-by-step process of buying a house, and helpful FAQs. Download How does a mortgage work? Like other types of loans, your lender gives you a set amount of money that you are required to pay back over a set period of time. In addition to your loan balance, you will also be required to pay interest on your loan, which will be determined in large part by your creditworthiness and how much of a risk you pose to your lender. In most cases your home is used as collateral, meaning that the lender has the right to foreclose on your property if you miss a mortgage payment — foreclosure generally doesn’t occur until you’ve missed two or three consistent payments. How do I get a mortgage? Getting a mortgage can seem like a daunting process, but it really comes down to choosing the right lender and mortgage loan type for you. 1. Check your finances Because your mortgage interest rate and ability to qualify for a mortgage is reliant upon your creditworthiness, it is important to check your credit score. You may even need to work to improve it if possible, allowing you to get better rates and terms. Andy Kolodgie; Owner of The House Guys Industry Expert Two important things when qualifying for a mortgage: The two most important things when qualifying for a mortgage are credit score and debt to income (DTI) ratio. However, there are a multitude of other requirements that you can get caught up in (such as a minimum 2 year job history). Your DTI ratio ideally needs to be 43% or less but certainly no more than 50%. In terms of credit score, the higher the better — but any higher than 760 won’t make a difference for qualifying). The minimum credit score (unless you’re doing a VA loan, which has no minimum) is 540. While there are mortgage options if you have bad credit, doing what you can to ensure that you have a healthy credit score could save you a lot of money in the long run. In most cases, you should strive to have a credit score of at least 700. 2. Determine what you can afford It is important to take stock of your finances, make a budget, and crunch some numbers so you know how much money you will need to buy a house, including a down payment and closing costs. Ensuring that your finances are in order could save you time in the mortgage process, especially if you have an idea of what size down payment you can make. It can also provide you with peace of mind, knowing that your finances are in order and that you’re prepared to meet the costs of buying a home. How much money do you need to buy a house? Calculate how much money you will need upfront to buy a house — including a down payment, closing costs, moving expenses, etc. Calculate 3. Build your savings Buying a house is a large expense, and so it is likely that you have already built up your savings to make a down payment and pay closing costs. But, even beyond those expenses, you'll want to build up your savings so that you have some wiggle room if an emergency arises or you are met with more costs than you initially anticipated. 4. Choose a mortgage lender There are a lot of different mortgage companies to choose from, so how do you pick one? A good place to start is by comparing interest rates, fees, and down payments across lenders. Interest rates vary by loan type and term, but the average rate you will see across the industry is approximately 3 percent APR. Many lenders offer lower rates, such as AmeriSave with rates as low as 2.328 percent. The interest rate you will receive will be dependent on your credit score and current finances, so it can be helpful to pre-qualify with various lenders to compare the rates that you would get. Many mortgage lenders have an application fee, loan origination fee, third-party fees, and other government processing fees. The cost of these fees may vary by lender, and some lenders may not have certain fees, and so it is important to do your own research to see what fees your top lenders have. For a conventional loan you can generally make a down payment as low as 3 percent, but this will also depend on the lender that you choose. Sundance Brennan; American Financial Network, Inc. Industry Expert Tips for choosing a mortgage lender: There are a lot of mortgage lenders in the marketplace. When people ask me who they should be working with, it’s usually less about the rates and fees and more about service and trust. The playing field has been leveled in terms of rates and fees that are allowed to be charged and there isn’t really a wide range of costs in today’s market. You can certainly find some price differences, but in the macro sense, our borrowers are savvier than they have ever been. With information readily available on the internet, lenders have found that they need to be priced very near their competitors to find success. That should give the borrower some peace of mind knowing that reasonable prices happen when there is an open competitive market. Read reviews online, find a personal referral if at all possible, and make sure that when you speak to your loan officer you are comfortable with all of their answers and guidance. In addition to typical mortgage factors such as rates and fees, we wanted to know what mortgage consumers were most concerned about in a mortgage lender. So, we took a look at the mortgage company reviews left on BestCompany.com. From these reviews, customers most often mentioned the following in their mortgage loan experience: 65% mention customer service 38% mention speed and efficiency in the overall mortgage process 20% mention transparency 16% mention interest rates Customer service For the majority of consumers leaving reviews, customer service is one of the most important aspects of the mortgage process. In many reviews, consumers name specific loan officers that they worked with, either describing positive or negative experiences. On many mortgage company websites you can search for loan officers to try and find the best fit for you and your needs. Speed and efficiency It takes an average of 30 days to process a mortgage loan application, but in many cases, this process can take a much longer amount of time, up to 60 days. But, consumers prefer companies that can process an application quickly and efficiently. Transparency In many negative mortgage company reviews, customers detail experiences in which companies were not transparent with costs — customers were hit with much higher costs at the close of the mortgage loan process than they were given at the beginning of the process. Interest rates It is surprising that mortgage