You Can Take Control of Some of What Affects Your Home Loan Interest Rate

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Interest rates are at the top of everyone’s minds right now, especially if you are in the market for a home. But your interest rate isn’t set in stone. Several factors play into the interest rate on your loan, and you are in control of a lot of what affects it. Here are some of the things that can affect the interest rate on your home loan. Let us know if we can help you determine what your home loan may look like.

1. Credit scores
Borrowers with higher credit scores generally receive lower interest rates than borrowers with lower credit scores. Lenders use your credit scores to predict how reliable you’ll be in paying your loan. Credit scores are calculated based on the information in your credit report, which shows information about your credit history, including your loans, credit cards, and payment history. If you’re considering buying a home now or later, check your credit score and do what you can to get it as high as possible.

2. Home location
Your home loan’s interest rate may be impacted by the in which you are purchasing. Part of this could be due to the health of the housing market in your state or county. If the housing market is healthy, the lender is less likely to risk default on the loan, so the interest rate may be lower.

3. Down payment
The more money you put down on your home, the lower your interest rate will likely be. You don’t have to put down 20 percent to get a loan, but if you do, you may get a better interest rate.

If you cannot put down 20 percent or more, you will be required to purchase private mortgage insurance (PMI). PMI protects the lender in the event a borrower stops paying the loan. The cost of PMI is added to the overall cost of your monthly mortgage loan payment. You may be offered a slightly lower interest rate with a down payment just under 20 percent, compared with one of 20 percent or higher. Why? You’re paying mortgage insurance, which lowers the risk for your lender.

When determining your down payment and subsequent interest rate, keep in mind the overall picture of what you are borrowing. The larger the down payment, the lower the overall cost to borrow. Getting a lower interest rate can save you money over time. But even if you find you get a slightly lower interest rate with a down payment less than 20 percent, your total cost to borrow will likely be greater since you’ll need to make the additional monthly mortgage insurance payments.

Look at the overall loan and payments, not just the interest rate, when getting a home loan.

4. Loan term
The term of your loan is how long you have to repay it. In general, shorter term loans have lower interest rates and lower overall costs, but higher monthly payments.

5. Interest rate type: fixed or adjustable
There are two general types of interest rates: fixed and adjustable. Fixed interest rates do not change over time. Adjustable rates may have an initial fixed period, after which they go up or down each period based on the market.

Your initial interest rate may be lower with an adjustable-rate loan than with a fixed rate loan, but that rate might increase significantly at a later date.

6. Loan type
There are several broad types (categories) of mortgage loans, such as conventional, FHA, USDA, and VA loans, all of which have different eligibility requirements. Interest rates can be different depending on what loan type you choose. Your lender will discuss different options with you and will help you choose the right loan to keep you and your family financially secure.

7. Discount points
Points, or discount points, lower your interest rate in exchange for an upfront fee. By paying points, you pay more upfront, but you receive a lower interest rate and therefore pay less over time. Points may be a good option if you will keep the loan for a long time. There are also tax benefits for discount points for the purchase of your primary residence. Talk to your accountant or attorney about this.

Getting a home loan is about more than just the cost of the house or the interest rate. There’s a lot to understand, and it is our privilege to help you navigate the home buying process. Please contact us if we can answer any questions.

Home Improvement Jobs that May Add Value to Your Home

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Renovating and remodeling can help you gain space in your home or make your home more enjoyable to live in, but do they always add resale value? Not every project does. Sometimes the best reason to tackle a big project is to make your house your home. But if you are looking to add resale value, read on to see what projects may add value and which may not.

Projects that May Add Resale Value

Kitchens: Modern conveniences in a kitchen are a big plus to home buyers, especially when they are found in older homes. Notice how many real estate ads talk about the modern kitchen? That is not a coincidence. If you’re not ready to invest in a full remodel, sand and paint existing cabinets. New appliances can also add appeal.

Bathrooms: These come in second to kitchen renovations. Modern styles and appliances in bathrooms are a plus. Remove dated wall coverings and apply a fresh coat of paint for an easy fix. A bigger ROI comes with a new tub, sink and toilet, and tile in the tub and on the floor.

Outdoor improvements: Curb appeal is important to home buyers. Sprucing up the outdoor appearance is a smart investment. This included sprucing up the siding and landscaping. A splash of color in the front of the house will catch the eye of potential buyers. For a bigger impact, use one color and a variety of plant heights. If your shrubbery is overgrown, sheer it up!

Roofs and windows: Roofs and windows are expensive and home buyers like them to be in good condition. Though replacing them is costly and may not increase the value of your home, not replacing them could significantly decrease the value of a home.

Are there projects that could negatively affect your home’s value?

Adding a swimming pool, putting in a luxury upgrade, or converting a garage may cost you if the only reason you are doing this is to add value to your home. But if you’re planning to stay in your home and enjoy yourself, these projects may make you feel like you are living at a resort.

