Home Buying

Chris explains the 2-1 Buydown. A 2-1 buydown can temporarily reduce the homebuyer’s interest rate. This can be a useful tool for homebuyers that worry about rates continuing to rise, and seller’s who are looking for a creative way to get an offer in a market where interest rates are trending upward.

It’s been a wild few years and the housing market has been anything but normal, so how can you better prepare yourself for your next home purchase?

During the first quarter of 2020, interest rates dropped to historic lows.  Not only were homeowners able to save money by refinancing, homebuying became more affordable to those that otherwise might not have been able to buy.  In many cases move-up buyers could now afford higher priced homes.

Interest rates remained low and the purchase market thrived well into 2021… until it couldn’t. With a lack of inventory leading to a seller’s market, many homebuyers became discouraged competing for each home. Buyers constantly got outbid, often times over the listing price, so many decided to wait for the spring market to try again. Many sellers became reluctant to list their home because they either had trouble finding a home to move to or the market didn’t allow for a home-to-sell contingency.

What can you do to combat some of these homebuying obstacles?  Here are some creative ways to help purchase a home in 2022.

The United Home Loans Bridge Loan

Yes!  We can bridge the gap between your home purchase and home sale by tapping into the equity of your home before it actually sells.  The United Home Loans Bridge Loan works by taking out a second mortgage on the home you intend to sell in order to fund the down payment on the new purchase.  Even if your home is listed, we can pull the equity.  The bridge loan gets paid off once the home sells.  Restrictions apply, so please contact me for the qualification requirements.

Low down payment jumbo financing

As of January 2022, any loan amount over $647,200 is considered a jumbo loan.  Most jumbo lenders require a 20% down payment; however United Home Loans offers jumbo loans to qualified buyers up to $1,000,000 with as little as 5% down*. Give me a call for more details.

Buy non-contingent with low down payment & recasting

If you have savings or the ability to borrow your down payment from family, 401k, etc., you may consider buying a home non-contingent upon your home sale.  Once you actually sell your home, you can use the proceeds from that sale to do a one-time large principal reduction on the new home loan.  Most lenders will allow you to recast or “re-amortize” the loan one time so your new mortgage payment is calculated off of the reduced balance.  It’s best to get pre-approved before making any offers since there are additional qualification requirements, but if you’re comfortable holding both homes until your sale, this could be an option for you.

There are many ways to creatively give you an edge to buying your next home.   It’s important to speak with a seasoned loan professional that understands how to tailor a loan to your specific needs and to guide you thru your various options in an ever-evolving housing market.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

*Mortgage rates can and do change daily. Some products may not be available in all states. Jumbo program as of January 11, 2022 for a purchase/refinance of a primary residence with no cash out at closing. We assumed (unless otherwise noted) that: closing costs are paid out of pocket, this is your primary residence and is a single family home; debt-to-income ratio is less than 37% and credit score is 740 or higher. The lock period for your rate is 60 days.

The interest rate of 3.625% (3.789% APR) assumes an $800,000 mortgage, 5% down with monthly P&I payments of $3,685. Monthly payment does not include taxes and insurance premiums. The actual payment amount will be greater if you choose to escrow for taxes and insurance. Payment assumes a loan-to-value (LTV) of 95%.

Rate!  Rate!  Rate!   So, you want the lowest interest rate?  We get it.

Interest rates are determined by how mortgage backed securities are sold and traded on Wall Street.  When the market is volatile, so are interest rates.  While it’s my job as a mortgage banker to monitor the market and advise you on when to lock in your rate, when to refinance or suggest options that best fit your financial goals as a homeowner, it’s important to know that there are other ways to reduce the interest you pay on your loan other than simply lowering your interest rate.

Whether you’ve recently purchased a home or have considered refinancing, you should evaluate your mortgage and implement ways to save money.  Let’s look at three methods to reducing the overall interest you pay on your loan.

OPTION 1:   Shorten the Loan Term

Here’s some food for thought:

A person will pay more interest over the life of their loan on a 30 Year Fixed at 4.125% than they would if they chose a 15 Year Fixed at 8.000%!