consumers are quick to mention customer service, speed and efficiency, and company transparency before interest rates. Thus, it can be inferred that customers are more concerned about the overall experience of working with a company than rates and terms. However, this is still an important factor in the mortgage loan process, and consumers do want low rates. Julie Aragon; Julie Aragon Lending Team Industry Expert Make sure you read mortgage lender reviews: We recommend finding someone who has a lot of experience in the area(s) you're eyeing for your purchase. Start with recommendations from local friends and/or family who've had good experiences with lenders in the past. No matter what, research online reviews. Read Top Mortgage Company Customer Reviews Compare top-rated mortgage companies and read reviews from real customers to find the best lender for you. Compare 5. Choose the right mortgage for you Since mortgages aren’t “one size fits all” there are a variety of loan options available, allowing consumers to tailor their mortgage to their needs and finances: Conventional loan — The most common type of mortgage loan. A conventional loan isn’t backed by a government agency and is instead backed by a private lender. Generally, this loan type will require a down payment of at least 3%. Adjustable rate mortgage (ARM) loan — With an adjustable rate mortgage loan, your interest rate will vary throughout the loan. This means that your initial interest rate will be lower than with another type of loan, but that rate will fluctuate, raising and lowering your monthly payment as you’re paying off your mortgage. FHA loan — An FHA loan is backed by the Federal Housing Administration and accepts down payments as low as 3.5% with a credit score as low as 580. This loan type can be a great option for first-time homebuyers. VA loan — VA loans are offered by private lenders and are partially backed by the U.S. Department of Veteran Affairs. This loan type offers mortgages to military service members, veterans, and select military spouses with a 0% down payment. USDA loan — Only available to eligible rural homebuyers, a USDA loan is backed by the U.S. Department of Agriculture. This loan type offers low interest rates and a 0% down payment, but you must buy a home in a designated rural or suburban area. Jumbo loan — A jumbo loan is used to finance expensive properties that exceed the limits of a conventional loan. This list is not exhaustive, and it is important to note that not all lenders offer all loan types. But, the lender you choose to work with will be key in helping you know which loan type will best fit your needs. 6. Get pre-approved for a mortgage Mortgage pre-approval is a preliminary evaluation by a lender to determine whether or not a borrower is eligible for a mortgage loan. If you are pre-approved, the lender will provide you with a letter, which will be necessary to have when you’d like to place an offer on a house. In general, it takes 1 to 3 days to receive a pre-approval letter. 7. Go house hunting When you’re ready to start the house hunting process, it will be important to find a real estate agent. While you can buy a home without using an real estate agent, it is recommended to use one to simplify and help throughout the house hunting process. "Real estate agents take a bigger responsibility with the whole process in buying a house. When you are a first-time home buyer it is best to ask for assistance from real estate agents since they will make your home hunting easier," says Ben Singh, Owner/Founder of SEEB Homes. "They will be alert for issues that might not cross your mind when buying a house and they will address it quickly. It will save you a lot of time and money since they can give you researched, current, and reputable data regarding a neighborhood's demographics, crime rates, schools, and other important factors." 8. Close on a home Once you’ve found the home of your dreams, it’s time to close — transfer the ownership of the home from the seller to you, the buyer. If you have a real estate agent, they will take care of the majority of the closing process. But, this process generally includes getting a home inspection, renegotiating the home sales prices, if necessary, completing your mortgage application, getting homeowners insurance, and then signing on the dotted line of the closing documents. Who are the top mortgage lenders? We took a look at customer reviews for the top-rated mortgage companies on BestCompany.com, and we noticed that customers most often outlined sentiments and experiences with customer service, the overall loan process, and interest rates. Keep reading for a breakdown of customer reviews for each company. AmeriSave Mortgage search Highlight: AmeriSave offers an efficient loan process and low rates AmeriSave Mortgage is one of Best Company's top picks for a mortgage lender, offering low rates and a quick and easy loan process that will get you to closing faster. AmeriSave Mortgage was founded in 2002 and has funded over $55 billion in home loans and has been trusted with over 280,000 homes. As the top-rated mortgage company on BestCompany.com, 87 percent of AmeriSave Mortgage reviews are 4 or 5 stars. From these positive reviews, we gained the following insights*: 59% of customers mentioned positive experiences with customer service. Loan officers were professional, knowledgeable, and quick to respond. 42% of customers mentioned that AmeriSave’s loan process was fast and easy. In addition, 21% of customers specifically noted how they appreciated that the AmeriSave loan process was almost entirely done online. 23% of customers mention low and competitive rates. AmeriSave Mortgage Customer Review: Joyce from Newport News, Virginia “They were very quick, efficient, and handled everything well. They knew all the answers to questions I had and they were just fantastic. They had my process finished in a month and a half. The whole experience was just fantastic.” *Data and insights are taken from a sample of 100 AmeriSave Mortgage reviews. Learn more about AmeriSave Mortgage New American Funding search Highlight: New American Funding offers outstanding customer service New American Funding is one of Best Company's top picks for a mortgage lender, offering outstanding customer service with loan officers who will help you at every step of the loan process. New American Funding was founded in 2003 and has funded over $33.6 billion in over 137,000 home loans. Ninety-nine percent of New American Funding reviews are 4 or 5 stars. From these positive reviews, we gained the following insights*: 82% of customers mention positive experiences with customer service. Customers were able to receive personalized help quickly and loan officers were reliable and knowledgeable. 