Whether you plan to stay in your home or you plan to move. Make the most out of your home improvement projects.

Why Working with a Local Lender Beats Working with a Big Bank

Searching for real estate property, house or new home

Anyone who has gotten a home loan will tell you it’s not always an easy process. But if you ask a borrower who shopped for a home loan at a big bank and a borrower who shopped for a loan at a local lender, you’ll hear distinctly different stories. And the ending is almost always the same:

Working with a local lender is a more positive experience for homebuyers.

We focus on customer service.
Reputation is the cornerstone of a thriving business, and we rely on referrals rather than flashy advertisement. Unlike many big banks, we do not have other sources of revenue, like credit cards, personal loans, auto loans, etc.

Issues that arise can be more easily resolved because we have streamlined our operations. We hire only the best and most professional loan support team, and our operations are centrally located. With our support staff in one place and not spread across time zones, it’s easy to contact someone whenever you have a question or concern, and decision making is quicker and more thoughtful.

We have faster turn times for loans.
Because our systems and teams are centrally located, our borrowers often see faster loan processing, faster underwriting, and ultimately, faster closings.

We do one thing – mortgage loans – so we must do them well.

You have a main point of contact who’s accountable for your experience and your transaction.
At Universal Lending, each loan and each borrower is personal to us. We answer your calls, even outside of normal business hours, and get answers right away. Big banks often don’t take this personally, and most don’t answer their phones after 5 p.m. or on weekends.

We are not beholden to shareholders.
We keep our focus on our customers at all times, because we don’t have to answer to anyone else.

You are trusting your savings and your financial future to the loan officer with whom you work.
Our lenders are subject to strict licensing standards. Loan Officers at many big banks are not required to meet the same high standards. You want to work with someone you can put your faith in to handle your home loan intelligently and ethically.

You are helping to support a community business and jobs in your area.
Dollars spent in your community help to support the community – keeping other businesses and local nonprofits strong.

These are just a few of the reasons local is better. Stop by or give us a call. We are confident that you’ll see for yourself why working with a local lender makes sense, and you’ll be glad you worked with Universal Lending.

 

 

Decisions, decisions – FHA or Conventional Loan?

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It’s easy to feel overwhelmed when you’re considering a home loan. The last thing you want to feel is conflicted and confused! We’re here to help. One of the questions we hear most often is “What is the difference between a conventional loan and an FHA loan?” Let us tell you.

FHA stands for Federal Housing Administration, which means that FHA loans are backed by the government. Originally, they were created to help make homeownership more accessible to buyers with damaged credit or minimal savings. Over time, they became popular across all income levels and especially with first time buyers.

Conventional loans are your “basic loan.” They must conform to specific guidelines, but they are not backed by the government. They also are very popular.

Both loans offer you flexibility in type (fixed rate vs adjustable rate) and term length (30 years or 15 years).

There are some key differences between the two loan types.

FHA vs Conventional Credit Guidelines

FHA Credit Score Requirements
FHA has lower credit score requirements. A credit score of 580 or over allows you to make a down payment of just 3.5%. If your score is between 500-579, and you need to put down at least 10%. Buyers with credit scores under 500 likely won’t be able to qualify.

Conventional Credit Score Requirements
Exact credit score numbers needed vary from lender to lender and are impacted by other factors, but as a “rule of thumb,” 620 is generally the lower limit of conventional credit requirements.

Down Payment Requirements
One of the biggest myths about mortgage loans is that you need to put 20% down to buy a home. There are options available to put as little as 3% down.

FHA Loan 3.5% Down Payment
With an FHA loan, you can put as little as 3.5% down. For many, this is the same amount as you’d put down for a rental deposit.

Conventional Loan 3% Down Payment
With a conventional home loan, you can go as low as 3% with the program’s “conventional 97 loan.”

Private Mortgage Insurance for FHA and Conventional
If you put less than 20% down using any loan except a VA loan, you must have private mortgage insurance. Private mortgage insurance (PMI) protects lenders in the event that borrowers with low equity default on their loans.

FHA Loan PMI
For FHA loans you pay PMI for the life of the loan if you initially make a down payment of less than 10%. To remove the PMI, you must refinance once you build enough equity. In addition, PMI tends to be slightly higher for FHA loans than it is for conventional loans, since FHA have slightly more relaxed credit and debt requirements.

Conventional Loan PMI
PMI is simple with conventional loans. Once you have 20% equity in your home, PMI drops off. You can get there by putting 20% down on the house for your down payment, or by paying PMI until you hit 20% equity with your monthly mortgage payments. Your lender is legally required to drop your PMI automatically at 22%, or per your request at 20%.

Income Requirements
Debt to Income (DTI) is the percentage of your gross monthly income that will go toward paying off debt Lenders use the following formula to work out this number:
monthly expenses ÷ pre-tax monthly income = DTI %

FHA Debt to Income Requirements
With FHA home loans, some lenders may offer a bit more flexibility if the borrower’s finances and credit are good.  However, you want to choose a lender who has your best financial picture in mind, so working with someone who wants you to get your DTI more in line is a positive factor for your long-term financial security.