It sounds like a no-brainer.  If you pay off your loan in a shorter amount of time, you are going to pay less interest.   However, it’s important to understand how an amortization schedule works.   Even though your monthly principal & interest payment on a fixed rate mortgage never changes from month-to-month, the principal and interest amounts do.   Every monthly you make a payment, your loan balance goes down, so, the interest you are paying on the loan balance also goes down.  The principal goes up, keeping your payment the same.  Here’s how the principal & interest break down at various points of the loan term for a $300,000 loan at 4.000%.

Notice how much quicker the interest drops by paying more principal monthly on the 15 Year Fixed.

The numbers become staggering.   For the above scenario the person with the 30 Year Fixed will pay $215,607 in interest over the life of the loan whereas a person on the 15 Year Fixed will pay $99,432 in interest.   That’s savings of $116,175!  If you are comfortable with a 15 Year Fixed payment, it’s a great way to reduce the interest you pay on your loan while expediting your principal reduction.

OPTION 2:   Biweekly Payments

If you pay your mortgage monthly, like most homeowners, you’re making 12 payments a year. However, most lenders provide an option to setup biweekly payments.  Once enrolled in a biweekly payment structure, you’re paying half your monthly amount once every two weeks in lieu of 1 full payment per month. Since there are 52 weeks in a year, you will make 26 biweekly payments — This equates to 13 monthly payments for the year.

Because you’re making the equivalent of 13 monthly payments each year, you will have made the equivalent of 1 extra mortgage payment, all of which gets applied towards principal.  So, you’ll pay less total interest while lowering your principal balance at a much quicker pace.

If we look at a 30-year fixed loan of $300,000 at a 4% interest rate, a person would save nearly $35,000 in interest over the life of their loan.

OPTION 3:   Paying Additional Towards Principal

Even though you may have a fixed mortgage rate and payment, you can always make an additional payment towards principal.  This is similar to biweekly payments where additional funds are applied towards your principal balance, however you choose how much extra you want to pay and how often you want to apply an extra payment towards your loan.   Whether you want to set up a recurring amount to be applied with each month’s mortgage payment, or if you want to just pay a little extra from time-to-time, you can choose how much to pay and how often, and the savings will add up.

Using the same $300,000 loan amount for a 30 Year Fixed at 4%, applying an additional $200/month will save you over $50,000 over the life of the loan.  In addition to the savings your 30 Year Fixed loan will be paid off in less than 24 years.

Calculate Your Savings!

I am happy to provide a consultation to help you find ways to save money on your mortgage payment.  Feel free to contact me for a time to discuss.

You can also use the chart below to estimate YOUR savings by incorporating one of these methods..

VIEW CHART HERE
 

Chris Ulrich – United Home Loans
NMLS #215735

Saving to buy a home while you watch prices and interest rates increase feels like an impossible goal. You have little or no money saved and feel like homeownership isn’t in the near future for you. You checked into FHA loans and learned it only requires 3.5% of the purchase price as a down payment. But then you learned about the high, and permanent, mortgage insurance premiums. No thanks. So what other options do you have?

Don’t give up on your dream of homeownership! There are loan programs for creditworthy individuals with just 3% down payment.

The Affordable Solution

Fannie Mae’s HomeReady and Freddie Mac’s Home Possible Mortgage, are making it easier for people to buy a home and start building equity. These loan programs are designed to help low to moderate income borrowers get into a home with little to no money of their own. The minimum down payment for each program is as low as 3% of the purchase price, and there’s a lot of flexibility for where you’re allowed to get that money.

For both Freddie and Fannie’s programs, the down payment can come from a gift, a community second mortgage, or a down payment assistance program – when available. These sources can also cover your closing costs. A total of zero dollars need to come from your own money.

The bottom line is that by using these programs, you can potentially own a home even if you haven’t saved a dime.