35% of customers mention how fast and easy the New American Funding loan process was from application to close. 16% of customers mention low and competitive rates. Speaking to these points, and especially to providing exceptional customer service, Rick Arvielo, New American Funding cofounder and CEO, states: “New American Funding considers itself to be a family, and our clients are part of the family too. We believe in developing industry-leading technology and combining it with unparalleled customer service to create the best possible mortgage experience for our borrowers. That philosophy has led our company to become one the nation’s largest and most respected lenders.” New American Funding Customer Review: Mark from Columbus, Ohio “They frequently checked in with me during the house buying process to make sure I had everything I needed. Once I found the home I was ready to purchase, they made sure I was informed and understood each step along the way until I closed on my new home!” *Data and insights are taken from a sample of 85 New American Funding reviews. Learn more about New American Funding NBKC Bank search Highlight: NBKC Bank offers an efficient loan process and outstanding customer service NBKC Bank is one of Best Company's top picks for a mortgage lender, offering outstanding customer service with top-notch loan officers that customers frequently mention positively by name in reviews, and a quick and easy loan process that will get you to closing faster. NBKC Bank was founded in 1999 and offers a full suite of traditional banking services. The company has a top-ranked mortgage program and offers discounts to Costco members and home loan savings for all. Ninety-eight percent of NBKC Bank reviews are 4 or 5 stars. From these positive reviews, we gained the following insights*: 89% of customers outline positive experiences with customer service. The majority of reviews mention specific loan officers by name and that customers felt like they were receiving prompt and personal care. 50% of customers mention how fast and easy the NBKC Bank loan process was from application to close. 14% of customers mention low and competitive rates. In addition, customers also frequently mention low fees and closing costs. NBKC Bank Customer Review: Alexander from Alpharetta, Georgia “I am a first-time home buyer, and despite the whole process is pretty complex, I found all communication to be amazingly swift and smooth. NBKC offered us a great mortgage rate, and our agent, Ryan, managed to get to the closing even faster than we expected…” *Data and insights are taken from a sample of 100 NBKC Bank reviews. Learn more about NBKC Bank Compare Top Mortgage Companies Learn more about top-rated mortgage companies and read reviews from real customers to find the best lender for you. Compare Expert contributors: Julie Aragon, mortgage expert at Julie Aragon Lending Team. Andy Kolodgie, owner of The House Guys. Sundance Brennan, Branch VP of Training and Sales at American Financial Network, Inc. Ben Singh, owner/founder of SEEB Homes.
Even before you start looking at real estate, asking yourself how much money you need is a very good place to start in the home-buying process. If you're already aware of down payments and closing costs, you can give yourself a pat on the back, but make sure you plan for all costs and expenses, even the smaller ones that you might forget about. So, how much money do you need to buy a house? Honestly, it's probably going to be even more than you thought. But this is no reason to despair. Armed with knowledge of the required costs and a thorough budget, you will be in a good place to start the home-buying process. Continue reading for detailed information on specific costs involved in buying a house, as well as a handy calculator that can help you see how much money you might need to buy a house. First-Time Homebuyer Guide A complete guide for first-time homebuyers including key terms, the step-by-step process of buying a house, and helpful FAQs. Download Down payment Maybe you’ve heard before that you need to make a 20 percent down payment to buy a home. While this can significantly reduce the size of your loan and cut out the cost of paying mortgage insurance, saving you more money on your monthly mortgage payment, this doesn’t mean that you must pay 20 percent down. In fact, most people make a down payment of 6 to 12 percent. And, there are mortgage loan options that only require 3 to 5 percent down, or no down payment at all: FHA loan — insured by the US Federal Housing Administration and intended for low-credit score borrowers with a minimum down payment of 3.5 percent VA loan — guaranteed by the US Department of Veteran Affairs with a 0 percent down payment USDA loan — offered to rural property owners by the US Department of Agriculture with a 0 percent down payment The majority of loans offering low down payments are backed by government entities, but that doesn't mean that you must pay 20 percent down if you choose a conventional mortgage loan. In many cases, you will be able to negotiate your down payment on a conventional loan, but you will likely get a higher interest rate because your loan will be backed by a private lender instead of a government entity or agency. Dan Green; CEO of Homebuyer Industry Expert What size down payment should you make? Down payment requirements are flexible, and it’s important to stay within your means. Just because you can make a large down payment doesn’t mean that you should. To find a suitable down payment figure, calculate how much money you’ll need for six months of living expenses and set that money aside. Whatever you have left is safe to use for buying a home. If you would like help in making a down payment, you can look into payment assistance programs. There are 2,000 of these programs available nationwide, and they are generally run by state, county, or city governments. Most down payment assistance can be broken down into two categories: grants or second mortgages. Determining the best down payment for you depends on your personal finances, but there are some helpful things to consider that can help you in that decision process: When is it best to make a large (or at least the 20%) down payment? If you have the means and