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Blog Post
RefinanceFebruary 2, 2024
How to Refinance Your Mortgage
As a homeowner, you’ve almost certainly heard of a refinance. What you might not know is that there’s a lot more to a refinance than simply just getting a new mortgage rate. In this blog, we’ll break down the basics of refinancing your mortgage, how they work, the different types of refinance, and the type of refinance that might work best for you. What is a Refinance and How Does One Work? A home refinance replaces your current mortgage with a completely new home loan. When you refinance, your new lender typically uses your new, refinanced mortgage to pay off your existing mortgage. This way, you’re left with one monthly payment that has a new interest rate and principal (or the total balance owed on the loan). If the following steps sound familiar, that’s because they are! The process for refinancing your home is a lot like your original mortgage process when you first bought your home ­— this time without the added stress of shopping for your home and competing offers on the home you’re itching to buy. Application & Locking Your Rate When you decide to refinance, you’ll need to submit an application with your income, credit score, and any current debts to ensure that you meet the eligibility requirements to refinance. Once you’re approved, you’ll be quoted with a new interest rate. Just like when you bought your home, you can lock your rate for up to 60 days to ensure you still have access to your quoted rate if mortgage rates rise. You can also have the option to float your rate; this means that you can potentially access a lower rate if they drop over time, but it also puts you at risk of getting a higher rate if they increase before you close. Underwriting & Closing Upon submission of your application and subsequent approval, your new loan will go through underwriting. During underwriting, your lender will cross-reference the financial documents and information you submitted for accuracy. They’ll also require a refinance appraisal to determine the value of the property you’re refinancing. This appraisal is key to a cash-out refinance, which we’ll cover in more detail below. Assuming you pass underwriting, it’s time to close your loan! Your lender or Loan Originator will send your Closing Disclosure (CD) which outlines all the final figures – including your new interest rate, closing costs, loan amount, and more. When it comes time to close, you’ll review the details of the loan, sign your loan documents, and pay any necessary closing costs. If you’re doing a cash-out refinance, this is when you’ll receive the money owed to you by the lender; but again, we’ll outline cash-out refinances in greater detail a little later. Different Types of Refinance So, now that you know how a refinance works, let’s cover the different types of refinances that are commonly used by homeowners. Below, we'll go more in-depth on rate & term refinances and cash-out refinances and expand on the ways that these two options work. Rate & Term Refinance The most popular type of refinance — and what you probably first think of when you think about a refinance — is a rate & term refinance. True to the name, this kind of refi simply updates the interest rate and the term (or the repayment length of your loan). Homeowners choose to get a rate & term refi when they want to lower their monthly mortgage payment. This makes the most sense for you if interest rates are significantly lower now than they were when you initially bought your home. Another option with a rate & term refinance is to shorten the term of your loan. This typically leads to a higher monthly payment but can significantly lower the total amount of interest paid on your loan. Cash Out Refinance If you’re looking to tap into the equity you’ve earned in your home to help pay for a home project or consolidate another debt, you might consider a cash-out refinance. When you get a cash-out refinance, you essentially replace your existing mortgage with a new loan that’s larger than your current loan balance. The difference between your existing mortgage balance and your new mortgage is the amount of cash you receive. It's crucial for homeowners to understand that the larger loan amount means higher monthly payments and increased overall interest costs over the life of the loan. Therefore, careful consideration and thorough financial planning are essential before opting for a cash-out refinance to ensure it aligns with their long-term financial goals. How to Know if a Refinance is Right for You Now that you know the basics of refinances, how do you know if a refinance is right for you? Consider the points below. If one of these situations resonates with you, then a refinance might be on the cards for you! Reduce Your Monthly Mortgage Payment The most common reason homeowners refinance their homes is to reduce their monthly mortgage payments with a lower interest rate. Before you refinance to lower your monthly payments, consider your break-even point after considering closing costs. If you think you’ll only live in and/or own this property for another couple of years, it might cost more to refinance than it would to keep your existing mortgage. Utilize Your Home Equity Your home is an investment that gives back as much or more than what you put into it. If you want to complete a kitchen remodel, pay off existing debt, or generally get some funds for a one-time expense, you can use a cash-out refinance to tap into the equity you’ve been building since buying your home. Change the Length of Your Loan If you are comfortable paying a higher monthly mortgage payment to reduce the amount of interest you pay over the life of your loan, you can get a rate & term refinance to shorten the term of your loan. If you shorten your loan from a 30-year to a 15-year, you’ll pay more upfront but less over time since you’re accruing less interest. Change Your Loan Type If you have an adjustable-rate mortgage and want to switch to a fixed-rate mortgage to have a more stable monthly payment, a rate & term refinance is a great option for you. The same can apply if you have an FHA loan and want to switch to a conventional, a conventional loan and you want to utilize your VA benefits, or generally see another loan program that might work best for your individual situation. It’s a great idea to consult with your UMortgage Loan Originator to get an expert’s opinion when changing your loan type. Eliminate Mortgage Insurance If you financed your home with an FHA loan or your down payment was less than 20%, you were required to lump Private Mortgage Insurance (PMI) into your monthly mortgage payment. Often, mortgage insurance can account for up to $200 of your monthly payment — those dollars really stack up over time! By refinancing to a conventional loan from an FHA loan or refinancing after having reached 20% equity in your home, you can refinance to eliminate your PMI payments from your mortgage. - There are plenty of great reasons to refinance your mortgage and a plethora of different types of refinances that can fit your unique financial situation. Your situation is unique, so if you’re still wondering what type of refinance might be best for you, reach out to your UMortgage Loan Originator for a personal consultation.