Who/What Qualifies

Buyers and property types may qualify under these guidelines:

Embracing Mortgage Insurance

Private Mortgage Insurance (PMI) is required on loans with less than 20% down payment. This essentially is an insurance policy that protects the lender up to a certain percentage of loss if you were to default on your home loan. Both HomeReady and Home Possible mortgages require you to pay this mortgage insurance premium, but the cost is often less than both a conventional 5% down program and an FHA loan. And unlike an FHA loan, you may be eligible to drop the mortgage insurance once there is 20% equity in the property. Equity is accumulated by a combination of loan repayment and property appreciation.

Getting Started

No matter where you live, these loan programs represent a great opportunity in today’s real estate market. The downside is that not everybody can qualify. It’s important to speak with a seasoned mortgage professional to help structure a plan that best fits your current financial situation and future goals as a homeowner. While the Fannie Mae HomeReady and Freddie Mac Home Possible Mortgage are fantastic loan options, everybody’s situation is unique. There is an abundance of programs available, and a good loan officer will provide you with the guidance you deserve. Call for your free consultation and pre-approval today.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

Now that you’ve decided to start the home-buying process, it’s time to figure out which loan program is best for you. Since everybody’s situation is completely different, you’ll want to have a discussion with a mortgage professional help provide direction. After months of online browsing, it’s likely you’ve run into a jumble of curious letters, acronyms, and confusing names like FHA, VA, Fannie Mae, and Freddie Mac. What do they all mean and how do you know which one is right for you?

First off, lets look at the primary differences between an FHA loan and conventional loans, which includes Fannie, Freddie, and Jumbo loans. Even if it’s not your first time purchasing a home, it’s important to familiarize yourself once again since many historical differences between these types of loans have changed in recent years. The remaining differences have to do with mortgage insurance and a few underwriting guidelines.

Loan-Level Price Adjustments
Two very similar individuals with similar income might be better off on two completely different loan programs. One reason is because of Loan-Level Price Adjustments charged on conventional loans. These are risk-based fees assessed to mortgage borrowers using conventional financing. Since these fees are built into loan pricing (the premiums lenders earn by delivering your loan to Fannie Mae and Freddie Mac), the borrower typically doesn’t pay in the form of money but their interest rate gets adjusted. For example, an individual with an 800 credit score will have a better interest rate than somebody with a 660. Makes sense, right? Well, there are several other price adjustments. A condo or multi-unit property will likely have a higher interest rate than a single-family home. Your down payment percentage and whether or not you are buying a primary residence, second home or investment property can also impact your interest rate.

For a “vanilla” loan scenario where somebody has 5% down, a 780 credit score and purchasing an owner occupied single family detached home, this person would qualify for the best pricing possible. Their interest rate and monthly mortgage insurance would be the lowest available, keeping their monthly payment as low as possible with just 5% down payment. So, a conventional loan would be the best program for this particular borrower. However, FHA has far less pricing adjustments and is a bit more forgiving when it comes to your credit history and current credit scores. If the person in this above scenario had a 620 credit score, their interest rate and mortgage insurance would be substantially higher on a conventional loan due to the Loan-Level Price Adjustments. In this case FHA might be the better option since there total monthly payment would be lower.

Derogatory Seasoning, Credit Scores and & Debt Leniency
FHA has always been known as a “first-time homebuyer” program, even thought it’s not. People still label it this way because it caters to many individuals who have the some of the characteristics of a person who might be buying for the first time. Whether it’s a recent grad needing Mom and Dad to co-sign, somebody with very little savings or a person just starting to build up their credit, FHA can be very accommodating. However, there are many reasons why FHA might be the right program for move up buyers.

FHA has a much shorter seasoning period than conventional loans for people who are recovering from a bankruptcy, foreclosure or short-sale. FHA will allow for individuals with compensating factors to purchase with a credit score as low as 500, where as the minimum allowed by conventional is 620. FHA may also allow for debt-to-income ratios (the percentage of your gross monthly income allocated towards all your month debts) above 50% where conventional typically caps people around 45%.

Mortgage Insurance
The Federal Housing Authority (FHA) is a government agency created in 1934 to help more Americans own homes. Specifically, it provides mortgage insurance to the lender making the loan in case the borrower defaults (fails to pay) on the mortgage. The insurance premium is due no matter what size of a down payment the borrower makes.

