Month: December 2017
Building or restoring a home is a significant commitment that requires a decent amount of time and money. Luckily, construction loans exist to remedy this problem. Before the recession in 2008, small builders had better access to capital, but now they frequently put the buyer in the position of obtaining the construction loan. These loans can be tough to acquire without previous banking history due to a lack of available collateral— such as a finished home. Construction loans are typically short-term loans with a maximum of one year and have varying rates. This type of loan will also have a higher rate than a permanent mortgage loan. Borrowers should be prepared to build some allowances into their construction timetables since delays due to weather and material or labor availability are reasonably frequent.
When and How are Construction Loans Useful?
As the borrower, you have several options when building your own home. You can get a construction loan or use the equity in your existing home to finance building your house. Once you settle for this option, it’s time to find a homebuilder. Hiring an architect is like hiring any professional — you want to work with the best. Contact your local chapter of the National Association of Home Builders to get recommendations, and ask your friends, family or known real estate agents who specialize in new home construction. When interviewing possible builders make sure they have experience in the type of residence that you want. Ask about their licensure and insurance, and make sure they’ve got a solid reputation within your community. After construction is completed — when a certificate-of-occupancy is issued, and contractors have been fully paid — the borrower’s loan will usually roll over into a mortgage loan. Some lenders will combine these two loans into a single 30-year loan with one closing. This is called construction-to-permanent financing. However, these types of loans pose a greater loan-to-value risk to the bank so borrowers should be prepared to put down higher down payments or more collateral. If you own the land already, you can use that as collateral. Our construction loan program offers competitive fees and rates, as well as flexible draw schedules, to keep you and your builder or contractor moving efficiently throughout the process.
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But Isn’t New Construction Only for the Wealthy?
There are several ways you can finance your new construction, no matter the situation. Whether it’s financed by the builder or the buyer, we will help you find the one perfect for you and your lifestyle. There isn’t a required minimum down-payment of 20% because the down-payment will depend on numerous factors. Depending on the equity of the land, the location, your situation – it can all change the amount of down-payment required.
But the Loans are Limited and I Need to Own the Land First, Right?
If you own the land, the equity will act as all or part of your down-payment. If you do not own the land, it will be purchased with the first draw after the construction loan is closed. Loan options, along with down-payments, vary depending on many factors. However, the key thing to remember here is that there are options out there for you. Depending on the lender, the type of home, and terms, your options for construction-to-permanent loan options can vary.
There are different requirements for each loan, and while they are uncommon, they are not unusual. If you’re interested in applying for a construction loan, contact one of our home loan experts today!
Is your dream home a little more expensive than most lenders will agree to? Well, have no fear, a jumbo loan is the best way to get the financing you need for your dream home. Jumbo loans were created to help people move into a dream home, even if it was more than most lenders would agree. Because of the amount of money involved, the risk of this type of loan is high. Jumbo mortgages typically exceed conforming loan limits to get buyers into luxury properties. More recently, jumbo mortgage rates have been historically low, which is attractive to people wanted to borrow large amounts. In addition to low rates, interest on jumbo loans — up to $1 million— can be tax deductible, but you’ll need to check with a qualified accountant. If you want a loan amount over the conforming limit, it is possible to use a non-jumbo conventional loan plus a second mortgage to make up the difference.
When & How are Jumbo Loans Helpful?
If you’ve heard the term “Jumbo Loan” before and have been confused as to what it means, that’s understandable. The “Jumbo” in “Jumbo Loan” doesn’t refer to the size of the house, rather, the price. A Jumbo Loan is a mortgage loan exceeding the loan limits established by government regulation. The jumbo loan limit is $424,100. However, it does go up to as much as $625,000 in more high-cost areas of the country. Jumbo loans do not fit the typical standards of mortgage loans, so they are a great way for qualified buyers to purchase a luxury home. The ideal bowers will have low debt-to-income ratios, high credit scores, and the ability to put down a large down payment. If you fit these requirements, you may find that a jumbo loan will get you into the house you desire. If this fits your situation, let us know. We’ll get you the financing you need at payments you can afford!
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What Does My Credit Score Need to be to Qualify for a Jumbo Loan?
The higher, the better. Typically, to get approved for a Jumbo loan you need a credit score of 700 or above. However, this may vary with lenders. Typically, lenders will require a down payment of at least 20 percent. This price range is because there are no private mortgage insurance options for Jumbo loans. As with the mortgage, interest rates will vary depending on the lender. However, due to the amount involved, interest rates can exceed $1 million. The good news is that this amount is tax deductible. If the price of the home you want to buy is over $424,100, then this loan is for you. Anything above this range is beyond government regulations, so there are not private insurance options.