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Blog Post
The BasicsDecember 14, 2023
We’ve Got the Answers to Your Mortgage FAQs
There are countless intricacies to the homebuying process, and although answers online are plentiful, it can be tough to know what information is trustworthy. I’ve helped plenty of first-time buyers through their homebuying process, and in the blog below, I’ll share some answers to the most frequently asked questions I’ve received. How Much Money Do You Need to Buy a Home? So you want to buy a home, but you don’t know how much money you need to bring to the table when you’re starting this process. There’s plenty of information online that states that you need as much as 20% down, but maybe you have a friend who purchased their home with little to no down payment. The question is: how much do you actually need? The answer isn’t quite as straightforward as you might like it to be, but the truth is that it depends on a variety of factors. This includes location, the type of property you want to buy (house, townhome, condo, etc.), and your own individual financial situation. In general, you should expect to need at least a 0-5% down payment, as well as closing costs which can average from 2-5% of the sales price. Additionally, try to have enough savings to cover 3-6 months of mortgage payments in case of an emergency. You never know what could happen and it’s always a good idea to be extra prepared in case you find yourself in a pickle. How Much Money Should You Make if You Want to Buy a House? Newsflash: buying a house Is expensive. Having a steady stream of revenue should be a cornerstone for every homebuyer. But how much should you be earning if you want to buy a home? There are four factors that will determine what you can afford based on your financial picture: The projected payment Current debts Qualifying income The loan program’s debt-to-income (DTI) ratios The DTI varies depending on the loan program that you decide to go with. On average, it’s about 45%. To determine how much you need to earn to qualify for a home’s mortgage, you take the estimated payment and add your current monthly debts. This includes credit card payments, car payments, personal loans, other mortgages, child support, etc. Divide this sum by 0.45, and that gives you the minimum amount needed to qualify. How Long Does the Homebuying Process Take? Buying a home can take anywhere from a few weeks to several months, depending on how complex the process is. Regardless, it’s best to be as prepared as possible for this life-changing purchase, so the sooner you start, the better. In general, you’ll want to meet with a mortgage lender, like myself, anywhere between 2-6 months before you want to buy. This gives us plenty of time to come up with a plan and make sure you’re ready to shop. After you’re pre-approved, you’ll likely work with a real estate agent to find the home you want to buy. Once you’ve made an offer, so long as it’s accepted, it usually takes anywhere from 30-45 days until you can close on that home. There are plenty of factors that can affect the timeline, such as how quickly your loan can be approved, how quickly the seller responds to your offer, and how quickly the inspection and appraisal can be completed. At the end of the day, the homebuying process can seem complicated to the untrained eye. That’s why it's important to work with an experienced lender and Realtor who can help you navigate the process and make sure everything is done efficiently. If you want to get started with your homebuying journey, or if you have any additional questions regarding the process, let’s connect!
