Frequently Asked Questions

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Frequently Asked Questions

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What Is My Escrow Account For?

Escrow is an odd term, but it’s easy to understand. At Caliber Home Loans, we use escrow accounts to make your life simpler and to protect you from sudden, unexpected large expenses. Here’s how it works.

Your mortgage loan finances the actual purchase of your home. However, as the homeowner, you must cover other costs in addition to the mortgage itself. That’s why almost every mortgage loan comes with an escrow account. Think of it as a sort of savings account to make sure you can cover those additional costs.

What are those other costs? There are two:

  1. Property taxes as required at the state and/or federal level.
  2. Insurance, including homeowner’s insurance and/or mortgage insurance.

Your monthly Caliber Home Loan payment consists of payment on the principal of your loan and interest charges, plus, in most cases, payment into your escrow account. The escrow portion of your monthly payment is calculated to include the funds needed for to pay for taxes and insurance when they come due. These tax and insurance payments happen automatically. You do not have to keep track of these items. All you do is make your monthly mortgage payment and everything is taken care of. When the tax and insurance bills come due, your lender pays them on your behalf from the escrow account.

We establish your escrow account at the time you close your loan. Your escrow account does not require any costs that you would not otherwise have to cover as the homeowner. The escrow account makes sure you do not miss critical tax or insurance payments. In fact, the escrow account will protect you from late fees, liens on your property, or even foreclosure. And by paying into your escrow account a little each month, you avoid having to produce one big lump sum at the time the bills are due.

Sometimes, the escrow portion of your monthly payment will change. This occurs when property tax rates or insurance premiums fluctuate from one year to the next. We will conduct an analysis each year to make sure that you are paying in enough to cover the bills. Any surplus at the end of the year is applied to the next year’s expenses.

Your escrow account begins with an upfront balance when you close your loan. Part of your closing will likely be depositing money to cover the first year of taxes as well as the first six month of insurance premiums. Years later, you may have the option to remove your escrow account when your loan balance has dropped to below 80% of the home’s value.

To summarize, an “escrow account” is a protection for your peace of mind. With expenses for taxes and insurance covered, all you have to focus on is that one monthly payment.

At Caliber Home Loans, we strive to make everything about your mortgage experience as simple and clear as possible. We always look for ways to streamline the process, eliminate paperwork wherever possible, and require as little of your time as possible. Our passion is for the homebuyer. We’re here to navigate you to the best loan that works best for you so that you can savor the joy of home ownership.

Is My Mortgage Required To Have An Escrow Account?

In general, the short answer is yes.

Your escrow account is essentially a savings account set up to cover taxes and insurance costs related to the home you’re buying.

There are two times you’ll set up an escrow account:

  1. When making an offer on a home. This is a temporary account.
  2. When closing on the loan. This is a permanent account.

Escrow Account When You Make an Offer

When you make an offer, you will deposit earnest money into an escrow account. This is considered a “good faith” gesture that you are serious about your offer. This deposit is typically to between 1% and 5% of the purchase price. The deposit is intended to protect both you and the seller. After all, things can happen to throw the sale into question. For example, the home may not pass inspection or may not appraise for the asking amount. Or you may not be approved for financing or you have second thoughts and back out of the deal.

If the sale breaks down on your end, the deposit goes to the seller. If the sale breaks down on the seller’s end, the deposit will be refunded to you. Usually, the sale goes through and the deposit money is applied toward your closing costs.

Escrow Account When You Close the Loan

When you close on your loan, the ongoing escrow account is set up to collect the funds needed each year to pay for property taxes and home insurance. Your monthly payment includes money dedicated to the escrow account and is calculated to save enough to cover the year’s expenses.

You may not have an escrow account for the whole life of the loan, however. FHA and USDA loans require an escrow account for the life of the loan. Some loans give the homeowner the option of removing the escrow account once the mortgage loan balance has dropped below 80% of the home’s market value. In that case, the monthly payment would be reduced as the funds would no longer be collected for taxes and insurance. However, the homeowner becomes responsible for paying those expenses in full and on time. In this scenario, the homeowner would need to make sure funds were on hand, including the large annual property taxes.

Although most conventional loans not federally insured do not require an escrow account, the lender may be allowed to require one. At Caliber Home Loans, we highly recommend one, as it makes managing expenses easier for you and protects you from having to cope with large annual bills.
If you made a down payment of less than 20%, you may be required to take private mortgage insurance (PMI). This protects you from certain late fees, liens against your property, and even foreclosure if you miss these specific payments. The account helps ensure the bills are paid on time and that you have sufficient funds to do so. Your escrow account may also gather funds during the year from your monthly payments to cover this additional insurance.

If You Don’t Have an Escrow Account At Closing

If you do have an escrow account set up at closing, you will have to prepay the first year of property taxes plus six months’ worth of home insurance premiums.

