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:
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.
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:
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.
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:
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.
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:
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:
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.
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.
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:
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:
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.
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:
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.
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:
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.
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:
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.
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:
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.
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.
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.
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:
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.
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.
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.
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.
Common mortgage programs best suited low-income homebuyers.
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.
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.
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.
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.
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:
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.
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.
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 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.
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:
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.