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Blog Post
The BasicsDecember 14, 2023
Step-By-Step Guide to Buying a Home
Buying a home can seem a lot more daunting than it is from the outside looking in. It’s one of the biggest financial commitments you can make, but with proper preparation and an understanding of the process, you can make sure your homebuying journey is a breeze. Below, we’ve broken down the homebuying process into 11 steps. Some steps are more fun than others, but all will contribute to a life-changing purchase. Step 1: Assess Your Readiness Becoming a homeowner is a life-changing commitment that has benefits that will last a lifetime. But before you decide to start the homebuying process, you must assess your readiness. Financial preparation is important, but being mentally and emotionally ready is almost just as important. When you buy a home, you should expect to live there for at least three years to make the purchase worthwhile. When you decide to start the process, consider a few of your goals for the next couple of years. Do you plan on staying in the same job? Are you buying with a partner? Do you think you might want to start a family in the near future? Identifying these big-picture goals can help you realize if you’re ready to buy a home. Step 2: Get a Snapshot of Your Financial Situation Buying a home is likely the biggest financial decision you can make. Before you start the process, you’ll want to make sure that you have your finances in order and a plan in place. You’ll want to check your credit score. Healthy credit is one of the cornerstones to getting a favorable rate when you apply for your mortgage. If you need to improve your credit score, check out our blog on the steps to take to repair your credit. If you want to a good idea of what you can afford, use our affordability calculator! This uses your credit score, annual income, monthly debts, down payment, and an estimate of your interest rate based on location, credit, down payment, and loan term to provide you with an approximate maximum home price and monthly payment. Step 3: Budget For a Down Payment & the Other Homebuying Fees Your down payment and closing costs are perhaps the largest lump sum that you’ll spend when you buy a home. The down payment is your one-time payment towards the purchase of your home. Many individuals believe that a 20% down payment is required, but in some cases, you can get a conventional loan with as little as 3% down! There are caveats to a lower down payment, though. Although you are paying less money upfront, you’ll most likely have to pay mortgage insurance which can increase your monthly payment. For many first-time homebuyers, there are down payment assistance programs that can offer financial health through the form of a forgivable grant. DPA programs vary from state to state and even city to city, so speak with an expert to learn what’s available in your area! If you have friends or family members who can afford to help, you can also use gift money to increase your down payment. Rules regarding gift money vary by loan program. You’ll also need to save some money to cover closing costs, which are the fees you pay to get your loan. Typically, closing costs are around 3-6% of the home’s value. Your loan type, lender, and location will determine how much your closing costs will be. Step 4: Create a List of Wants and Non-Negotiables Do you want a fixer-upper or something that’s move-in ready? Would you rather live in a walkable area or something that’s got more land? And if you’re considering starting a family or already have one, which areas have better school districts? These are the questions you’ll want to have nailed-down answers to before you hit the market. Knowing your wants and needs from the jump will be hugely beneficial when it becomes time to start searching for homes. Step 5: Connect With an LO and Get Pre-Approved You wouldn’t go shopping without your wallet. Well, shopping for a home without a pre-approval letter is the same thing. Once you’ve assessed your readiness, budgeted, and analyzed what you want in your home, connecting with a loan originator to get a pre-approval is the first official step of the homebuying process. A pre-approval letter will give you a solid estimate of your homebuying budget. Getting pre-approved is quick and can be done over the phone. A loan originator will pull your credit score and ask you basic questions regarding your income and other debts to provide you with a number that you can use as a point of reference when narrowing down your home search by list price. Not only does a pre-approval give you a solid budget to work off, but it also shows sellers and real estate agents that you’re a serious buyer and can access financing. It also will make the actual loan application process go by quickly since you already have most of these financial documents handy, easing stress down the line. Step 6: Find a Real Estate Agent & Start Shopping It’s not necessary to hire a real estate agent, but it’s hugely beneficial and highly recommended. An experienced real estate agent will know the ins and outs of your local market, help you find homes on the market and ones hitting the market in the future, write your offer letter, and assist in negotiations. There are a few different ways that you can find a good real estate agent. Most people will ask friends or family members if they recommend the agent they’ve worked with, and if you’re already working with a loan originator, they likely have some partners that they work with and trust as well. With a pre-approval letter in hand and a trustworthy real estate agent by your side, the fun begins; it’s time to hit the housing market! Your real estate agent will help send you listings and even some homes that haven’t hit the market yet. When you’re looking at homes in person and online, this is when your list of wants & non-negotiables comes in handy. Try to keep note of the things you like and dislike about each home so you can reevaluate when comparing your options. Step 7: Make an Offer Now that you’ve found the home that ticks all the boxes and is within your budget, it’s time to make an offer! This is where your real estate agent will really come in handy. They’ll be