Whatever type of home loan you choose, we are here to help you understand all the steps involved and to navigate you through the process. All the jargon of the financial world can be confusing, but we will make it clear and help you make sound, responsible decisions.

What Is A Jumbo Loan?

A jumbo loan is a home mortgage for a higher amount.

Choosing this type of loan

One of the most important parts of buying a home is determining the kind of mortgage you need. At the very least, this part can be overwhelming – especially if the amount you need to finance is higher than the average home.

Say you’re in the process of buying your dream home, and it’s much more expensive than average. You need to find a loan that allows you to finance it without breaking the bank. A regular loan amount might not be an option because the home value exceeds the normal Fannie Mae and Freddie Mac loan-servicing limits. You may find yourself in this position if you’re buying a luxury home, a home with expensive amenities that drive up the cost, or a home in a pricier neighborhood. This is when you may need to opt for what’s called a jumbo loan.  

Jumbo loans, often referred to as jumbo mortgages, are home loans specifically for amounts that exceed the conforming limit set by the Federal Housing Finance Agency (FHFA) and the United States government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

Why use a jumbo loan?

Jumbo loans are a lot like conventional mortgages, but they have more built-in support for the risks that come with making a high-price property purchase. Jumbo loans are not only used to finance primary residences – they are also popular for financing investment properties and vacation homes.

For many people (whether they’re first-time homebuyers or experienced investors), housing can be a smart investment. Most borrowers that take out jumbo loans have good credit, and they often leverage the money they get in return and put it back in their investment or business – ultimately growing their wealth and financial health over time.

Preparing to get a jumbo loan: What to expect

If you want to apply for a jumbo loan, make sure that you’re prepared to undergo the vetting process by having all your financial documents on-hand.

Qualifying for a jumbo loan

The vetting process for jumbo loan applicants is based on the same formula as other mortgages, but with stricter requirements. Here is a list of what lenders consider and the requirements you must meet:

  • A credit score of 700 or higher
  • A down payment of 20% or more
  • Sufficient cash reserves to cover at least one year of mortgage payments
  • More detailed documentation to prove your financial stability
  • Higher interest rates
  • Higher closing costs and fees

Key takeaways

  • Jumbo loans are an option for borrowers who want to finance a property that exceeds the limits set by the FHFA.
  • FHFA limits for property value vary by county.
  • Jumbo loans cannot be guaranteed or purchased by Fannie Mae or Freddie Mac.
  • Jumbo loan applicants will have to meet stricter qualification requirements than conventional loan applicants.
  • Jumbo loan applicants will need to have a higher credit score and a lower DTI ratio to be approved.

How to find jumbo loan limits by area

You can access the FHFA map for details about each area’s requirements by state here.

 

Need more help?

At Caliber Home Loans, Inc., we’re here to help you make informed decisions when financing a new home. If you need help deciding if a jumbo loan is right for you or want to get started, contact a Caliber Loan Consultant today.

What Are Closing Costs? And Who Pays For Them?

If you’re a first-time homebuyer, closing costs may take you buy surprise. These are additional out-of-pocket expenses that cover of a number of fees involved in the mortgage loan process. Closing costs generally amount to from 2% to 7% of the home’s purchase price. These expenses are on top of the sale price you negotiated with the seller.

Closing costs can include:

  • Attorney fees
  • Title search to determine if there are any liens against the property.
  • Title insurance to protect you and the lender if there are any lien claims.
  • Transfer taxes
  • Appraisal for ensuring the home matches current market value and loan amount.
  • Home inspection, as required for loan approval.
  • Prepaid interest
  • Prepaid private mortgage insurance (PMI) for down payments of less than 20%.
  • Cost of underwriting.
  • Obtaining a credit report.
  • Application and origination fees to cover time and paperwork in processing the loan.
  • Discount or mortgage points fees in exchange for a lower interest rate.

Some of these costs are upfront, before the property is officially sold, while others are paid at the time when you close on the sale and the loan. You will also probably have to establish an escrow account to fund your tax and insurance payments. Usually, you will need to prepay the first year of property taxes and home insurance premiums at closing.

The seller also covers some closing costs, including:

  • Sales taxes
  • Title transfer fees
  • Attorney fees
  • Certain closing fees
  • Realtor commissions

How to estimate what your closing costs will be.

There’s no one-size-fits-all formula for estimating your closing costs. That’s because the costs are set by state, county, and municipal authorities. These legal requirements can vary greatly. You can’t assume the closing costs in one locale will be similar to those in a different community. Fortunately, you can get a good idea what yours will be by using an online closing cost calculator. Better yet, consult with a real estate agent or lender familiar with the area. Their local expertise can be very important.
Federal law requires lenders submit a closing disclosure at least three days before your closing. This disclosure will state the exact amount of the closing costs you are required to pay.

How to reduce your closing costs.

Most closing costs are unavoidable, but there are steps you can take to reduce them.