FHA loans require a portion of the premium upfront (or at the time the mortgage is made) and monthly for the life of the loan (in most cases) and stays in place no matter how much equity accumulates in the property.

Conventional loans require mortgage insurance for the same purpose as an FHA mortgage (to protect the lender in case of a default on the mortgage), but only for loans with less than 20% down payment. The insurance is provided by private companies, which is where the term PMI comes from (private mortgage insurance.) PMI on a conventional loan only carries a monthly premium and no ‘upfront’ portion is due, and it can be removed based on the equity in the property. Through a combination of paying down the mortgage and property appreciation, borrowers can contact the lender when they have at least 22% equity and request the insurance cancelation.

Compared side by side, mortgage insurance on an FHA loan will end up costing the homebuyer more money over the life of the loan. The portion of the insurance premium that is due upfront on an FHA loan is typically added to the original loan balance, and the monthly payment is made on the total amount. While FHA interest rates generally are lower than rates for conventional loans (with less than 20% down payment), the payment on the FHA loan is likely to be higher for the same property.

More Differences Between FHA and Conventional Mortgage
FHA used to stand out as the best option for buyers with less cash available for a down payment because it allowed a down payment of a minimum of 3.5% of the purchase price. Now, however, Fannie Mae and Freddie Mac have programs that will enable borrowers to make a down payment as low as 3% of the purchase price.

While both FHA and conventional both have monthly PMI for low down payment loans, conventional loans allow the borrower to pay for the monthly mortgage insurance by increasing their interest rate above the lowest prevailing rate. This is called ‘lender paid mortgage insurance.’ Typically, a slight increase in the rate of one eighth to a quarter percent eliminates the need to pay a separate MI premium monthly. Since mortgage insurance premiums are tax deductible at lower income levels, some borrowers may find that paying a higher interest rate (mortgage interest to deduct) is preferable to a lower rate and the MI payment. Talk to your tax advisor to find out if this might be a beneficial option for you.

While all mortgages require a property appraisal, FHA appraisals were traditionally more detailed as the appraiser was required to note any “health and safety issues” they saw while inspecting the property. After 2010, however, the requirements for all appraisals have been unified. If the property condition poses a health or safety issue, as noted by the appraiser, an FHA loan will require correction or repair before the loan closing. Conventional loans need the same; however, there may be a small amount of flexibility.

What’s Best For You?
It’s hard to imagine choosing an FHA loan after reading all of this, but it may be the best option for some borrowers. In general, the underwriting guidelines for an FHA loan are more lenient than those for conventional loans. Specifically, FHA may allow a higher debt-to-income ratio than a conventional loan. Credit guidelines are also more flexible both with past delinquencies and more serious derogatory credit events, as well as the depth of a borrower’s credit history.

With property values increasing across the country, along with interest rates, waiting for a credit score to improve or a delinquent record to drop off your report may not be attractive. FHA loans will allow some borrowers to buy a home sooner than they may otherwise have been able to with conventional financing options. If interest rates drop in the future, you can refinance using the FHA streamline, which reduces the usual process and won’t require a new appraisal. Conventional loans can only be refinanced by starting over at square one and going through the full loan qualifying and process again.

The more you know going into the home buying process, the better questions you can ask and the better decisions you can make. But nothing replaces the benefit of working with an experienced lender to fully evaluate your situation and give you the options that will work best for you. There’s so much more to it than the interest rate.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

You found the perfect home. It’s exactly what you’ve been looking for. It sits on a cozy street in a safe neighborhood within a great school district. There was some negotiating on price, but in the end the seller accepted your offer. Finally, you can rest easy as you’ve come to terms with the seller for your dream home! Or have you?

Whether it’s during those initial negotiations or after the offer is accepted, there are still several reasons why negotiating a seller credit is not uncommon. Here are a few things that every buyer and seller should know when it comes to seller credits.

1. Buyers and sellers; A credit is a useful way for the seller to market their home and useful for the buyer who may not have the cash needed for closing costs.