If your dream home required you to apply for a jumbo loan, contact one of our home loan experts today! We will help you get everything you need to get approved as quickly as possible.
For most people, buying a home is the most significant purchase they will make in their lifetime. Before you get started on your journey, it is important to understand which mortgage options are out there.
A conventional loan is one of the more popular options, but they come with a few significant requirements. Below we’ve shared a few details about conventional loans that’ll help you understand if they’re right for you.
The Basics of a Conventional Mortgage
The length of most conventional loans is 15, 20, or 30 years. To qualify, you will need a good credit score. The minimum score to be approved can vary from lender to lender, but a score of 620 is usually what you will need to be approved, and a score of 740 will help you secure the best rate possible.
Unlike other loans, a conventional mortgage will require a significant down payment. Most other loans require an initial payment of about 5%, but with a conventional loan you can expect put down up to 20%. The amount varies and depends on your credit history. You will also be responsible for origination fees, appraisal fees, and mortgage insurance.
Loan Limits
There are two types of conventional mortgage loans: conforming and non-conforming.
Conforming loans follow guidelines set by Fannie Mae and Freddie Mac. The rules for these loans are based on the size of the loan. In 2016, home loans for single-family homes were limited to $417,000, while higher-cost areas held limits up to $625,500.
Non-conforming loans are suitable for borrowers who don’t qualify for a conforming loan because the amount is more than what can be backed by Fannie Mae or Freddie Mac. Most lenders charge higher rates for non-conforming loans since they typically carry other fees and insurance requirements.
Is a Conventional Loan Suitable for You?
Conventional loans are a great choice for borrowers with a strong credit history who can afford a down payment of at least ten percent or more. The higher your credit score, the lower your interest rate.
Lenders are also looking for a debt-to-income-ratio that sits around 36%. People with a little more debt than average and a modest credit score may not qualify for a conventional loan. Acquiring a conventional loan is a little more difficult for those with a DTI over 43% and a credit score below 650.
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Do You Qualify for a Conventional Loan?
Contact Assurance Financial today to see if a conventional loan is suitable for you. Our team of home loan experts is prepared to address any questions or concerns you have about the loan process.
Click here for more information about conventional loans at Assurance Financial.
You make better decisions when you fully understand your mortgage. Taking some time to crunch the numbers can help you develop an accurate assessment of your loan situation so you’re more likely to pay it off in the long run. Here at Assurance Financial, we have the information you need to estimate your mortgage payment and provide a mortgage lending calculator that can make the task a little easier. If you know what type of mortgage you’ll be applying for, you may also be able to use a calculator designed for that loan type, like a conventional mortgage calculator or a jumbo mortgage calculator.
Need to quickly calculate your estimated mortgage payment? Use our mortgage payment calculator to determine how much you may need to pay.
Want to learn more? Below we’ve mapped out how to calculate your estimated mortgage payment and highlighted a few details to pay attention to during the process.
- Why Is It Important to Calculate My Estimated Mortgage Payment?
- What Information Do I Need to Get Started, and Where Can I Find It?
- What Is a Fixed-Rate Loan? How Do I Calculate It?
- How Do I Calculate an Interest-Only Loan Estimate?
Why Is It Important to Calculate My Estimated Mortgage Payment?
Most people who buy a home secure a mortgage to finance their purchase. The mortgage includes both the principal and the interest, which is paid to the lender in monthly installments for the duration of your loan’s term. A home is generally the largest purchase a person makes during their lifetime, so you’ll want to know exactly what you’re getting yourself into before you take the leap.
Calculate your estimated mortgage payment to determine whether you can actually afford the home you’re looking to buy. Here are a few reasons why it’s important to calculate your estimated mortgage payment:
1. You Can Plan Your Financial Future
Calculating an estimated payment will also help you when you’re planning out your financial future. Because most mortgages last for many years, often up to 30 years, having a solid estimate of what your cost of living will be every month for the coming years or decades will give you the freedom to plan how much money you can allocate to other expenses and financial goals.
2. You’ll Determine How Much Home You Can Actually Afford
Calculating your estimated payment will also give you an idea of how much house you can comfortably afford. Can you afford a $300,000 home? Or can you only comfortably afford a home valued at $150,000? Knowing early on how much you can actually afford will save you a lot of time and potential heartbreak when you don’t waste your time considering houses out of your price range.