financial stability, making a larger down payment can significantly cut down your monthly mortgage payments. But, you should consider how much more you will then be paying up front, which may be a large financial hit that could be difficult to recover from. “It's not always better to make a big down payment. The best down payment is the one that doesn't deplete your savings. Life rarely moves in straight lines. It's important to keep cash for emergencies,” says Green. When is it best to make a small down payment? “Small down payments work best when you earn good monthly income and don't have big savings,” adds Green. Especially for first-time homebuyers, it is wise to make a smaller down payment, as this will provide you with greater cash flow in the future, as opposed to putting a large amount of money down up front and depleting your savings. Closing costs While the down payment on a home is a large and important expense, don’t forget about closing costs. Closing costs cover a myriad of fees involved in processing and finalizing a mortgage, and generally come out to 2 to 5 percent of your loan amount. This may not sound like a lot, but say you buy a $300,000 home, your closing costs would range from $6,000 to $15,000. Closing costs generally include the following: Loan application, origination, and underwriting fees Home inspection and appraisal fees State recording fees Property taxes Homeowners insurance Private mortgage insurance (PMI) Escrow fees Warranty HOA costs If you would like to lower your closing cost, since it can be quite a hefty amount of money, there are a few options you could look into, such as grants, or simply asking about discounts and rebates. However, the best thing you can do is plan ahead so that you won't be surprised when it's time to close on your home. Additional costs/fees After determining what percent down you will put on your house and how much money you will need to put aside for closing costs, there are just a few more costs to consider: Moving expenses Unless you have a lot of charitable friends with trucks and a day to spare, you will likely need to consider what it could cost to hire a moving company and/or rent a moving truck. Especially if you are moving across state or across the country, it is very important to consider how much it will cost you to move. On average, the cost of hiring professional movers for a local move will range from $300 to $1,500, according to Move Buddha; if you are moving a long distance it could cost you $2,400 to $5,000. If you’re moving across the country, your costs will increase, and there are other important considerations like the cost of shipping a car. Depending on the distance of your move, be prepared to set aside at least $300 if not more. Home furnishing and maintenance If you don’t have many belongings and/or pieces of furniture to move into your new home, consider the cost of home furnishing. This could include couches, a dining room table, rugs, etc. It is also important to set money aside for home maintenance, such as gutter cleaning or yard upkeep. Be sure to budget for the items you know you will need up front, as this will save you from financial stress down the road. Jeff Beck, CEO and President of Leaf Home Solutions, expands on these points: “According to a recent report, lumber costs have surged more than 170% over the past year, which can add nearly $24,000 to the cost of a new home. Materials such as concrete, metal products, appliances, and other expenses are also increasing due to supply chain disruptions caused by COVID-19 shutdowns. Many first time home buyers, especially in this market, are so motivated to put in the highest potential offer, that they aren’t thinking about maintenance expenses. For example, if gutters are not cleaned within the first six months of owning your new home and water overflows from the gutters, it can fall along the foundation of your home, freeze, and result in cracks. Gutters should be cleaned at least twice a year to prevent damage to your roof and foundation. Certain homes, potentially both new and old, don’t always have proper windows installed to match the weather conditions of the area. Areas susceptible to hurricanes and tornadoes need to consider storm tight windows that properly seal, which as a new owner, you may not notice right away. The upkeep of maintaining a home through your changing needs is important. Many of our customers invest in their homes by introducing features and amenities that represent convenience and accessibility, such as walk-in tubs and high-quality stair lifts. Our products and installations provide peace of mind to customers that their home is secure for every phase of life.” How can I save money on my home purchase? After reading through all the costs involved in buying a home, making some estimated total cost calculations, and likely coming face-to-face with one intimidatingly big number, you might be wondering if there is any way that you could save money on your home purchase. You might be able to save some money, but the truth is, it really comes down to the mortgage lender you choose. From our review data, we were able to get an idea of some of the “cost experiences” consumers were having with different mortgage lenders in the industry: (*Note: “reliable” and “unreliable” costs refer to whether or not costs changed from application to closing) 5% of all reviews mentioned costs — either low or high costs, or getting hit with costs they weren’t aware of when they applied with a mortgage lender. 21% of reviews mentioned NBKC Bank’s low and reliable costs*. 12% of reviews mentioned Quicken Loans’ high and unreliable costs*. *Taken from a sample of 121 reviews. If you are looking to keep costs as low as possible, NBKC Bank may be a good choice. Of the more than 400 customer reviews, 95 percent of customers award NBKC Bank 5 stars, highlighting low rates and fees, and a painless process with no surprises. NBKC Bank is an online bank with physical branch locations in the Kansas City area, and it also offers a discount to Costco members. Read NBKC Bank customer reviews As a well-known mortgage company, Quicken Loans is a popular choice, but customer reviews are almost an even split between 1 and 5 stars. Many positive reviews highlight good experiences with customer service, but many negative reviews outline very high costs which, in some cases, were tacked on at the end of the loan process, giving customers a rude awakening. Read Quicken Loans customer reviews Compare Top Mortgage Companies Learn more about top mortgage companies and read reviews from real customers. Compare Expert contributors: Dan Green, CEO of Homebuyer, a mortgage lender for first-time homebuyers Jeff Beck, CEO and President of Leaf Home Solutions