As a seller, you know the lowest you’ll take for your home. You likely listed your home a bit higher than what you’re willing to take because you know buyers will offer you less. Hypothetically, let’s say you list your home for $315,000 and you know the least you’ll take is $300,000. As a seller you could market the home with a $5,000 seller credit towards closing costs or points to buy down their interest rate, and it still leaves room for negotiating. There is no difference whether you sell the home for $300,000 with no credit or for $305,000 and give a $5,000 concession. You are still netting your $300,000.

As a buyer for the same scenario above, you can contract on the home with a seller credit of any dollar amount – Click here for how much a seller can credit. The seller may or may not budge. It’s very common to negotiate credits with your offer, but if it’s a competing offer situation, you may not look like the strongest buyer. Your realtor will know the best way to approach the situation.

2. Buyers may request credits for property inspection items.

In the early days following the accepted contract you will have your attorney review period in which you typically have 5 days to have a home inspection completed. It is within this time frame that you must notify the seller or seller’s attorney of any defects for which you request the seller to cure. Whether it’s sewer line, roof, water heater or electrical issue, it is VERY common for further negotiations to take place. The seller may have to fix these items prior to closing, but if the issue doesn’t affect the safety or habitability of the home, you may request a credit in lieu of the seller fixing the item themselves.

3. Sellers can avoid credits for inspection issues by fixing the problems themselves.

Sellers should consider having a property inspection before listing the home. As the seller, your goal is obviously to avoid anything that will impact your bottom line, giving you the most sale proceeds as possible. By having a home inspection prior to listing your home, you might find a few items that you weren’t aware needed to be fixed. Some of these items might be so minor that you can fix them yourself. For any larger items like a failing furnace or a roof near the end of it’s life will likely be caught by the buyer’s inspection. Having the inspection completed up front will give you some extra time resolve major issues.

By making the inspection report available to buyers, it can also be a good way to show good faith to those considering to purchase your home that you have taken additional steps to assure a safe home without any major issues.

If you have an inspection, or otherwise assuring that your property is in great shape, you could request the home to be sold “as is”. This sends a strong message to any buyers that the you aren’t open to further negotiations once the contract is executed.

4. Buyers, be reasonable.

You made an offer on a home, negotiated back-and-forth with the seller. Finally, you’ve come to an agreement. Don’t just concede to the purchase price thinking that you can get an additional concession after a property inspection.

You may be weeks into the process, completed a series of inspections and feel that the seller has mentally committed to moving. This doesn’t mean the seller has to accept any credit requests. If you can’t come to terms during the attorney review or you request an unreasonable credit, the seller may very well call your bluff and terminate the contract, especially in a seller’s market.

5. Sellers, be reasonable.

You may have come to terms on your home sale at a fair price, but it doesn’t mean the buyer has to go through with the deal. They can still cancel within the attorney review. They agreed to your price assuming there are no inspection issues. If the buyer cancels the deal because of a safety issue or other major defect, chances are that the next buyer that comes along will likely find the same issue and request that it be cured. Save yourself the trouble of relisting the home, going through the negotiations all over again and eventually running into the same issue by just resolving it the first time.

6. Buyers nearly always ask for credits, so sellers should leave room for further negotiations.

Sellers should cushion their final sales price because buyers typically ask for credits once they complete their home inspection. They will likely come back with a concession request, even if there aren’t any major issues. Leaving yourself a little room will give you the ability to meet some of their requests and you’ll feel better about “giving in” to them.

The last thing you want is to be blindsided, unexpectedly giving up a couple thousand dollars after thinking the deal is finally done.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

It’s time to move on. You’ve outgrown your home and you are thinking of moving up to a bigger and better home. The question that you are most likely thinking is – “Can I buy that home before selling my current home?”. The answer is both yes and maybe.

First off, let’s look at the advantages and disadvantages of selling before you buy.

Advantages of Selling before Buying:

Disadvantages of Selling before Buying:

You know the disadvantages but still would like to purchase without having your home sold. So, can you actually buy a home before selling your current home? If you are like most homeowners who would rather buy before selling, there is hope.