When you calculate your estimated mortgage payment, you may want to ensure that your monthly payment won’t keep you from meeting your other financial obligations and goals. With this mortgage payment, can you still afford your other monthly bills? Will you still be able to hit your target savings rate for retirement and your emergency fund? Is this a payment that can comfortably fit into your budget?
If the answer is no, then you may want to consider another home or a mortgage with different terms. Or you may simply want to put off buying a home until it’s an expense you can comfortably cover.
If the answer is yes, and you are comfortable with your estimated mortgage payment, then buying a home may be the right next step for you.
What Information Do I Need to Get Started, and Where Can I Find It?
To begin calculating your estimated mortgage payment, think about the following information for the potential mortgage loan:
- Your monthly income
- The market value of the home
- The loan amount
- The type of loan
- The interest rate on the loan
- The number of years you have to repay
1. Your Monthly Income
If you have a budget, you should already know exactly what your monthly income is. If you don’t have a budget yet, you may want to create one so your calculations for home affordability will be easier. If you don’t know your monthly income, check your pay stubs from the past few months. Add up your paychecks for each month to calculate your monthly income.
If you have a large monthly income that consistently gives you a huge surplus in your budget, that may affect the loan terms you choose. With a large income, maybe you feel comfortable with larger monthly mortgage payments and want to opt for a 15-year term that will result in you repaying your loan much faster than you would for with a 30-year term.
2. The Market Value of the Home
To figure your mortgage payment, you’ll need to know the market value of the home you’re interested in purchasing. How much is your home going to cost you? Though the median listing price for a home in the U.S. is about $300,000, the market varies in different areas. The median home price in some California cities, for example, is nearly $1 million. In other areas, the median home price may be closer to $100,000 or even less.
3. The Loan Amount
To calculate your estimated mortgage payment, you’ll also need to factor in the total loan amount. The amount of money you borrow for the loan is also known as the principal. When estimating your mortgage payment, experiment with the loan amount to determine how much of a loan you can comfortably afford. You may only qualify for a maximum loan amount, so knowing how much you can expect to get from a lender can help you determine whether you can finance the home you’re interested in.
4. The Type of Loan
It may also be helpful to have an idea of which type of mortgage loan you’ll be securing to calculate your estimated mortgage payment. There are six major types of mortgage loans:
- Conventional loans
- FHA loans
- USDA loans
- VA loans
- Construction loans
- Jumbo loans
Conventional Loan
A conventional loan is the most common type of mortgage in the U.S. The down payment necessary for a conventional loan tends to be higher than other mortgage options. You can choose either a fixed or adjustable interest rate. A conventional loan is great for new homebuyers, and you may be able to eliminate private mortgage insurance premiums by paying a large enough down payment.
To be eligible for a conventional loan, you should have a moderate credit score and a low debt-to-income ratio. You’ll probably also want a 20 percent down payment. For a loan of $100,000, that amounts to $20,000 for a down payment.
FHA Loan
An FHA loan is insured by the Federal Housing Administration. If you don’t have great credit or a large income, then an FHA mortgage may be a great option for you. They tend to be popular with first-time homebuyers, and you can get a fixed interest rate for a 15-year or 30-year term.
To be eligible for an FHA loan, you need a credit score of at least 500, an employment history from the last two years and verifiable income. You could put as little as 10 percent down if your credit score falls between 500 to 579. If your credit score is at least 580, your down payment may be as low as 3.5 percent.
USDA Loan
A USDA loan can be secured by borrowers who live in qualifying areas designated by the Department of Agriculture. For this loan type, you don’t need to have an excellent credit score or a high income. In fact, to qualify for this loan type, you need to have a low income relative to your area. You also must be a citizen or eligible non-citizen, and you must make the home you’re purchasing your primary residence.
VA Loan
A VA loan is specifically for veterans and is backed in part by the Department of Veterans Affairs. These loans generally have the lowest rates of the major mortgage types and can be secured by members of the military, Reserves, National Guard or their spouses.
You can qualify by:
- Serving for 90 consecutive days during wartime
- Serving for 180 days during peacetime
- Serving for six years in the Reserves or National Guard
- Being the spouse of a service member who died on active duty
Construction Loan
A construction loan pays for buying land and building a house. Generally, these loans come with a maximum one-year term, and the lender will distribute the money to the borrower as construction progresses rather than in a lump sum. Rates tend to be higher for this loan type than for others because of its high risk for lenders.
To qualify for a construction loan, you’ll want a good credit score, a stable income, a large down payment and a low debt-to-income ratio.
