3 Things Every Future Homebuyer Needs to Know

So you’ve decided to take the next steps toward buying a new home? Congratulations! Home ownership is one of the best ways to build wealth with a long-term investment. It can also provide you with added stability and perks like tax deductions for some homeowners. It is also a big step and definitely not a decision you want to take lightly.

Future homebuyers can improve the buying experience and lower their total mortgage costs with these tips.

1: Your credit history is the most important thing

Mortgage lenders provide loans to homebuyers based on their credit score, a number between 300 and 850 that tells lenders how reliable you are at paying back debt so they can determine the risk in lending you money. If you have a low credit score (under 580) you won’t be able to qualify for a home loan. If your score is at or above 580, but still on the lower side (below 700) then you are probably paying a higher interest rate. Even a 0.5% rate increase can add up to thousands of dollars in extra interest over the life of your loan, and make your monthly payments higher.

Start repairing poor credit now before you apply for a loan. You can do that by:

  • Paying down all your debt from student loans, vehicle, credit cards, etc.
  • Making all your payments on time
  • Building up your savings account
  • Not opening unnecessary new credit accounts (retail store credit lines, for example)

2: Save for more than just your down payment

It is a good idea to save money for a down payment; the more you have to put down, the better interest rate you can get. You can also lower your monthly payments by putting 20% down because you won’t have to pay the mortgage interest premium (MIP). However, there are a lot of other costs associated with buying a new home, so in addition to saving for a down payment, also save for things like:

  • Closing costs – these usually total about 3-4% of your total home price, and they are in addition to your loan. You may be able to roll some of it into your loan or negotiate with the home seller to pay some or all closing costs.
  • Moving expenses – you need cash for things like movers or a moving van rental, boxes, packaging, and other supplies. If you’re moving a long distance, factor in travel costs too.
  • Other expenses – you may also need cash for things like furniture, window coverings, renovations, and landscaping after moving in.

3: Get Preapproved First

Before you start shopping for your new home, talk to a lender to get preapproved. This process is relatively simple, but it provides you with an idea of how much you will be able to borrow so you can find a house in your budget. It also shows sellers you are serious about buying when you make an offer.

If you are planning a future home purchase, talk to Integrity First Lending today to get preapproved.

Understanding What a “Federally-Backed” Mortgage Loan Means

There are several different types of mortgage loans, but mostly they fall into two larger “buckets”: loans that are federally-backed, and loans that are backed by private companies. There are some important differences between the two, so it’s good to understand some of the benefits of a federally-backed mortgage, and how to find out if yours falls into that category.

Learn whether you have a federally-backed mortgage, or whether you should consider one for your home loan.

Government-Sponsored Entities (GSEs)

Mortgages that are backed by the federal government are funded through government-sponsored entities, or GSEs. About 50% of all mortgage loans in the U.S. are backed by a GSE, which makes them by far the most popular choice for millions of homeowners. There are five different types of federally-backed mortgages:

  • FHA
  • VA
  • USDA
  • Fannie Mae
  • Freddie Mac

Where this gets a little confusing, though, is that sometimes your mortgage will be federally backed, but it is administered by one of the more traditional private lenders, such as JP Morgan Chase or Wells Fargo. That means you will see the name of the private lender on your statements, and make payments to that lender, but your loan is still backed by a GSE.

Pros and Cons of Federally-Backed Mortgages

One of the biggest benefits of getting a federally-backed mortgage like an FHA or VA loan is that these loans often have different requirements for down payment and minimum credit scores. That makes them a desirable option for a first-time homebuyer without a lot of cash to make a 20% down payment, or someone who has a history of less-than-perfect credit. There are also some federally-backed mortgage loans that waive the mortgage insurance premium (MIP) even if you don’t have 20% equity in your home, which can save a lot of money on monthly payments.

However, one of the biggest drawbacks of loans through GSEs is that they do have specific requirements to qualify. That means not everyone is able to get a loan through these programs. For example, only someone who served/is actively serving in the armed forces or is the spouse of someone who served or is serving can qualify for a VA loan. Another potential drawback is that while these loans often have lower credit score requirements, they do still have minimum credit scores (usually at least 580) to get qualified.

Find Out More

If you want to find out whether your loan is federally back, you can use the Freddie Mac or Fannie Mae lookup tools. You can also call your loan servicer to ask (they are required by law to tell you). If you have questions about whether you can get a federally-backed loan, talk to Integrity First Lending today.