  • Shop for title services, if possible. Title related fees, such as title searches and title insurance, can account for almost 70% of your total closing costs. Just as you shopped for the best lender, you can also shop for the best title company. Do some research and compare several title companies. It’s possible you may save hundreds of dollars.
  • Ask for the seller to pay some of your closing costs. In your negotiation with the seller, you could ask the seller to pay some your costs on closing day in exchange for adding those costs into the total purchase price. In other words, you pay less at closing but will pay a little higher monthly payment.
  • Ask the lender to pay closing costs. Sometimes the lender will agree to pay some of your closing costs in exchange for a higher interest rate on your mortgage. You’ll pay more interest, but you won’t have to pay as much cash up front.

Just don’t make the mistake of cutting corners. For example, don’t skimp on owner’s title insurance just to save money. This insurance protects you in case there is an undisclosed lien on the property or if the previous owners failed to pay the property taxes.

There’s one other resource to help you plan for closing – your Caliber Loan Consultant. Our goal is to make buying a home as painless and uncomplicated as possible. We are committed to helping you navigate the process by providing transparent, honest, and straightforward service. Use our branch locator to find your nearest consultant.

Can You Help First-time Home Buyers?

Buying your first home is huge. It’s probably the biggest single purchase you’ve ever made and coming up with all the funds to make it happen can be daunting. So, if you’re wondering if there are ways to make all this a little easier, the answer is, yes.

Caliber Home Loans offers programs designed to help provide homebuyers with less-than-ideal financial circumstances an opportunity to achieve their dream of homeownership.

Possible assistance for first-time homebuyers include:

  • Grants for use toward down payments or closing costs.
  • Low or no down payment requirements.
  • Paying for or subsidizing interest payments.
  • Special lower interest rates.
  • Partial debt cancellation after a designated time period.
  • Deferred payments.
  • Reducing closing fees by capping or waiving closing costs.

Not all of these programs may be available in your area, but it is definitely worth your time to find out if you qualify for financial assistance.

Government programs for first-time buyers.

The good news is local, state, and federal governments offer programs to help first-time buyers secure their loans. Often, they offer insurance to the lender because first-time buyers are considered risky. Many programs offer the lender insurance to protect them for taking on that risk. The most common programs include:

  • FHA Loan. An FHA loan is insured by the Federal Housing Administration and allows borrowers to qualify with as little as a 3.5% down payment. This loan is best for buyers with low credit scores or those who can only afford a small down payment. A credit score of 580 allows for a 3.5% down payment.
  • VA loan. VA loans are insured by the Department of Veterans Affairs. They come with no down payment for military personnel, veterans, and their families, and require a minimum 580 credit score.
  • USDA loan. A USDA loan is 100% backed by the Department of Agriculture for low-income borrowers in rural areas. These loans are limited to certain areas and only to borrowers who meet certain income limits.
  • Fannie Mae and Freddie Mac. These two government-sponsored enterprises insure qualifying loans, requiring as little as a 3% down payment and allowing a higher debt-to-income ratio. Borrowers need a credit score of at least 620, have good credit, and must pay for private mortgage insurance (PMI) for a down payment less than 20%.
  • Home renovation loans. Programs like FHA 203(k), or HomeStyle® help buyers purchase a home to remodel, or renovate. They helping you buy more for your money by covering cost of improvements, extending loan limits, or lowering the down payment.

Caliber Home Loans offers a growing portfolio of financing options designed especially for first-time homebuyers. In fact, we’re one of the top-rated private mortgage companies in the country because we offer many unique solutions and deliver a high level of personal support and attention. Our Loan Consultants can walk you through all the options and help you find the best loan for your situation. With Caliber, you can move ahead with confidence.

When Should You Refinance Your Mortgage?

A mortgage refinance is when a homeowner replaces their existing mortgage with a new one. Your original loan covered the purchase price of your home. A refinance loan is a new loan that pays off the balance on that original loan. The refinance loan is almost always a smaller loan. You’ll no longer make payments on the original loan and begin new payments on the smaller refinance loan.

Several reasons refinance can be a good move.

Refinancing your mortgage is way of taking full advantage of your greatest asset, your home. Refinance can make it possible for you to reduce your expenses or to put the equity you’ve built up in your home to good use. Depending on circumstances, it can be a great move.