Guest Post by Bill Gassett Do you want to buy a home but have awful credit? Buying a home with bad credit can be seemingly impossible. You've probably heard before that you need a good credit score to buy a home, which is part of the truth. While having a top-shelf credit score can certainly help you get the best loan terms and conditions, it isn’t a necessity. In fact, there are mortgages such as bad credit home loans that are available to anyone with a bad credit score. So all is not lost! In this article, we’re going to go over just how you can buy a home with bad credit and how your overall credit score might not be as big of an issue as you think it is when you’re trying to fly the nest. What is considered to be a bad credit score? Before we get into the loans available to you, let’s first talk about what is considered a bad credit score. Unfortunately, there is nothing set in stone when it comes to knowing whether or not you have the minimum credit score required by a lender to buy a house. Mortgage lenders set their own requirements when it comes to lending money to those with bad credit, but there are some general rules you can apply to find out whether or not you would be eligible for a loan. Perhaps most important, it is essential to have a firm grasp on specific credit score ranges and where you fall into the mix. You’re going to find that if you have a credit score lower than 500, it will be difficult to get yourself a home mortgage. A score between 580–669 is considered to be a fair score, while one that is from 300–579 is considered to be very poor. But remember, even if you have a bad credit score, it doesn’t put you in the same scenario as someone else with a similarly bad credit score. There are other factors that mortgage lenders consider before declining or accepting your mortgage request. Can you buy a house with bad credit? As mentioned above, even with a low credit score, a mortgage lender will consider additional factors to your credit report when you apply for a mortgage. Lenders will also consider the following: How much debt you currently have The amount of money you have available for a down payment How much money you’re bringing in each month Essentially, even with a lower-end credit score, as long as you have a sizable down payment, you’re more likely going to be considered for approval for a home loan. Since your credit score will only qualify you for a certain loan amount, if you have a sizable and consistent monthly income, then you can make up the difference with that instead. Though, as mentioned before, the lender you choose to go with also matters because the requirements you’re going to need to meet will vary. If you are serious about buying a home, you should also get your mortgage pre-approval squared away before you start looking at homes. What are the bad credit loan options? FHA loans An FHA loan is a great choice if you’re a first-time buyer. One of the significant benefits of an FHA mortgage is that you will only need to come up with 3.5 percent for a down payment. The Federal Housing Administration (FHA) backs these loans. The minimum credit score requirement for a loan is usually around 580. If you can make a sizable down payment of at least 10 percent or have a high income, then you could be approved for a loan even if you have a score as low as 500. However, many lenders may shy away from granting financing when you're under 580. Conventional loans There are no real specifics tied to getting a conventional mortgage loan, though you will need a minimum credit score of 620+ if you’re looking to qualify for a loan like this. Typically, if you have a high down payment ready or high monthly income, it will be much easier to qualify for this type of loan even if your credit score is below 620. It is advised to speak to multiple lenders or find a reputable mortgage broker who has access to numerous lenders. The benefit of using a mortgage broker is that you are not locked into one lender's standards. Mortgage brokers can seek out and find the best loan for your specific financial circumstances. USDA loans Another loan backed by the government, a USDA, allows you to buy a home in a qualifying rural area with a zero percent down payment. You will need a credit score around 640 to be qualified for this loan, along with other specifics. A USDA loan can only be used to buy a home in what's considered a rural area. By definition, that is an area whose population is no more than 10,000 or a population that is no higher than 20,000 while also not in a metropolitan statistical area and lacks mortgages available for low to moderate-income families. Lastly, an area that used to be classified as a rural area but was changed due to census figures might still qualify if the area's population doesn’t exceed 35,000 and still has rural characteristics. A lender will be able to tell you if the area qualifies for a USDA mortgage. VA loans If you’re a veteran or you’re currently an active-duty member of the armed forces, then choosing a VA loan could be best for you. A VA loan allows you and your spouse to buy a home with zero down payments, although just like the other loan options on this list, you’re going to need a credit score around 620 to be eligible for a VA loan in the first place. Other than USDA loans, a VA mortgage is the only other no down payment option. Bad Credit Home Loans Find the best FHA, Conventional, USDA, and VA loan options from trusted mortgage lenders. Explore Options What about a hard money loan? A hard money loan should be your last resort if other lenders turn you down due to your bad credit score. Hard money loans are not based on the borrower's creditworthiness but on the value of the property used for collateral. Traditional lenders do not grant hard money loans. They are typically given by private investors, or hard money lenders, who see an opportunity to make money by charging a borrower a much higher interest rate, which can be a big downside for the borrower. But on the positive side, it is usually a short-term loan that allows someone to purchase a home. The borrower has to feel confident that their current lack of good credit standing is short-term, and they expect a rapid improvement. The goal would be to refinance out of a hard money loan as