Jumbo Loan
A jumbo loan is for homes that are particularly pricey. If you’re looking to purchase a home that will cost more than $424,100, and you’re a high-income earner, you may want to consider a jumbo loan.
Qualifying for a jumbo loan is more difficult than other loans. You’ll need a higher credit score, a low ratio of debt-to-income and a significant down payment. You’ll also need to provide proof of cash reserves, employment history and income. Because requirements can vary from lender to lender, you’ll want to check with your lender to see the exact requirements for a jumbo loan.
Everyone has their own individual financial situation and goals, which is why there are multiple loan options to meet the various needs of borrowers.
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5. The Interest Rate on the Loan
Your loan’s interest rate is another piece of information you’ll need to calculate your estimated mortgage payment. Mortgage interest rates fluctuate with the market and are affected by factors such as the U.S. Federal Reserve’s monetary policy, the market, the economy and inflation.
The interest rate will determine what the total cost is of borrowing your loan from the lender. Interest is essentially a fee the lender charges for loaning you the money to purchase your home. In the early years of paying off your loan, your monthly payment will primarily be interest.
For borrowers, the interest rate you can secure depends on your credit score and history. Generally, borrowers with higher credit scores tend to receive the lowest interest rates. However, you likely will still receive a good interest rate if your score falls between is mid-range. Use your credit score in your calculations to help you determine what interest rate you may qualify for and how that affects your overall financial obligation. If your credit score is low and results in a high-interest rate, you may want to take some steps to improve your credit score before pursuing a mortgage loan.
6. The Number of Years You Have to Repay
The final piece of information you’ll need to calculate your estimated mortgage payment is the length of your loan. How many years will you have to repay your loan? Most loans have a 30-year term but some are 15 years.
If you’re interested in lowering your monthly payment, you might consider increasing the term of your loan. Monthly payments for a $200,000 mortgage will be higher for a 15-year loan term than for a 30-year term, for example.
If you consistently have a surplus in your monthly budget, however, you may feel comfortable with a higher payment if it means you’ll pay off your mortgage in half the time. A 15-year fixed loan also tends to offer a lower interest rate than a 30-year fixed loan.
For example, on a 30-year loan of $160,000 at a fixed rate of 4.125 percent, your total interest paid would be approximately $119,000. For a 15-year fixed loan of the same amount at an interest rate of 3.52 percent, you’ll pay only about $46,000 in interest. That amounts to $73,000 saved by repaying your mortgage in half the time.
When calculating your estimated mortgage payment, you’ll want to have these important pieces of information on hand. For any information you don’t have exact numbers for, experiment with the numbers in your calculations to see what might work for you.
What Is a Fixed-Rate Loan? How Do I Calculate It?
A fixed-rate loan has an interest rate that doesn’t change at all over the course of the loan term. The monthly payment stays the same every month, which makes monthly or yearly budgeting easy and predictable for borrowers. Fixed-rate mortgages generally have higher rates than variable rate loans, but they also protect homeowners from fluctuations in the housing market. Further, since the housing crisis of 2008, the gap between adjustable rates and fixed rates has virtually closed, meaning fixed interest rates can be just as low as variable rates.
If interest rates in the market increase, you won’t be affected and won’t have to worry about your interest costs or mortgage payments increasing. You can find a fixed interest rate for several term options, including 15-year and 30-year terms. With a fixed rate, when you initially begin paying your mortgage, your early payments tend to be mostly interest rather than principal. Over the years, your payment will gradually comprise more principal than interest. This process is known as loan amortization.
This does not affect the size of your monthly payment, which remains consistent month to month until the loan balance is completely repaid.
A fixed-rate loan is a great option for a borrower who wants the stability of a consistent monthly payment and wants to avoid the risk of a variable interest rate that may cause increased payments.
So how do you calculate your fixed-rate loan? You need to know the amount of the loan and the mortgage payment factor. The formula for those loans is: Loan Payment = Amount/Discount Factor.
Before you begin, you’ll need to calculate the discount factor using the following formula:
- Number of periodic payments (n) = payments per year times number of years
- Periodic Interest Rate (i) = annual rate divided by the number of payments per
- Discount factor (D) = {[(1 + i) ^n] – 1} / [i(1 + i)^n]
Seem complicated? Check out Assurance Financial’s Mortgage Calculator Tool and we can help.
To use the calculator, you’ll first input your mortgage loan information. This includes your mortgage loan amount, your annual interest rate, the number of months of your loan term and your desired amortization schedule.