Here’s how refinance can be a positive move:

  1. Lower your interest rate. If you are paying a higher interest rate on your current loan than what’s available now, or if your credit has improved, you may be able to qualify for lower interest rates if you refinance. You could save hundreds in monthly interest payments.
  2. Access funds for home improvements. You can refinance in order to cash in on the equity in your home. When the refinance loan is for more than the remaining principal on the old loan, you receive the difference in a cash payment. If you use the money for home repairs or improvements, you may be able to deduct the interest expense from your taxes . Plus, home improvements usually increase your home’s appraisal value.
  3. Lock in a better interest rate. If you are in an adjustable rate mortgage (ARM) and current interest rates are low, you might want to refinance to a fixed rate mortgage at a lower rate. By the fixed rate structure, you never have to worry about the rates going up. In fact, you have the security of knowing your rates will never go higher.
  4. Eliminate private mortgage insurance (PMI). The duration of PMI is determined by the loan to value. If LTV is 90% or greater at closing, PMI is required for the life of the loan. Otherwise, it may be canceled after 11 years.
  5. Change to a shorter loan. You can refinance to a loan with a shorter life. For instance, instead of 30 years, your refinance loan may be for 15 years. This enables you to own the home outright sooner. And with fewer monthly payments, you’ll pay less interest over the life of the loan. However, the shorter loan may come with an increase in your monthly payment.
  6. Change to a longer loan. If you refinance to a longer loan, you can reduce your monthly payment. The loan will be longer, but your monthly expense will shrink.

When is it right to refinance?

It’s a matter of timing. If you answer yes to any of these questions, the time might be right.

  • Do you have substantial equity in your home? (Equity is the difference between what you owe to the mortgage company and the home’s value).
  • Would refinancing make a reasonable reduction (between 1% and 2%) in your interest payments?
  • Do you plan to stay in your house for the next several years?
  • Are current interest rates significantly lower than the rate of your current mortgage?

Some factors to remember.

Most lenders will require that you have maintained your current loan for at least one full year before you can apply to refinance.

A refinance loan requires almost all the same costs, fees, and paperwork as your original mortgage. It’s basically the same process and with the same requirements, like credit scores and financial history. You can expect it to cost between 3% and 6% of the remaining principal, and you will probably pay up to 2% or more in closing costs. These fees can include:

  • Application fees
  • Title insurance and title search
  • Attorney review fees
  • Points and fees incurred in the loan origination

Don’t make the refinance decision alone. Reach out to your Caliber Loan Consultant and let them guide you through the numbers so you can make a smart decision.

Can I Get a Mortgage After Going Through a Foreclosure?

Going through a foreclosure is a brutal, depressing experience. It damages your credit and your confidence. With patience and effort, you can recover, overcome the past, and own a home again. It will take time. It will take work and discipline. If you take the right steps, you will demonstrate you are ready to take on a mortgage loan.

Steps toward owning a home again:

  • Be patient. It will take time for your credit and your financial health to recover after a foreclosure. Expect it to take three to seven years for your credit to improve, barring any additional financial setbacks. Seven years is also the average waiting period required for borrowers to regain eligibility.
  • Practice healthy financial habits. Everything you do to improve your credit and financial status will get you that much closer to borrowing eligibility again. Maintain steady employment and pay down as much debt as possible. Avoid taking on new debt and refrain from making large purchases. Keep up with your bills and pay them on time.
  • Save your money. Use this time to build up your savings, both for emergency expenses and for your future home. Start with saving three to six months’ worth of living expenses to provide a cushion to avoid further debt. Then start saving for your future down payment. You’ll need at least a 10% down payment.
  • Monitor your credit. Request credit reports from several reporting bureaus. Make sure all of the information is correct. Look for errors that can hurt your rating, such as payments applied to the wrong account, duplicate account information, or a former spouse’s debt showing up on your report.

When you’re ready to purchase a home again, look at all the options.

Different types of mortgage loans have different requirements for people who went through a foreclosure. They also have different waiting periods from the time of the foreclosure. Here are the main types of loans and their waiting periods.

FHA Loans.

These loans require a three-year waiting period that begins when the foreclosure case has ended. Typically, that would be from the date your home was sold. If your foreclosed loan was through the FHA or the VA, you will be ineligible for another federally insured loan until you have repaid the government.

Conventional Loans from Fannie Mae or Freddie Mac.

These loans require a seven-year waiting period. The longer wait is because they are not backed by the federal government. However, the wait period can be shortened to just three years if you meet the following requirements:

  • Prove in writing that the foreclosure was caused by extenuating circumstances
  • Use the new mortgage for either a limited cash-out refinance or for the purchase of a primary residence (not for a second home or investment property)
  • Demonstrate that the loan-to-value (LTV) ratio of the new loan is 90%

Conventional Loan from Private Lenders.

Because private lenders set their own terms, there is no set waiting period. They vary. But usually shorter waits require a larger down payment and higher interest rate.

Be Pre-Approved Before You House Hunt.

We recommend you secure pre-approval for a loan before you begin your search for your new home. The pre-approval process will demonstrate that you have come through the foreclosure setback and are now ready to be a homeowner again.

Can I Get a Mortgage with Bad Credit?

When your credit score is low, the dream of home ownership can seem like an impossible one. You’re not alone. More than 30% of Americans have credit scores below 670, which is often the minimum score required to qualify. Loans with the most competitive rates require at least a 675.

However, there are things you can do to improve your chances of making your dream come true, even with less-than-perfect credit. If you follow the advice below, you’ll step into the mortgage lender’s office with more confidence and better odds of success.