able to pull comparable sales information and insight from the selling agent to gauge how much competition you might face for the home and whether the seller is motivated to sell quickly. From here, they’ll help you write the offer and provide their insight to make sure you get a good deal. If your offer is rejected, you can work with your agent to make a counteroffer, or you can continue your home search. Negotiations can take some time, and this is where you should lean on your agent’s expertise. Once you have an offer accepted, there are just a few steps to go! Step 8: Apply For Your Mortgage Now that you’ve had your offer accepted, you know how much you’ll need to lend in order to buy your home. Working with your loan originator, you’ll go through your options to pick the mortgage that works best for you. When you work with experienced loan originators like myself, we can shop rates for you from a portfolio of different lenders to find the rate and term that works best for the buyer’s individual circumstances. The process for getting your mortgage involves quite a few financial documents that you’ll have to gather. Here’s what you should prepare when you’re ready to apply: Tax documents for the last two years Bank statements for the last couple of months Pay stubs for the last two months Proof of any other income or funds (like gift money) Driver’s license and social security number There’s plenty that goes on behind the scenes when you take your loan from application to clear-to-close, but when you’re buying with UMortgage, you can rest easy knowing that your loan is being handled by our best-in-class Operations team. Once you’re approved, your loan will go into underwriting. Here, your lender makes the final decision and approves your loan once everything is reviewed. Step 9: Get a Homeowners Insurance Policy & Schedule an Appraisal Before you close on your home, you’re required by lenders to secure a homeowners insurance policy and have your home appraised. These are two conditions that lenders require you to meet before closing on your home. You’ll want your homeowners insurance policy to have enough coverage to fully replace the home’s value and to become effective on your closing date. Your appraisal is required to make sure the lender isn’t lending you more money than the home is worth. Typically, the lender will order the appraisal for you and will bill you directly for the cost. Step 10: Have the Home Inspected Although this is an optional step, it’s highly recommended to ensure that the home you’re about to commit to is in good condition. When you’re paying upwards of tens of thousands of dollars for your down payment and closing costs, the last thing you want is to find out that you’ve got a faulty water heater or HVAC unit to burn a hole in your pocket once you’ve moved in. Home inspections typically cost anywhere from $200 to $700. If your inspection finds any major issues, you typically have a contingency that allows you to back out of the agreement before you close. If any relatively minor issues are discovered, you can negotiate with the seller to have the repairs made or have them pay you to fix them after you’ve moved in. Although it’s optional and could seem like a good place to cut costs before you start signing checks on the closing table, getting a thorough home inspection is a relatively small cost to ensure you’re not saddled with any large and unexpected repair costs once you’re settled in your new home. Step 11: Close On Your Home & Move In! The 11th and final step of your homebuying process is the most exciting. All the hard work put in to budget, save, house hunt, and provide all the necessary documentation to get your mortgage culminates in you putting pen to paper and making the home yours. At least three business days before your closing date, your lender will provide you with your closing disclosure. This document clearly outlines all the costs that go into finalizing your mortgage and the costs that are due from you at closing. On or before your closing date, you’ll do a final walkthrough of the home with your real estate agent. During your walkthrough, you should check to make sure that any potential repairs negotiated after your inspection have been made and that all agreed items, such as appliances, are accounted for in the home. It might seem like a long and arduous process, but buying a home is one of the most rewarding investments you can make. Working with experienced professionals will go a long way towards making it as stress-free and smooth as possible. If you’re ready to get started, contact your UMortgage loan originator for an initial conversation!
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Blog Post
The BasicsDecember 14, 2023
Mortgage Dictionary: From A to Z
Buying a home is a huge commitment. The last thing you want during the process is to feel confused or out of the loop when you’re talking with your Realtor, Loan Originator, or any of the other key players in your homebuying journey. Below is a glossary of some of the most common mortgage-related terms that any prospective homebuyer should know to help you become a more confident and educated borrower. If you don’t see the term you’re looking for, feel free to reach out and I’ll be more than happy to help! 30-Year Fixed Mortgage - A fixed-rate mortgage with the standard loan term of 30 years 15-Year Fixed Mortgage - A fixed-rate mortgage with half the standard 30-year loan term 3/1 ARM - An adjustable-rate mortgage that is fixed for the first three years before becoming adjustable on an annual basis. 