Will Interest Rates Get Any Lower?

You have probably noticed that mortgage rates have been dropping in the last few months. Since the start of 2020, when rates were already near historic lows, they have continued to decline. In fact, this year alone the interest rates on mortgages have hit record lows 11 different times. If you are in the marketing for a mortgage loan or thinking about refinancing, you are probably wondering whether they will keep going down or if now is a good time.

Interest rates are at rock-bottom levels, but will they keep going lower We’ll examine the current rates.

Mortgage Loan Rate Fluctuations in 2020

There are a lot of market factors that go into the mortgage loan rates. Under normal circumstances, the Federal Reserve sets basic interest rates (the rate that mortgage loans are based on) as a way to control inflation and/or provide flexibility in the markets for companies and individuals to borrow cash. Whether rates go up or down often depends on whether the economy is in a positive or negative trend.

However, 2020 has proven to be anything but normal. Current low interest rates have been steadily declining as the economy took a big hit in the wake of COVID-19. Election years also usually contribute to some volatility in the interest rates—the market adjusts in October based on what they think might happen with the election, then if it doesn’t happen as planned (like in 2016 when Trump unexpectedly won) you can get a quick increase in mortgage rates as investors recalibrate expectations.

COVID-19 itself is also a wildcard in today’s interest rates. Homebuying has remained relatively high in spite of the overall bad economy, but that might slow down if the virus continues to depress business. A vaccine could also provide an economic boost, which could change interest rates as well if markets rally, driving them up from their current rock-bottom levels.

“Timing the Market”

Unfortunately there is no way to actually predict what mortgage loan rates will do in the future, so if you are thinking about trying to “time the market” to get the lowest rate, it’s not something that you can do with any level of certainty. Anyone who tells you otherwise is probably not being honest with you. However, you can look at some of the broad economic trends to see what might happen with rates in the coming months.

What Should You Do?

If you’re on the fence about whether to get a mortgage loan right now, you probably should go ahead. Although interest rates could decline again, they are probably not going to hit much lower than the current levels, and they could go up in the coming months. If they do end up going down by a lot, you can always refinance to a lower rate but if they go up you will be stuck paying whatever the current rates are at the time.

Contact Integrity First Lending

Integrity First Lending can help you figure out what mortgage rates you qualify for and get the best rates for your home loan. Call today to learn more.

Does a No-Cost Loan Really Have No Closing Costs?

As you are deciding on which home loan is going to work best for your financial situation, one of the things you will need to discuss with your lender is how much you can spend on closing costs.

Understanding closing costs and how you can avoid paying them up front.

Understanding Closing Costs

“Closing costs” is a broad term that is used to describe a variety of fees that homeowners normally have to pay when they purchase a home or refinance in an existing home. A couple of items on the list of closing costs are paid by the seller, like the real estate agent commission if applicable, but primarily they fall to the buyer. It’s important to understand what they are and the ways that you might be able to avoid paying closing costs.

On average, closing costs will be about 2% to 5% of your total loan (on a $300,000 house that can be as much as $15,000). They vary by lender, although there are some things that you can expect from any lender, such as an appraisal fee and home inspection fee. You can find a full list of the most common fees here.

Paying for Closing Costs

There are a few ways you can pay for closing costs:

  • Pay them up front with a one-time cash payment
  • Fold them into the total loan (which increases your loan principal)
  • Request that the seller cover some or all of the costs

What About a No-Cost Loan?

Some lenders (like Integrity First Lending) also offer no-cost loans. These are a great option for homeowners who don’t have enough cash to pay closing costs at the time you purchase the home. A no-cost loan allows you to move forward with your home purchase right away. However, just because you don’t pay the costs in cash at closing doesn’t mean you never pay for the closing costs.

Here’s how it works:

  • You are approved for a loan through Integrity First Lending at a specific interest rate
  • Integrity First Lending issues a “rebate” at your closing to cover the costs
  • Your interest rate will be raised slightly to cover the closing cost rebate, adding a small amount to your monthly payments instead of a large lump sum of money at closing
  • You can include the broker’s commission in your rebate as part of your no-cost loan

This is a great option for homeowners who want to keep some extra cash for costs you will encounter when you move in, like landscaping, fencing, window coverings, and more. These can add up, and having more cash in your bank account to cover them can help you avoid more debt. Talk to Integrity First Lending today to learn more about this option.