Take actions to improve your chances of loan approval.

  • Maintain steady employment
  • Pay your bills on time
  • Paying off existing debt
  • Avoiding taking on new debt
  • Save money and build a cushion for emergency situations

Do your homework. Knowledge is your friend.

Bad credit doesn’t exclude you from all mortgages, but some types of mortgage loans will be harder for you to qualify. On the other hand, two federally funded programs, FHA and USDA home loans, are friendlier to people with poor credit and have easier minimum requirements. But watch – often loans with lower qualifications come with stricter limits or other stipulations such as requiring mortgage insurance for the life of the loan.

FHA Loans and bad credit.

You may qualify for a 3.5% down payment with a credit score of 580.

VA Loans and bad credit.

VA loans have a minimum 580 credit score requirement. They offer several advantages for borrowers with bad credit:

Conventional Loans and bad credit.

What are called conventional loans are loans not insured by the federal government. They require a minimum credit score of 620. Conventional loans that also conform to the criteria set by Fannie Mae and Freddie Mac will have additional requirements. USDA loans also require a credit score of at least 620.

Know where to look for your loan.

Private lenders, credit unions, and community banks will have more flexibility in what they can offer to a borrower with poor credit. Regulated institutions, such as large banks, must follow a stricter guideline and so may not have as many loan options to offer you. Remember, though, that the leniency of a private lender usually comes with a cost, such as higher interest rates or a higher minimum down payment.

Save up for a larger down payment.

This may take longer than you’d like, but it’s the smart way to go. The worse your credit, the higher the payment you’ll have to make anyway. Plus, anything less than a 20% down payment will require the expense of private mortgage insurance. Having more cash in hand tells lenders that you’re serious and improves your chances of being offered a better rate.

Get good advice.

Reach out to a Caliber Loan Consultant. At Caliber Home Loans, our passionate goal is to bring the dream of homeownership to as many people as possible. And that includes people with bad credit. Mortgages is all we do. Let Caliber put you on the path to home ownership, no matter what your credit score is.

How Do I Know If Refinance Is Right For Me?

If you want to reduce your interest rate, lower your monthly payment, turn some of your equity into cash in hand, or go from an adjustable rate to a fixed one, refinancing your current loan with a new on makes great sense. In fact, some homeowners refinance more than once over their time in their home. (Most lenders require a six-month “seasoning” period between refinances.) But refinance is the right move for everybody.

Consider these points before refinancing your home:

  • You must have equity in your home in order to take out cash against it. Most lenders approve refinances for 80%-90% of the loan’s value.
  • Every time you take out equity in your home, you increase the amount of your home loan. So, any cash-out refinances you have taken in the past will reduce the equity available.
  • Every refinance carries closing costs, including application, appraisal, and inspection fees, as well as title search and insurance costs. Expect these costs to total between 2% and 3% of your loan amount.
  • You will have to meet lender requirements each time you refinance. This includes your credit score, equity, and debt-to-income ratio.
  • There may be prepayment penalties for paying off your loan before the end of the term.

Sometimes the numbers don’t add up in your favor.

Be sure and do the math before you pull the trigger on a refinance. Consider these scenarios and, if they apply to your situation, work out the numbers before you opt to refinance.

  • Reducing the monthly payments seemed like a good idea….
    …but thanks to the additional closing costs and fees of a refinance, the money you may save on your payments might be eaten up in the process. Be sure closing costs are part of your financial calculations.
  • Cashing out equity for investment money…
    …is only a good idea if you can be sure that the cash you are taking out will earn more than what you’ll spend in refinance costs and mortgage payments.
  • Saving money for a new home…
    if you plan to move within the next two to five years, refinancing may not save you anything. Because of closing costs and fees, it will take you several years to realize any potential savings. If you move within that time, that’s simply money lost.
  • Extend the terms of your loan at a lower interest rate…
    This sounds like a no-brainer but the numbers may not add up. Yes, you’ll pay a lower interest rate each month, but you may actually pay more interest overall over a longer period of time with a longer loan. Calculate the total cost of the loan with those added interest payments.
  • Consolidate credit card debt into my mortgage….
    Hmm. It’s certainly tempting to get out from under high-interest debts with a low-interest mortgage. But here’s the rub: if you can't make the payments on this new loan, you will lose your home.

You can get many of the benefits of refinance without refinancing.

Consider these options below. If they work for your situation, then you can realize the upside of a refinance without incurring the closing costs or extending the life of your mortgage.

  • To own your home sooner, put more toward your loan principal each month. By pre-paying against the principal, you continually move up the day you own your home outright.
  • To save for a new home, put more money each month into a savings account. Trim other expenses so you can save even more.
  • To reduce other debt, pay off each debt individually, starting with the lowest. Some forms of debt may have payment forgiveness or delay options that may impact your credit, but won’t risk foreclosure.

Make a calculated decision to refinance or not.