Next, you’ll fill in your property information. This includes the sale price of the property, your annual property taxes, your annual hazard insurance and your monthly private mortgage insurance. You may also opt to let our system estimate your property taxes, hazard insurance and private mortgage insurance for you.
After you’ve filled in all the applicable information, hit Calculate, and we’ll give you your estimated monthly payments and an estimate of how much you’ll pay in interest over the life of the loan. Check to see how close you came when you calculated the estimates yourself.
How Do I Calculate an Interest-Only Loan Estimate?
Interest-only loan estimates are far less complicated to calculate. With each payment, you aren’t actually paying down the loan. Lenders generally list interest rates as annual figures, so you’ll divide the rate by 12 for each month of the year to calculate what your monthly rate will be. The formula for an interest-only loan is:
Loan Payment = Amount x (Interest Rate/12)
or
P = A x I
For example, if your interest rate is 6 percent, you would divide 0.06 by 12 to get a monthly rate of 0.005. You would then multiply this number by the amount of your loan to calculate your loan payment. If your loan amount is $100,000, you would multiply $100,000 by 0.005 for a monthly payment of $500.
A simpler calculation may be first multiplying the loan amount of $100,000 by the interest rate of 0.06 to get $6,000 of yearly interest, then dividing that $6,000 by 12 to get your monthly payment of $500. Regardless of which method you choose, you’ll still end up with the same value.
Your payment amount will stay the same until you make an additional payment, after a certain period when you’re required to make an amortizing payment or you pay off the entire loan.
Finance Your Home With Assurance Financial
Still confused about how to calculate your estimated mortgage payment? Contact Assurance Financial today or check out our Mortgage Calculator Tool. Our team of loan officers is dedicated to making the loan process as easy as possible for you.
At Assurance Financial, we want to help you secure the right mortgage for your dream home. Financing your home should be an exciting, memorable time in your life, and we want to make every step in the process as smooth and enjoyable for you as possible. When you contact us, we’ll put you in touch with a loan officer who will help you secure the right mortgage for your dream home.
Many homebuyers don’t realize there are several government home loans designed specifically for first-time buyers until it’s too late! Below we’ve listed a few of the most popular programs and shared some details that will help you land an excellent mortgage package.
FHA Loan
An FHA loan is distributed and insured by the Federal Housing Administration. The FHA is an agency within the U.S. Department of Housing and Urban Development. With an FHA loan, the lender won’t experience a loss if you default on the mortgage. These loans come with competitive interest rates, lower down payments and closing cost than conventional loans. If your credit score is 580 or higher, you may be eligible for a down payment as low as 3.5 percent of the purchase price. However, if your credit score is lower than 580 you may still qualify for an FHA mortgage, but the down payment will be at least ten percent of the purchase price.
USDA Loan
The United States Department of Agriculture has a homebuyer assistance program focusing on homes in selected rural areas (no farm required). The USDA guarantees the loan, and in some cases, no down payment is required, and the payments are fixed. Applicants with a credit score of 640 above undergo a simple process. With a score below 640 you can still qualify for a USDA loan. However, the lender will ask for extra documentation about your payment history. The loan program includes some income limitations, which varies by region.
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VA Loan
Active-duty military members, veterans, and surviving spouses are eligible to receive a loan backed by the United States Department of Veterans Affairs. The VA guarantees a portion of the loan, leaving room for lenders to offer some special features. VA loans come along with competitive interest rates and don’t require a down payment. Loan recipients aren’t required to pay for private mortgage insurance (PMI), and there’s no minimum credit score needed for eligibility. If meeting payments on the mortgage become difficult, the VA will help negotiate a deal with the lender on your behalf.
Good Neighbor Next Door
The Good Neighbor Next Door Program is sponsored by HUD and assists law enforcement, firefighters, teachers, and emergency medical technicians with housing. The program offers a 50 percent discount on a home’s listed price in locations deemed “revitalization areas”. To be eligible, you must commit to living in the home for at least 36 months.
Fannie Mae or Freddie Mac
Fannie Mae and Freddie Mac collaborate with local lenders to offer mortgage options benefitting low to moderate-income families. Lenders supported by Fannie Mae and Freddie Mac can offer competitive interest rates and accept down payments as low as three percent of the purchase price.
Ready for the Next Step?
Want more information about government home loans? A home loan expert at Assurance Financial is ready to help you choose the right loan for you today. Our team of loan officers is qualified to help you find a program that fits your needs. Click here for more details and to get started today.