Benefits of a Home Equity Line of Credit (HELOC)

For most people there is a time in your life when you could use a little bit of extra cash — to help pay for tuition as your child goes away to college, pay off medical bills, make repairs or renovate your home, or pay off high-interest debts. Your home might offer an opportunity to borrow money through a home equity line of credit (HELOC).

HELOCs are a great opportunity to borrow money against the value of your home.

What is a HELOC?

A home equity line of credit is a special type of loan that allows homeowners to use the equity they have in their home as a line of credit, and get cash to use right away. A HELOC isn’t the right choice for everyone, but there are definitely situations where it can offer you a financial lifeline. Here are some of the benefits of these loans.

Fixed Payments

When you get approved for a HELOC, your lender will provide the terms of the loan and a schedule of all your payments. That makes it easy to budget from month to month as you get the loan paid off. In most cases these loans also have multiple options for the length of the repayment period, giving homeowners the ability to choose whether you want a higher monthly payment and shorter repayment period, or a longer time to repay it and a lower monthly cost.

Fixed Interest Rates

Unlike credit cards and other loans, a HELOC usually has a fixed interest rate. That means your lender can tell you what your monthly payments will be, and they won’t change even if interest rates go up. Since most credit card interest rates are tied to the “prime rate” set by the Federal Reserve, borrowing money with a low-rate card today could result in very high interest payments in the future if it takes you a while to pay off the loan.

Money Up Front

A HELOC is structured to provide you with all the money for your loan immediately. As soon as the loan is approved, you get the cash that you need to do whatever you are planning. If you don’t need it all right now — for example, if you borrow the money to pay for four years of college tuition — you can even put it into an interest-bearing account and earn some money on your money to help pay back the loan.

The Downside of HELOCs

While HELOCs can be very beneficial, there are some important things to know before you take out one of these loans:

  • Your home is the collateral for the loan, so if you can’t make payments on your HELOC, you could lose your home.
  • If your home’s value declines as a result of a market downturn or other factors, you might owe more than your home is worth between your mortgage and your HELOC.
  • A lender may charge closing costs for most HELOCs, just like any second mortgage loan.

To learn more about HELOCs and find out if they are the right financial decision for you, talk to the experienced lenders at Integrity First Lending today.

4 Questions to Ask Before Deciding if You Should Refinance (Part 2)

In part one of this blog post we discussed two important questions that you should start with before deciding whether to refinance your mortgage:

  • Why are you considering refinancing right now?
  • How long will you be living in your home?

These two questions can help you decided whether it’s a good financial decision to refinance, but they’re not the only questions you need to ask. Here are two additional questions to consider in the process.

Refinancing is a big decision, use this guide to help you determine if it’s right for you.

3: Do you qualify for the loan?

A final consideration before refinancing is whether you can qualify for the new loan. If your economic situation is different, you have more debt, or your credit score is lower, it might be difficult to get approved. If you can’t qualify for a new loan, there may be other options available to you. You can talk to your lender about whether they have mortgage relief programs. By law, your lender must offer some options for federally-backed loans (FHA, VA, USDA, Fannie Mae, and Freddie Mac). Other lenders may have their own programs to help if you need assistance making payments, or may be willing to restructure your loan to help you through a difficult time and avoid foreclosure.

4: Can you pay cash for closing costs?

You have a couple options for closing costs on a refinance – you can pay them out of pocket if you have cash, or you can finance them into your loan. If you have the cash, it’s usually advisable to pay them up front. Financing them into your loan means adding to the principal balance with no added value to your home, and you will pay interest on that amount for the life of the loan. Financing $3,500 in closing costs into a 30-year loan at 3.5% interest will actually cost you more than $5,600 in added interest over the life of your loan.

Other Considerations

Refinancing isn’t always the right choice, so make the decision carefully. Mortgage loans are front-loaded so you pay more interest at the beginning. As time goes on you pay a much larger part of your monthly payments toward principal. The exact time that your payment switches depends on your interest rate, but typically it’s between years 10 and 15 of a 30-year loan. While refinancing might save you money on the total payment, you “reset” your loan back to 30 years at that time. If you’ve already made payments for 12 years, you go back to paying more interest and your total mortgage will now extend to 42 years (12 years of your first loan and 30 years of the refinanced loan). In that case it might be a worse financial decision to refinance than to keep your higher interest rate.

To learn more about refinancing, find current interest rates, and get started on your loan, talk to our experienced mortgage loan professionals at Integrity First Lending.