Use the Caliber Home Loans refinance calculator to estimate what a refinance would save or cost you. Be sure to look at all your options. Calculate your break-even point to see when the costs you incur equal the savings. Divide your mortgage closing costs by the monthly savings of your new mortgage payment; this is the number of months you’ll need to recoup any expenses.

Can A Low-Income Person Get A Mortgage?

Your income is one of the primary factors mortgage companies to determine if you qualify for a loan. For every mortgage loan, there are minimum income requirements and maximum debt limits that must be met in order to qualify. No question about it, for people with low income, this presents a difficult barrier to homeownership.

But it can be done. In fact, there are some mortgages designed to work for you.

Low income qualification varies by location, so there is no hard and fast income amount that determines eligibility. Typically, the minimum requirement is based on your income in relation to your other financial obligations. Most lending companies require your housing costs take up less than 28% of your pretax income and your debt payments take up less than 36%. They have limits on how much of your monthly income goes toward debt (this is called your debt-to-income ratio, or, DTI). A DTI of 45% or less is a pretty standard threshold. Higher ratios may be allowed for people with higher credit scores and for loans carrying private mortgage insurance (PMI).

Low income status does not have to exclude you from owning your home, and it shouldn’t force you into a less than ideal mortgage.

Before you search for a home, do research on your loan.

  • Get an idea of what money you’ll need. Make this your first step. Look online to find out what an average home in your area costs. Taking that as baseline, use the online mortgage calculator from Caliber Home Loans to see what a mortgage might look like for you. Remember this is an estimate and mortgage rates can change at any time.
  • Figure out where you stand. Gather all of your financial information, including your current pretax income, all of your current expenses, and everything you have in savings, investments, or other assets. While you’re at it, calculate your DTI by dividing the total of all debts your owe by your pretax income. Finally, get your credit report. Low income does not automatically mean a low credit score. Most mortgages require a credit score between 580 and 670. The higher the credit score, the better your interest rate will probably be.
  • Find out if you qualify for assistance. There’s a chance you qualify for down payment assistance, home buying grants, or seller-paid closing costs.
  • Find out what options are available. Not all mortgages have the same requirements. Non-conventional loans (those backed by the federal government) are designed to benefit low income borrowers and usually allow smaller down payments and higher DTIs. Most conventional loans (those not backed by the government) do not have income limits, and some have extra benefits such as no credit score requirement, alternative down payment sources, or greater flexibility in income qualification.

Common mortgage programs best suited low-income homebuyers.

  • FHA loans. Government-backed loans that allow a 3.5% down payment, higher DTI ratio limits, and credit scores as low as 580.
  • USDA loans. Federally-insured loans specifically for low-to-medium income borrowers. Income must be below a certain threshold (115% of the average area median income). The PMI fee is only 0.35%, and certain home repairs can be included in the loan amount.
  • VA loans. For qualifying active, retired, or honorably discharged military personnel and their spouses. They do not require a minimum down payment.
  • HomeReady Mortgage. A conventional mortgage from Fannie Mae, one of the largest investors in mortgages. The income of every person living in the house is included, increases your DTI, and requires as little as a 3% down payment.

Get good advice.

Make sure all your homework is on the right track. Reach out to a Caliber Loan Consultant for a fuller picture of what the possibilities are for you. At Caliber Home Loans, we’re passionate about bringing homeownership to as many people as possible. We know low income borrowers face plenty of challenges, but we go above and beyond to help everyone realize their dream with a workable, financially responsible loan. We offer many mortgage loan options. We likely have one that’s right or you.

How Do Home Renovation Loans Work?

You fell in love with your new home, and then you lived in it. Over time, things have started to look worn and frayed. The kitchen no longer excites you the way it used to. You wake up one day and your bathroom feels cramped and outdated. You keep catching yourself daydreaming about all the ways you could make your home feel new again. You don’t want to sell your home, but you want to make some changes. Sound familiar? Fear not. It’s completely normal.

Whether you bought and fell in love with your home but feel it needs some updates or you’ve just purchased a new home that has a ton of potential but needs some work to make it your own, home renovations are the answer. However, they can be costly.

If it’s time for you to look into a home renovation but you don’t have the cash in hand to pay out of pocket, you can use your home itself to make it happen. There are three popular ways to use the equity you’ve built in your home to finance a renovation project.

  1. Cash-out refinance loan
    A cash-out refinance lets you replace your existing mortgage with a new home loan based on the amount you still owe on your home.
    In short, you take your original home loan amount, subtract the money you’ve paid so far against the principal, and then start a new mortgage on the remaining amount. The difference between the original amount and the new amount comes to you as a lump cash payment you can use to fund your renovation, consolidate your debt, or fulfill other financial needs.