quickly as possible. How can I improve my credit? For obvious reasons, anyone looking to buy a home should strive to increase their credit score. A good credit score comes in handy for so many things in life, whether buying a home, car, or credit cards; having a good credit score can also save you an incredible amount of money by lowering your mortgage loan interest rate. Besides spending money going to a credit improvement company, you can do another highly recommended thing to improve your credit. Sign up for a free service like Credit Karma or Experian to find advice on how to improve your credit scores. Many people often make poor credit choices because they don't know what negatively impacts it and what doesn't. For example, many people might think canceling a credit card is a good move when, in fact, it will drop your credit score. Being aware of credit myths such as this can make the biggest difference in improving your credit score. Final thoughts Whether you are buying a traditional house, modular home, townhouse, or condo, your credit score will play a significant role in what you "really" pay for a home. While most people look at the purchase price as what they have paid, it really is the interest on the loan you end up paying over the term of the loan. When you have a bad credit score, you have a higher interest rate, which in turn makes for higher monthly payments, which is very important to consider. Striving to obtain the best score possible is worth the effort, but if it isn’t where you’d like it to be right now, take heart in knowing that there are some other options available to you, allowing you to fulfill your dream of buying a home. Bill Gassett has been a real estate agent for the past 34 years working for RE/MAX Executive Realty in Hopkinton, Massachusetts. He is also an avid writer for numerous real estate publications including The National Association of Realtors, RIS Media, Inman, as well as his own blog "Maximum Real Estate Exposure."
Guest Post by Bill Gassett What is a modular house? If you've always wanted to build your own home, many things can put you off the idea. You would need to hire architects and a team of contractors, as well as manage the build. This could lead to a lot of stress and certainly a lot of expense. However, a modular home offers you the chance to build your own property without many of the problems associated with a traditional build. Lots of folks wonder exactly what is a modular home. Let's take a look at what you need to know about modular homes to help you decide if this type of home is right for you. How are modular homes different? With traditional home building, the construction process can take many months, with delays due to the weather being a common problem. A modular home can be constructed in a matter of weeks, with most of the work being carried out off-site in a factory. These can sometimes be referred to as factory-built or prefab homes. They are then transported to the construction site, where a crane lifts them onto the foundations. The prefab sections fit together, allowing the home to be assembled very quickly. There then needs to be work carried out to finish the home. This means connecting the utilities and adding the finishing touches to the home. They are permanent homes that appraise the same way as traditional home construction. You can expect to pay the same taxes and insurance as you would for a regular house. Are modular homes more expensive? Thanks to how these buildings are put together, there are many cost savings for the owner. Since the homes are built in a factory, this saves a great deal as they can be inspected on the production line. Typical costs for a modular property are around $100 per sq ft. However, this can increase if you opt for a more complex or unusual layout and design. The cost to build a traditional home starts from around $150 per square ft, so the savings are quite clear. Are modular and prefab homes the same thing? Generally speaking, they are the same thing. Prefab, short for prefabricated, refers to homes constructed off-site in sections, which is essentially the same thing as modular buildings. Are modular homes the same as manufactured homes? Manufactured homes, often referred to as mobile homes, aren't the same as modular homes. Manufactured homes aren't permanently located in one place, as modular constructions have to be. You can choose to move your manufactured home to a new location, but this isn't possible with a prefab or modular home. The term mobile home officially refers to manufactured homes constructed before 1976. Though the term is still commonly used, the U.S. Department of Housing and Urban Development officially calls this type of housing manufactured. Do modular homes all look the same? While manufactured homes look very similar, this isn't the case with modular properties. There are many styles of modular homes available, and you can customize as you wish. There aren't any design limits. You can make changes to a manufacturer’s design to create the home of your dreams. What are the pros and cons of choosing a prefab home? There are many reasons this type of housing might be right for you, but they're also negatives you need to consider. Let's take a look at the upsides and downsides of modular construction. The advantages of choosing a modular building If you like the idea of a shorter build time and lower costs to complete the home, a modular build could be more attractive. You also won't have to worry about inspections during the build; this is all done during construction in the factory. You can have the home customized to your specifications without the need to hire an architect. There won't be so many worries about the weather delaying the build process, and the construction will be completed much faster. Since the home sections will be constructed in a factory, they can be built using environmentally friendly materials and methods. They can also be manufactured to a higher energy efficiency standard and higher tolerances. Typically, modular homes are constructed to green building standards. The downsides of modular constructed homes You need to own the land you build the modular home on, but it can't just be any building plot. This type of property is usually harder to be constructed in a stick-built neighborhood. In fact, on many occasions, there will be restrictive covenants prohibiting modular homes. You'll need to check on this situation before moving forward with your plans. There is still some work