4 Renovations to Consider Using a Home Equity Loan

As millions of people sheltered in their homes over the last few months, home renovations have become a booming business. When you add on the fact that interest rates are at their lowest in history, and home values haven’t suffered during the current market downturn, you get the perfect formula as a homeowner to look at a home equity line of credit (HELOC) as a great way to pay for those upgrades you have been thinking about.

Before you consider any renovations, though, it’s important to do things that are really going to improve your home’s value and functionality. Think about why you’re renovating, because that can significantly impact what you want to do — homeowners who are planning to put the house up for sale may want to do some things differently than those looking to stay in the home for a long time.

Here are some of the best updates and home renovations to use your HELOC.

Home equity lines of credit are a great way to start on those home renovations and updates.

Kitchen Renovation

Few rooms in your house will get as much use as your kitchen. For many families it’s a focal point where everyone gathers, from weeknight homework sessions and dinners to weekend dinner parties with extended family and friends. Updating a kitchen doesn’t always mean gutting the room and starting from scratch. Simply updating the flooring, adding new countertops, or painting the cabinets can make a big difference with less stress and a lower budget.

Carpet Replacement

Another project that can usually be done pretty quickly and can make a big difference is replacing the carpet. The average cost to install new carpet is between $3.50 and $11 per square foot (depending on the quality of carpet you choose, carpet pad, and other factors). Usually a carpet installation can be completed in just one or two days, depending on the size of your home, and is a great way to update the look and feel of a space. It’s also a great selling point if you’re planning to put your home on the market soon.

Adding a Bedroom

Do you have unfinished space in your home? Many people have extra space in the basement or over the garage that could easily be turned into livable space as a bedroom. This can add significant value to a home for resale, or give you and your family a little more room to spread out. Before adding a bedroom, make sure the space meets all building codes and requirements.

Updating the Exterior

You never get a second chance to make a first impression, which is why your home’s exterior is so critical. If your home looks outdated and needs a fresh coat of paint, some siding repairs, or new garage doors, a HELOC is a great way to get them.

To see how easy it can be to get approved for a HELOC and start working on your own projects around the house, talk to Integrity First Lending today.

4 Questions to Ask Before Deciding if You Should Refinance (Part 1)

With interest rates hitting all-time lows in 2020, a lot of homeowners have started wondering whether it is a good time to refinance. Generally with very low interest rates, the answer to that question is yes. However, there are some important things for you to think about before you move forward that can impact whether refinancing is the right choice for you. Here are three questions to ask.

Ask these important questions before you decide if a mortgage refinance is right for you.

1: Why are you thinking about refinancing?

In general you shouldn’t refinance just for the sake of refinancing, but there are times when it makes sense. For example:

  • You currently have a high interest rate, and rates have dropped significantly. Refinancing when rates drop is a great way to lower your monthly cost and save thousands on interest over the life of your loan. Reducing your interest rate just 1% on a $200,000 loan can save you around $45,000 over 30 years. It can lower your monthly payment, especially if you are currently paying private mortgage insurance (PMI) because you didn’t have 20% to put down at the time you bought your home. If your home has increased in value or you have paid down some of the principal balance, you may be able to remove PMI from your payment to save even more each month.
  • You have a variable interest rate that is set to expire soon and want to refinance into a fixed rate loan. Variable rates are fine right now as interest rates have remained low, but they can be unpredictable. Rather than hoping that the rates stay low forever, it’s better to get a fixed rate now and lock in that savings for the duration of your loan.
  • You can’t afford your monthly payments. If your financial situation has changed since you first got approved, refinancing could provide you with a lower monthly payment that better reflects your economic reality.

2: How long will you be living in your home?

When you refinance you do have to pay closing costs on the new loan. If you don’t have cash you may be able to put those costs into your new loan, increasing the principal balance on your loan. To calculate the “break-even” point when the savings will be greater than the closing costs, divide the closing costs by your monthly savings.

For example, if you are refinancing and you will save $150 a month on your payment, but it’s $3,500 in closing costs:

  • $3500 / $150 = 24 months

It will take you 24 months, or around 2 years, to get the full financial benefit from your refinance. If you are planning to sell your home in the next 5 years, that might not be worth the costs and hassle.

Learn More About Refinancing

In part two of this blog post we’ll cover two additional questions to consider before you decide if refinancing is the right choice for your loan. If you have questions about refinancing, reach out to the experts at Integrity First Lending to learn more.

What is “PITI” When Calculating a Mortgage?