    NOTE: You’ll have to pay closing costs again and the term of the mortgage starts all over. It could be another 15, 20, or 30 years. Make sure you don’t use the cash payment to run up debt you won’t be able to pay off.
  2. Home equity loan
    If you don’t want to start your mortgage term all over again and you can handle an additional monthly loan payment, a home equity loan may be the best option for you.
    A home equity loan is a separate loan based on the equity you have built up on your home. Typically, you can borrow up to 80% of that amount. Home equity loans are sometimes referred to as a “second mortgage,” as they become a second monthly payment. You may have up to 15 years to pay this loan off and many lenders cover the closing costs for you.

    NOTE: You’ll need to pay closing costs and fees, which can range from 2% to 5% of your loan amount. You’ll also have two mortgage payments instead of one, so be prepared for that extra home-related payment.
  3. Home equity line of credit loan
    A home equity line of credit (HELOC) gives you the greatest flexibility. Essentially, a HELOC works like a credit card that borrows against the equity of your home. Once you set up your line of credit, you don’t have to begin using it right away. You can also use it in whichever way you see fit. Fund a renovation project or pay for a vacation – it’s all up to you. Plus, when you pay back charges, the money returns to your equity – making it possible for another even larger line of credit.

    NOTE: Interest rates vary and lines of credit usually come with annual fees.

Ways to plan ahead and include renovation in your first mortgage

Some people purchase a home with specific upgrades or remodeling in already mind. In these cases, you can fold renovation costs into your mortgage at purchase. Here are three of the most common ways to do that.

  1. FHA 203(k) loans
    These mortgages are designed for first-time homebuyers. They allow you to add expected renovation costs to your mortgage loan principal. These loans require a down payment as low as 3.5% but give you only six months to get the work done. You’re required to use a licensed contractor for renovations, so the money cannot be applied to DIY projects.
  2. Fannie Mae® HomeStyle® renovation loan
    The HomeStyle renovation loan is similar to the 203(k) loan but it gives you more freedom with how you spend it. The 203(k) Loan can be used only for non-luxury projects, while the HomeStyle loan can be used to add a pool, a hot tub, or just about anything else. These loans require a minimum 5% down payment.
    Requirements to get this loan:
    • A credit score of at least 720
    • A certified contractor must prepare a cost estimate
    • Funds must go into an escrow account rather than directly to you

Choose the loan that works best for you
Now that you have an overview of how you can finance your home renovation, the next step is to determine which works best for you. Caliber’s Loan Consultants are standing by ready to help you make your choice. They’ll show you the pros and cons of each option and the cost in dollars and cents. Contact a Loan Consultant now to start turning your home into your dream home.

Is a Home Renovation Loan Right for Me?

If you want to renovate or remodel your home but don’t have the cash to pay for it out of pocket, home renovation loans are a smart way to get your home improvement project funded and on track. Whether you’re adding a new room to your home, redoing your kitchen, or replacing your roof, home renovation loans can help you finance the cost of your upgrades.

There are several types of home renovation loans to choose from. Many of them require a minimum credit score and either a minimum amount of home equity in your home or a minimum down payment.

To determine if a home renovation loan is right for you, ask yourself these four questions:

Question 1: Will the remodeling be worth it?
Have a clear picture of what changes you want to make to your home. Do your research and get a good idea of what it will cost. Will the renovation increase your home’s value? If so, you may recuperate the renovation loan costs when you sell your home. If it will have little impact on your home’s value, then the project – and taking out a loan – may not be worth it.

Question 2: Can you handle another loan payment?
Remember, the renovation loan is not tucked into your monthly mortgage payment. It will become an additional monthly bill on top of your current mortgage payment. Remember that you’ll be paying on the loan long after the project is finished. So, you need to be sure that this is what you want and that you’re prepared to make the payments.

Question 3: How much will you need to borrow?
When determining how much you need to borrow for your home renovation, make sure your factor in labor costs, inspection fees, permits, and architectural or engineering services. The materials used are just the beginning.

Question 4: Can you qualify for a lower interest rate?
Many times, your interest rate is impacted by your credit score and the amount of equity you have in your home. You can calculate your equity by subtracting how much you still owe on your mortgage from your home’s current market value. The higher your credit score and the greater the equity you have often make lower interest rates available to you. Use the Caliber Home Loans Loan Calculator to estimate your down payment amount, interest rate, and payment amounts. This will give you an idea of what to expect before you take out a home renovation loan.

Remember: A home renovation loan is not a home equity loan.
You may be saying to yourself, “this sounds a lot like a home equity loan.” Although your home equity plays an important role in a home renovation loan, home equity loans and home renovation loans are not the same. And the difference is important. First, interest rates for a renovation loan are typically higher than interest rates for a home equity loan. Second, the interest paid on a renovation loan can’t be claimed as a tax deduction.