Interest Rates
FHA loans tend to come with lower interest rates than conventional loans, likely due to the fact that FHA borrowers have historically been less likely to pay off their mortgage early than conventional borrowers. However, if interest rates are your only factor, the difference is usually negligible, and you can easily pay more in PMI during the life of the loan.

Property Eligibility for FHA and Conventional Loans

FHA Property Guidelines
FHA home loans are backed by the government and are designed to help families, so they place more restrictions on the type of house that qualifies.
• Must be occupied by the buyer
• Must be your primary residence
• Must be occupied within 60 days of closing
• Must be assessed for safety with an additional home inspection
• Must be under the capped lending amount

Conventional Mortgage Property Guidelines
Conventional loans have fewer restrictions. Second homes and investment properties both qualify, and don’t require special inspections.

They have a capped loan amount called the conforming loan limit, which your lender can share with you.

Conventional 97 Property Qualifiers
However, if you use a conventional 97 loan and put just 3% down, there are additional requirements:
• The property must be a one-unit, single family home, co-op, PUD, or condo
• The property will be the buyer’s primary residence
• The buyer (or one of the buyers) can’t have owned a house in the last 3 years
• The loan amount is at or under the capped amount

Which Mortgage Loan is Right for You?
There’s no definitive answer here. Your lender will help you to review your finances to determine your best choice. You may want to consider the following:

An FHA loan may be best if:
• You have lower or no credit
• You have a lot of debt
• You already have an FHA loan and want to refinance
• You don’t plan on staying in the home long enough to hit 20% equity
• You have a bankruptcy or foreclosure in your past

A conventional loan may be best if:
• You have fair to excellent credit
• You have a reasonably low DTI ratio
• You need to be able to make the smallest possible down payment
• You want to be able to dump PMI without having to refinance
• You’re buying an investment property or second home

Remember, this is just a guideline to these two loan types. At Universal Lending we work to educate and inform our borrowers so they make the best financial decisions possible to keep themselves and their families financially secure while enjoying the benefits of homeownership.

Is it Time to Remove Your Private Mortgage Insurance?

The concept of home ownership and 50 dollars

If you’re paying Private Mortgage Insurance (PMI), or if you don’t know if you are, now may be a good time for a mortgage review. 

What is mortgage insurance?
Mortgage insurance protects the lender for losses on a defaulted loan, when the borrower puts less than 20% of the sales price as down payment. The policy supports people with a home purchase by letting them utilize loan programs allowing less than 20% of the sales price, but also adds a cost to the loan.

Does my loan have mortgage insurance included in it?
If you put less than 20% down on the purchase of your loan or refinanced with less than 20% equity in the home, you likely have mortgage insurance. Different loan programs have their own mortgage insurance and their own rules that dictate when or if the mortgage insurance can be dropped.

Government programs such as FHA and VA have their own programs for insuring loans. Conventional loans utilize private mortgage insurance.

Can I remove my mortgage insurance?
Whether you can remove mortgage insurance or when it can drop off from a loan differs from one program to another. For example, the FHA loan program was recently adapted to keep mortgage insurance on the loan for the duration of that loan. Conventional loan products have mortgage insurance for a specified timeframe or until the loan reaches certain parameters.

According to REColorado, the price of the average single-family home in the Denver metro area has risen 11%, from $424,364 to $469,613 between March 2017 and March 2018. Now is the perfect time to determine if you can remove mortgage insurance from your loan.

The Homeowners’ Protection Act provides for mortgage insurance to be removed in different ways. On a conventional loan, if you have paid your mortgage balance down to 78% of the sale price/home value at the time you took out your loan, mortgage insurance will be removed automatically. Alternatively, on a conventional loan, if you can prove to your loan servicer that you have 20% equity in the home, you can get your mortgage insurance removed. To do this, contact the loan servicer and request an appraisal. You must have good payment history, occupy the home as your primary or secondary residence, and have had the loan for at least two years. If all of these are accurate and the appraisal shows more than 20% equity, the loan servicer can remove mortgage insurance. This can be less costly than refinancing, especially if you have an interest rate below current market rates (around 4.5%-5.25%).

Note: FHA loans include mortgage insurance for the life of the loan. The only way to remove the mortgage insurance on an FHA loan is to refinance the loan completely.

Does a refinance make more sense for you?
With this in mind, now is the perfect time to contact me to review your current loan. Depending on your individual scenario, a refinance may be the perfect opportunity to remove your mortgage insurance premium as well as restructure your loan to achieve other goals. Do you need to add on or remodel your home? Pay off other debts or high interest credit cards that are eating at your monthly cash flow? Pay for college? Purchase a second home in a resort town?

Let’s talk about your loan to make sure it still fits your needs.