When you are thinking about buying a new home, one of the first things you probably do is calculate how much you can afford based on your current income. During that search you may come across the term “PITI”, and as you’re calculating those monthly costs for your new home, it’s important to understand what this term means so you can figure out costs accurately.

PITI stands for principal, interest, taxes, and insurance, and is a holistic calculation of what your total monthly payments will be for a new home. We’ll break down the basics of each part.

Figuring out your monthly mortgage payment means understanding what PITI means.

Principal and Interest

Basic mortgage payments include two things: principal and interest. These two numbers are calculated using the total amount you plan to borrow, your interest rate, and how long you plan to take to pay it off. This determines how much you will owe each month to the lender. For fixed-rate loans, your monthly payments won’t change but you will pay more toward interest at the beginning of your loan, then as you pay down the principal, the percentage of monthly payment that goes toward interest will decline.

You can see how much you are paying toward principal and interest each month for the entire life of the loan by looking at your amortization schedule.

Taxes

You will also owe property taxes, which are determined by the local area where you plan to move. Taxes are calculated as a percent of your home’s value, and can vary from year to year if they go up or down, or if the county tax assessor determines that the value of your home has increased. You can look up local property tax rates, or get a rough estimate by calculating about $1 in taxes for every $1,000 of home value per month (so a $300,000 home would be about $300 in taxes).

Insurance

Most lenders require that you pay for property insurance as part of your loan, in case the home is damaged by fire, weather, a break-in, etc. There may also be specific requirements to protect against things like earthquake or flooding, depending on where you live. You can get a quote from an insurance company to determine what your monthly cost will be for this.

Why PITI Matters

While you can look at just the principal and interest for your loan, that doesn’t give you the whole picture of what you will owe. Failing to take the extra costs of taxes and insurance into account could lead to financial strain later if your monthly budget is maxed out before taxes and insurance, which you still have to pay. It can also impact how much you will be able to borrow; for example, if you are buying in an area with high property taxes, you may not be able to borrow as much because the total PITI payment will be too high.

Integrity First Lending can help answer all your questions about PITI and monthly costs for a mortgage. Contact us today to find out more.

Is Now a Good Time for a Home Equity Loan?

Right now there is a lot of uncertainty in the world. As COVID-19 continues to have an impact on economies and jobs, there are many who are looking for ways to stay afloat financially through tough times. If you own a home and you have a significant amount of equity in that home, you may have thought about taking out a home equity loan to help cover some of your bills in an emergency as you watch your personal or emergency savings dry up.

Those lucky enough to still have a steady job where they can work from home, or one that is “essential,” like healthcare workers, may also be looking at current interest rates and wondering whether now is a good time to use the equity in your home to borrow money for something you have been planning, like a home renovation or even college tuition.

Rates are extremely low, and you may need emergency cash, but is a home equity loan a good idea?

Benefits of Home Equity Loans Right Now

There are a lot of reasons that a home equity loan might make sense for you right now. These loans:

  • Can be used for almost anything, including paying off debts, making home improvements, or just to get some emergency cash for necessary living expenses.
  • Offer fixed payments with a set interest rate so you will have a predictable payment over the entire life of your loan.
  • Generally offer lower interest rates than credit cards or other personal loans, especially if you have good credit. You can also pay them off early without a penalty, which can save on interest costs over the years.
  • Some home improvements are eligible for tax deductions, but check your local tax laws before you get the loan to make sure yours is covered if you’re counting on a deduction.
  • The Consumer Financial Protection Bureau (CFPB) recently created a rule that speeds up home equity loan closing processes, which can help you access emergency cash sooner.

Drawbacks of a Home Equity Loan

Home equity loans can also have some drawbacks:

  • Not all lenders are offering home equity loans right now, especially lending institutions worried about the risks.
  • Some lenders may have stricter restrictions or requirements to get a home equity loan in the current financial climate, so good credit is essential.
  • Your loan is secured with your home as collateral, so if you are unable to make payments on it, you risk foreclosure.
  • If home prices drop, you could find yourself “underwater” in your mortgage, even if you’ve paid down some of your original loan.

Understand Your Options

For some people other options might be better:

  • Using low- or no-interest credit cards in the short term
  • Borrowing money from a friend or family member
  • Talking to your lender or creditor(s) about forbearance
  • Borrowing from your 401(k) savings
  • Getting a personal loan

Talk to an experienced lender at Integrity First Lending to learn more about home equity loans before you determine if they are a good option for you.