Two common renovation loans:

  1. Fannie Mae® HomeStyle® renovation loan
    The HomeStyle renovation loan offers loan amounts up to 75% of the home plus renovation costs. This loan can be used for improvements on your current home or for repairs on a home you are purchasing.
    Requirements:
    • A credit score of at least 720
    • A certified contractor must prepare a cost estimate
    • Funds must go into an escrow account rather than directly to you
  2. FHA 203(k) loan
    It’s easy to see the appeal of the 203(k) loan. You can qualify with a lower credit score, plus it offers a lower minimum down payment and lower interest rate. Like the HomeStyle renovation loan, the funds go into an escrow account.
    Requirements:
    • Property must meet the government energy efficiency and structural standards
    • Borrower must use a qualified 203(k) loan consultant
    • Borrower must adhere to certain limitations on reselling the home

Other options
Ask your Caliber Loan Consultant about special federal programs for home renovations on Title I loans and on energy efficient mortgages. These may work for you. You can also opt for a cash-out refinance loan on your home and use the cash payout to fund your renovation work.

At Caliber Home Loans, we bring years of experience dealing with every kind of home renovation financing in the market. We know how to navigate all the government programs, plus we have an expansive portfolio of loan options to meet your needs. We apply all that knowledge with one goal: To help you attain the home of your dreams in a way that truly works for your unique situation.

To get started on your home renovation, contact a Caliber Loan Consultant today.

What is a USDA Single Family Housing Guaranteed Loan?

The USDA Single Housing Guaranteed Loan Program is a type of mortgage loan created by the U.S. Department of Agriculture (USDA) to provide zero-down-payment and low interest guaranteed mortgage grants to low- and moderate-income home buyers in rural areas. This type of loan is also often referred to as a USDA rural development loan.

Background
The USDA launched the Single-Family Housing Guaranteed Loan Program in 1991 to extend affordable mortgage financing access to millions of low- and moderate-income families in rural areas. Over the years, the look, feel, and population growth rates of rural areas have changed. As a result, so have the requirements for borrowers to be eligible for the program.

Defining eligible rural areas
Eligibility for the USDA Single Family Housing Guaranteed Loan Program depends on what areas the USDA deems to be “rural.” While the USDA originally created this program to provide low-interest homeownership opportunities to families in remote areas in the countryside as opposed to crowded cities and towns, the landscape has changed over time.

Population densities have shifted. People from highly-populated urban areas have expanded into what were once underpopulated outlying rural areas – blurring the line between what is defined as “urban” versus what is defined as “rural.”

The USDA’s qualifications for a “rural area” include at least one or a combination of the following characteristics:

  • A population of no more than 12,000 people
  • A population of 20,000 or less but not located in a metropolitan statistical area (MSA)*
  • An area that may have lost its rural designation in the last U.S. Census, but the population still doesn’t exceed 35,000 people, remains rural in character, and lacks mortgage credit for low- to moderate-income families

*A metropolitan statistical area (MSA) is classified by the U.S. Office of Management and Budget (OMB) as a region with at least one urban area with a population of 50,000 or more. It’s also defined as a region with a city and additional surrounding communities linked by social and economic factors.

Mapping it
Location is key when checking your eligibility for a USDA single family housing guaranteed loan.

For example, imagine you want a loan to build a home in the small town of Azle, Texas. In the 2010 U.S. census, Azle recorded a population of only 12,000 people. This (along with other factors) made it small enough to meet the USDA’s definition of “rural.”

However, anyone familiar with the community knows it’s been absorbed by the rapidly-expanding metropolis of Dallas/Fort Worth. After all, Azle is also only 33 miles from downtown Fort Worth. Commuters are increasingly flocking there because they find it an attractive and affordable real estate alternative. It’s close enough to the urban hotspots but is still considered rural.

How can you find out if the property you’re looking at is in an area that meets the USDA’s criteria for this loan? Check the USDA map of eligible properties here.

Additional eligibility requirements
Location and population aren’t the only eligibility factors for this loan program. Other main requirements include:

  • Household income cannot exceed 115% of the median household income in the area
  • Borrower must personally occupy the home as his or her principal residence (cannot be a second home or an investment property)
  • Borrower must be a citizen, non-citizen national, or qualified alien

No down payment or credit score required
You read that right. There is no credit score requirement to secure this loan. You simply need to demonstrate readiness to take on a mortgage debt and the ability to manage it. In fact, you don’t even need to make a down payment. This loan is so flexible, it can be structured to work with or without a down payment. It’s designed to accommodate your financial situation.

Get the essentials
This loan can be used for essential household equipment including ovens, ranges, refrigerators, washers, dryers, a/c systems, and more. There is also allowance for repair work or site preparation costs such as driveways and fences. Luxury items, vanity projects, and unnecessary additions and projects are not covered in this loan program.

How we can help
You could qualify for all the benefits of a USDA single family housing loan and not even know it. Your Caliber Loan Consultant can help you discover if and where you qualify.

We offer one of the most extensive portfolios of mortgage products and services, including a treasure trove of expert experience, insider market knowledge, and up-to-date data to help every client find their best option.

Think you’re eligible? Contact a Caliber Loan Consultant now to find out.

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