that needs to be done before the prefabricated home sections arrive at the construction site. There also has to be foundations and connections to utilities, such as plumbing and electrical wiring. Usually, you can't finance a modular build through normal mortgage loans. It is possible to get a construction loan to cover the costs, but this is usually only good for a year. Once the home has been constructed, you can then turn the construction loan into a normal mortgage for a longer period. Before you order your prefab building, you need to do your research on the manufacturer. Though these types of homes have to be built following building code, not all manufacturers produce the same product standard. Like any other builder, there are what would be considered great and not so great modular companies. It will be just as essential to do your due diligence when buying a modular home as you would with a stick-built property. Remember, there are pros and cons to consider when buying new construction. At times, folks regret their decision to build a home versus buying an existing property. Does the modular home stigma still exist? Years ago, when you heard modular home, you would immediately think of a cheap, inferior product. Not surprisingly, it was understandable and, in fact, true. More often than not, a modular was constructed with shallow-pitched roofs that made the home look like an army barracks. The interior had limited quality features like crown moldings, and popcorn ceilings were standard. Today, when people do a little research, they quickly discover these downsides no longer exist. Modular homes are now considered to be an excellent product. Does that mean some people don't incorrectly assume there is still inferior quality? No, they do. Real Estate agents and those in the modular industry often have to educate consumers on how things have changed. How do I buy a modular home? There are many options available if you've decided modular is the right type of property for you. You can order homes that have already been fully designed and only need a few things done to them once they've been assembled. If you have a larger budget or looking for certain features in your home, you can customize the design before manufacture. Like most things these days, you can even buy modular homes on Amazon. Despite this, you will probably be better off going directly to a manufacturer in your area. This will allow you to customize the home as you need it. Final thoughts Choosing the modular option when building a home has a lot of advantages. You are likely to save money and be able to move into the home faster. You can go to a manufacturer and buy a design off-the-shelf or create something that exactly fits your requirements. Whichever approach you take, you will end up with a home that is a permanent structure that should be equal to any site-built home. It might have cost you a lot less than a traditional home would have cost to build, meaning you can make your money go further. Bill Gassett has been a real estate agent for the past 34 years working for RE/MAX Executive Realty in Hopkinton, Massachusetts. He is also an avid writer for numerous real estate publications including The National Association of Realtors, RIS Media, Inman, as well as his own blog "Maximum Real Estate Exposure."
Are you considering buying a foreclosed home? Perhaps the ROI potential and success stories have enticed you to entertain the idea of fixing and flipping a house in foreclosure. Buying a foreclosed home to fix up for profit is a common strategy that many seasoned real estate investors have. However, a novice investor may overlook some of the complexities and red tape that make foreclosures risky. By understanding the risk, you’ll be more equipped to understand if a foreclosure has potential cash rewards or if it's a financial trap that you should avoid. To help you understand the ins and outs of buying a foreclosed home, we’ve put together this comprehensive guide that answers some of the most basic foreclosure questions: What is the difference between pre-foreclosure and foreclosure? Do banks negotiate foreclosures? Can you get a loan to buy a foreclosed home? Is it a good idea to buy a house in foreclosure? Bonus foreclosure tips What is the difference between pre-foreclosure and foreclosure? It is typical to lump the foreclosure process together, but it is wise to know how different points in the buying process could affect your purchase. Let’s breakdown a foreclosure into three main phases: Pre-foreclosure Foreclosure Post-foreclosure Pre-foreclosure is the phase when you can potentially buy the house directly from the homeowner. It is typical for a homeowner to have 90 days notice before the bank seizes the property. During this time many homeowners are trying to get out of their house quickly and recoup any sort of money that they will potentially lose. This short timeline mixed with a need to pay back the bank encourages homeowners to sell their home for a low price in hopes that the home will be purchased quickly. This type of sale is often referred to as a short-sale. Foreclosure is the stage where the home actually goes to a foreclosure auction. Real estate investor and co-founder of SparkRental, Brian Davis, shares his insight on why this stage of the foreclosure process is often the riskiest and most expensive. “You can buy properties at an actual foreclosure auction, but this rarely happens in practice, for two reasons. First, you can’t inspect the interior of the property, because at that time it’s still legally owned by the homeowner. Second, lenders usually set the starting bid around the total balance they’re owed, which is often higher than the market value given the accumulated late fees, legal fees, etc.” Post-foreclosure is when the ownership of the house transitions from the homeowners to the bank. This is the most common phase that buyers purchase a foreclosed property. At this phase in the process the bank work with local real estate agents to list the house on the public market, making it easily visible for an everyday buyer to purchase. During post-foreclosure you're able to approach the buying process like a normal house — agents can give you tours of the house, and you can receive an inspection before you pull the trigger. Do banks negotiate foreclosures? Banks take on a lot of time, risk, and stress when dealing with a foreclosed home and so they are motivated to sell quickly. Negotiating with the banks over a post-foreclosed home may