5/1 ARM - An adjustable-rate mortgage that is fixed for the first five years before becoming adjustable on an annual basis. Adjustable-Rate Mortgage (ARM) - A mortgage with an interest that can be changed over time depending on external factors. Most ARMS start with a period of fixed interest that lasts anywhere from 6 months to 3 years. Amortization - A breakdown of payments showing how a loan is intended to be repaid. Annual Percentage Rate - The rate of interest to be paid back to the mortgage lender. It can either be fixed or adjustable. Assumption - When a person assumes responsibility for paying off a mortgage. Appraisal - The estimation of the value of the property. Conducted by an appraiser, this process is based both on physical inspection and the sales of comparable properties in recent months. Balloon Mortgage - A short-term mortgage that includes smaller monthly installments followed by a large lump sum payment at the loan term’s end. Bi-Weekly Mortgage - A bi-weekly mortgage payment model that reduces interest and speeds up a payment timeline. Instead of one monthly payment or twelve payments in a calendar year, a borrower pays half of that every two weeks, adding up to thirteen total payments in a year. Bridge Loan - A short term loan that is taken out on one property but used to purchase a different property. Buy-Down - When you get an interest rate that is lower than the standard by paying a lender premium. Caps - Payment caps that put limitations on own often an interest rate can be changed on an adjustable-rate mortgage (ARM). Cash-In Refinance - A refinance in which the borrower pays additional money during the transaction that goes towards their loan and ultimately lowers their owed amount. Cash-Out Refinance - A refinance that allows you to tap into some of the equity (your stake) in your home if you need some extra cash. You may consider a cash-out refi if you need any home renovations, pay for a large expense, or consolidate debt. Closing - The last step in the mortgage process where documents are signed and the process is wrapped up. Closing Costs - The costs a buyer pays during the mortgage process, including attorney fees, recording fees, and any other costs related to mortgage closing. Construction Mortgage - A mortgage model used when a home is built rather than bought. Money is advanced directly to the builder based on the schedule of construction and is converted to a standard mortgage upon completion of the home. Conventional Mortgage - A mortgage that is not insured or guaranteed by the federal government. Credit History - A credit history is a record of a borrower's repayment of debts. Credit Report - A credit report is a record of a person’s payments and loans from several sources, including banks, credit card companies, collection agencies, and the government. Credit Score - A number assigned to an individual that indicates their capacity to repay a loan to lenders that’s based on their credit history. Debt-to-Income Ratio – A figure that represents the difference between your monthly income and monthly debts (including a new mortgage). This figure is calculated into a percentage. The higher the percentage, the riskier the loan may be for the lender. Down Payment - A large initial payment that a buyer puts down on their new home. Most mortgages require a down payment ranging from three percent to twenty percent of the total home value. Equity - The difference between the amount owed on a mortgage and the current value of a home. If you owe $100,000 on your mortgage loan and your home is worth $300,000, you have $200,000 of equity in your home. Escrow - At the closing of the mortgage, the borrowers are generally required to set aside a percentage of the yearly taxes to be held by the lender. On a monthly basis, the lender will also collect additional money to be used to pay the taxes on the home. This escrow account is maintained by the lender who is responsible for sending the tax bills on a regular basis. Fixed-Rate Mortgage - A mortgage where the interest rate and term of a loan have been negotiated and set for the life of the loan. Foreclosure - When a bank or lender re-possess a home or property when the borrower has not been repaying the loan. Good Faith Estimate - An estimate of the closing costs given by the lender. While not an exact amount, it gives buyers a general idea of what to expect. Homeowners Insurance - Property insurance for a new home. A homeowner must secure this prior to the mortgage closing date. Loan Officer - The representative of a broker or bank who originates mortgage loans. Loan Origination - The beginning of the loan process that is kicked off by a borrower submitting a loan application with a lender. Loan-to-value Ratio (LTV) - A financial calculation done by dividing the amount of a mortgage by the value of the home in question. Mortgage - A loan used to buy or refinance a home. The loan is then paid back with interest to the lender. Mortgage Interest - The additional cost charged by a lender to a borrower throughout the repayment period of their mortgage. This is typically expressed as an annual percentage rate and can vary based on market conditions and the borrower’s financial health. Origination Fee - A fee paid to a lender at the beginning of the mortgage process. This may include an application fee, appraisal fee, fees for all the follow-up work and other costs associated with the loan. Par Rate - The standard interest rate determined by an underwriter. Points - Fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower your monthly mortgage payments. Principal - The amount of money still owed on a mortgage. The principal amount goes down when borrowers make regular monthly or bi-weekly payments. Private Mortgage Insurance - A type of insurance that protects lenders in case of a borrower not paying back their loan. If the borrower is paying less than 20% in a down payment, the lender will likely require them to take out PMI. Rate and Terms Refinance - A kind of refinance that changes either the rate, term, or both rate and term of a mortgage loan. Unlike a cash-out refinance, there is no advancing of money. Real Estate Tax Deduction - When taxes paid on personal property and real estate are deducted from federal income taxes. Refinancing - When a person trades their old mortgage for a new one with different agreements. This can mean a lower rate, new terms, or the ability to cash out on the equity of your home. Tax Break - A reduction in your taxes that comes from the government. Truth in Lending - Federal mandate meant to shield consumers from potential fraud. The regulations include proper disclosure of rates, advertising guidelines, and other protections within the lending process. Underwriter - The person who handles the insurance risk side of things for a loan process. Interested in a mortgage loan? Get a quote today!
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