Challenge #1 – Qualifying for 2 mortgages at the same time

Since your home hasn’t sold and there is never a guarantee that it ever will sell, you are required to qualify with two home mortgages. There are 2 possible solutions for this:

• Solution 1:

  If you plan to rent your current home after buying a new home, we can use 75% of the future rental income of your current home to offset your housing payment. You will need to have a rental lease in place and have collected your first month’s rent/security deposit to prove you have a legitimate renter. This may give you enough income to qualify with both homes.

• Solution 2:

  If you plan to sell your current home after you contracted on the purchase, be ready to list your home immediately after your purchase offer gets accepted. In a perfect world, you find a buyer for your home and contract the closing the same day as your purchase. You sell in the morning and close on the purchase in the afternoon. This may sound ideal, but of course it isn’t always feasible, especially if one of the closings is delayed for unforeseen circumstances and you’re stuck in a last-minute scramble. If your home sale happens after the close of your purchase, we don’t have to hit the mortgage debt of your existing home against you if the buyers of your home contracted non-contingent upon any home sale, or if the buyers of your home have a lender’s clear-to-close mortgage commitment to purchase your home.

Challenge #2 – Qualifying with less than 20% Down Payment

Since you haven’t yet sold your current home, all the equity is tied up in the house. Therefore, you may not have the down payment funds you anticipated you’d have.

• Solution 1:

  At United Home Loans, we offer loan programs with as little as 3% down on conforming loans (loan amounts less than $453,101). For jumbo loans (Loan amounts greater than $453,100) we offer programs with as little as 5% down on loan amounts up to $650,000, and just 10% down payment for loan amounts up to $1 million. So, you can get in the new home with a low down-payment, even at those high price points!

  Yes, you have to pay PMI (Private Mortgage Insurance) if you can’t come up with 20% down, but once your home sells, you can pay down your loan to cancel the PMI. Most lenders even allow you to recast your loan. This means it can be re-amortized over the new loan amount after you’ve paid down the balance by making a one-time large principal reduction.

• Solution 2:

  You can get a gift for your down payment. Gifts from family are allowed on conventional and FHA loans for 100% of your down payment!

As you can see, there are options for you. Figuring out what’s best for you is just half the battle while qualifying is the other half. Let me help you determine the best structure based on your current and future goals of homeownership. From there we will pre-approve you based on both what is in your best interests and what you can actually qualify for.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

We know of Millennials as the resourceful generation of independent minds shaping the world today through technology and start-up companies. They were referred to as the generation of renters with little interest in homeownership. However, times have changed and statistics show that Millennials make up the largest group of homebuyers today at 45% of new home purchases. This may be true, but research also shows that Millennials are still going through the stress of student loan debt while at the same time struggling to pay rent. With home values on the rise and inventory down compared to just a year ago, Millennials also have a hard time competing for a new home against move-up buyers.

The cost of rent has been a hot topic and is arguably one of biggest expenses someone may face. Research was completed by RentCafe as they turned to the U.S. Census to find out how much Millennials, specifically single individuals from the age of 22 to 29, spend in rent over that 8 year period. To even the field, the research was done for median income individuals in that age range.

The statistics show the burden of rent on twenty-something’s and why Millennials are shifting their mindset towards homeownership.

Millennials will pay $92,600 in rent before they turn 30 years of age. Remember, this is for those with the median income for that age range throughout the U.S…but where do you live? Are you in the city or suburb? If you are in Chicago and paying $1,800 per month, you will pay close to $175,000 in rent in just 8 years. These numbers become even more staggering when you consider the cost of rent increasing each year you sign a new lease.

If you rent or have been a renter for years, these numbers may not surprise you. However, are you aware that it’s recommended that rent be no more than 30% of your income and the average Millennial is spending close to 45% of their income on rent? This means that an individual earning $60,000 annually or $5,000 per month is spending $2,250 on rent when it’s recommended to be $1,500. At 45% of your income, you are spending more than Gen X and your Baby Boomer parents did.

Here is a previous article to learn more about Home Buying as a Millennial

What questions do you have? I’m happy to be a resource of information for you, walk you through the pros and cons of homeownership and help educate you so you make the right decision for YOU. I also conduct home buying seminars and even lunch & learn sessions for you and your coworkers. Call or message me for more information.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735