require a few extra hoopes to jump through, but overall the process is relatively similar to negotiating for any kind of home. Banks don’t love sitting on a property for too long, so they are motivated to negotiate with a potential buyer on the price. If a buyer extends an all cash offer they may be even more inclined to take it. Real estate professional, Luke Smith, adds that, “the banks often get flooded with inventory so they are willing to negotiate. They are less likely to allow a short sale then they are to negotiate during post-foreclosure so that they can make a little profit.” Plus, if a foreclosed home has been sitting on the market for a while your odds of scoring a great deal with the bank are even better. Can you get a loan to buy a foreclosed home? Yes, you can get a loan to buy a foreclosed home. There are several different types of loans that you could use to pay for a foreclosed home such as a 203K loan, FHA loan, VA loan, conventional loan, HELOC and more. Kenny Dahill, realtor, landlord, and founder of Burbz comments on what the loan selection may look like for your investment property. “Buying a foreclosed home is similar to a non-foreclosed home. Due to the nature of foreclosures being under market value, there are loan options that will allow you to finance the remodeling costs as well. Loans will typically be based off the habitability of the property — a foreclosed home in major disrepair will have challenges getting a loan compared to a foreclosed home that is move-in ready which can easily get a loan.” If you are worried about fronting the cash for a loan and are wondering how you can buy a foreclosed home with no money down, then don’t stress — there are options. Melissa Zavala, real estate broker and owner of BroadPoint Properties, lays out what you should do if you are wanting to put no money down or as little down as possible. “Check with your local lender to see whether no money down programs are currently available. There are many FHA programs available that only require 3.5 percent down and VA loans require no money down. There may be other programs available, so it is good to check with your local lender.” There are no money down and some barely money down options, you just have to find the right lender. To help you compare possible lenders and find the right lending solution for you, you can easily compare mortgage lenders at BestCompany.com. (Bonus: LoanDepot is one of the few lenders that offers a 203k loan, which is great for financing foreclosures. Check them out.) Is it a good idea to buy a house in foreclosure? The honest answer — it depends. It depends on your experience and the homes available. To help you get started on making your pros and cons list for purchasing a foreclosure, you need to look at the good, the bad, and the alternatives. Why is it a good idea? Buying a foreclosed home can unlock the potential for major cash flow. Foreclosed homes often sell for below their market value making them a great investment for buyers that are able to buy low, fix repairs, and sell high. A pre-foreclosed home often sells for below market value when the current homeowner is not able to afford their house. Before the bank seizes the home, the house is sometimes available for a discounted price by the homeowner — known as a short-sale. Additionally, if the bank does seize a home it will often be listed on the market for a reasonable price. The banks are motivated to sell the house quickly, alleviating the risk and and cost of hanging onto it. Potential buyers can benefit from either situation if the home is in good shape and on the market for below its value. Why is it risky? First you need to realize that foreclosed homes play by a different set of rules. For one, if the house does not sell in a short sale the ownership shifts from the personal homeowner to the bank. Real estate professional and owner of CapstoneHomeBuyers Colby Hager, walks through what a bank-owned home may entail: “There is a certain amount of risk because most banks are unaware of the actual condition of the house when they seize it. The bank typically does not allow for a home inspection nor are they usually willing to negotiate for repairs in an auction. Depending on the overall condition of the foreclosed home, financing through traditional sources such as an FHA or VA loan may be difficult.” In addition to the condition of the home posing a risk to your investment, legal red tape and the overall timeline can complicate the process as well. Unexpected time and legal issues can be costly and stressful. What’s an alternative? If you are wanting to buy a foreclosed home but are a little nervous to work through its complexities and risk, try investing in a different kind of property at the start. Get your feet wet by choosing an older home with good bones. You’ll have the luxury of shopping around for the right home and getting an inspection, while lowering your odds of major financial surprises. Real estate agent and founder of Quadwalls, Chuck Stelt, puts it best by advising buyers to avoid foreclosures and instead invest in what is called a grandma’s house. “Grandma's house is usually in really good condition and most everything is in working order, but it is often dated. These are the best homes to look for if you are buying a home to live in and want quick equity.” Bonus foreclosure tips: Get Homeowners Insurance: “Lenders will almost always require that you have homeowners insurance lined up, make sure you compare quotes and settle on a policy ahead of time to prove to your lender that you are able to purchase insurance for the foreclosure." — Melanie Musson, home insurance expert for USInsuranceAgents.com. Consider an Eviction Attorney: “If you are buying a foreclosure on the courthouse steps make sure to get a good eviction attorney. Oftentimes when you buy foreclosures at the courthouse steps, the previous owner is still living there. If the occupant doesn't leave on their own or doesn't take your ‘cash for keys,’ then you have to go through the eviction process.” — Rick Albert, Broker Associate with LAMERICA Real Estate, and investor/house hacker. Get a Second Opinion: "With every home, you want to do your due diligence—this rings especially true for foreclosed properties. If you are not allowed a formal inspection, then you want to find a local General Contractor to accompany you on your walkthrough. This way you'll have an idea of what costs could be needed.” — Brad, MBA, founder of 401HomeBuyers, a reputable house-buying firm.