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After months of searching, you’ve finally found the perfect house. Congratulations on your exciting milestone! While you’re undoubtedly excited about this opportunity, it’s a good idea to be careful during this time to avoid jeopardizing your application approval.

Some of the top things to avoid after applying for a mortgage include:

1. Don’t Deposit Large Sums of Cash Into Your Bank Account

Lenders need to source your money, and cash is often difficult to trace. Before making any large deposits, it’s wise to ask your loan officer how to properly document that money.

2. Don’t Change Your Bank Account

It’s essential to remember that lenders will always need to source and track your assets. A consistent bank account makes it easier for lenders to identify and track your funds. Talk to your loan officer before transferring any money to a new account.

3. Don’t Make Any Large Purchases

Making purchases such as furniture or a new car adds to your monthly debt and increases your debt-to-income ratio. For a lender, this higher debt ratio places you at a greater risk of being unable to repay your mortgage. In some cases, qualified buyers with new debt may no longer qualify for a home loan.

4. Don’t Change Jobs or How You Receive Payments

Your loan office will track how much you earn each week and your income source. If possible, avoid switching to self-employment or changing to a commission-based income during this time.

5. Don’t Co-Sign on Another Person’s Loan

When you act as a co-signer on a loan, you take on responsibility for ensuring the payments are made. Even if you are not paying on the loan yourself, the lender will still consider it to be new debt.

6. Don’t Start Applying for New Credit

Whether you’re applying for a new credit card or a vehicle loan, when you have your credit history checked by organizations across multiple channels, it will impact your credit score. Your credit score is a key determiner of the interest rate on your mortgage and may affect your loan eligibility.

7. Don’t Close Your Credit Accounts

Borrowers often mistakenly believe that limiting available credit will improve their chances of approval. However, a significant element of your credit report is the depth and length of your credit history. As such, closing accounts can negatively impact your score.

8. Don’t Miss Your Payments

Missing a bill or paying late will impact your credit score. Even one late payment can decrease your credit score to the point where you will no longer be eligible for your new mortgage. If you want to ensure you qualify for your mortgage, make sure you pay all of your bills on time.

Secure a Mortgage With Assurance Financial

At Assurance Financial, we want to help you secure a mortgage and achieve your dream of owning a home. Our team is here to simplify the process and educate you on what to avoid when getting a mortgage to prevent jeopardizing your application. We offer several mortgage options to meet your needs, including conventional, FHA, jumbo and VA loans.

When you choose our expert financial services, we will help you find a personalized mortgage payment plan. Contact a team member today to learn more about how we can help you secure a mortgage so you can buy your dream home!

There are many factors to consider when selling a home, and you may be wondering what happens to your mortgage when you move. After all, the 2018 American Community Survey found that the median length of time homeowners stayed in their homes was 13 years, a shorter length of time than most mortgage terms.

Recent data from the Pew Research Center found that at the end of the fourth quarter of 2020, the rate of American households that owned their own home increased to around 65.8%. With so much homeownership throughout the country, mortgages are an imperative topic. If you’re one of the many Americans that own a home with a mortgage, you should know your options when it comes time to sell.

Here’s a comprehensive guide to what happens if you sell your house and still owe money.

Topics Covered

Should I Pay Off My Mortgage Before Selling My House?
What Happens to My Mortgage When I Sell My House?
Selling Your Current Home Before Buying Another
Buying a New Home Before Selling Your Current One
How to Get a Mortgage on a New Home

Should I Pay Off My Mortgage Before Selling My House?

If you plan to move and already have a mortgage on your current home, your first thought may be to pay off your mortgage early, so you’re free of your monthly payments. Though it isn’t necessary to pay off a mortgage before you sell your house, it may be a viable option depending on your situation. This option requires some planning, but you can make it happen.

There are several benefits to paying off a mortgage early:

Saves interest fees: Over the life of a 15- or 30-year loan, interest can stack up and sometimes double what homeowners pay, despite their original loan amount. When homeowners decide to pay their loan off early, they get to eliminate some of the interest they would pay in the future and save themselves years of payments.
Frees up monthly funds: This process also opens up more funds in your monthly budget, giving you greater flexibility with that cash later in life. When your mortgage payments are gone, you could contribute that money into your emergency fund, retirement account or other investments, or save up for that vacation you always planned.

Many variables can factor into your decision, so it’s essential to crunch the numbers and examine your financial situation individually.

Here are two of the most common strategies to pay off your mortgage early:

1. Higher or More Frequent Payments

One of the simplest ways to decrease the life of your mortgage is to make payments more often. Although bi-monthly payments will cost the same amount as your previous mortgage payments, they’ll use the weeks of the year to give you an additional annual payment. When multiplied over several years, one extra yearly deposit can lead to a considerable amount of savings.

Consider increasing your monthly payments, consistently paying more on your mortgage than the minimum requirement. Manually adding extra is a flexible option that allows you to contribute any amount you choose. Add $100 more, $50 more or any variable amount you decide to contribute over your loan’s life.

2. Refinancing

Some homeowners choose to fix their loan for 30 or 40 years but may later decide to pay it off sooner. By refinancing your mortgage, you can refigure your loan for a shorter timeframe, increasing your monthly payments and decreasing your interest.

However, refinancing may not be the best idea when you’re looking to move. Some homeowners may want to refinance to put the money they would have spent on interest payments toward their savings for a down payment. If your savings don’t add up before your planned move, a refinance could cost you more money than it’s worth. Use Assurance Financial’s refinance calculator to determine whether a refinance is right for you.

Ultimately, choosing to pay off a mortgage before you move may not be your best option. Depending on your timeframe and your other investment opportunities, you may decide to keep that cash and set it aside for a new down payment. Whatever you choose, weigh your choices and consider which is in your best interest.

What Happens to My Mortgage When I Sell My House?

According to Freddie Mac, almost 90% of American homeowners finance their homes with a 30-year mortgage. Still, many homeowners will move to another house before that timeframe ends. This situation is common, so you can follow standard practices for selling a home with a mortgage attached.

If you’re selling your house before the mortgage term is up, you can take one of two avenues:

1. Traditional Home Sale

In a traditional home sale, the seller lists the house for a price that will cover the following costs:

The mortgage’s remaining costs
Existing home equity loans or home equity lines of credit (HELOCs), if applicable
Mortgage prepayment penalties, if applicable
Closing costs, including agent commissions, taxes and other fees

After taking care of the above expenses, whatever amount is left over is the seller’s profit. To pay for the rest of the mortgage, the closing manager sets up an escrow account into which the buyer will deposit their payment. Then, the title company will distribute the final mortgage payment to the lender. As a result, the seller no longer has that mortgage.

If you’re unable to sell your home for enough money to cover the associated costs, you’ll have to pay them out of pocket, wait until you can sell the house for more or request a short sale. In an ideal situation, the seller can cover the remaining balance of their loan, pay for closing costs and put a down payment on their next home from the sale price. This scenario requires good home equity — which is the homeowner’s financial stake in their house — to warrant a high enough price.

A home’s equity is comprised of the following elements:

The original down payment
The home’s gains in market value
Mortgage principal payments
The cost of renovations or improvements the seller made to the house

Getting a quote for your mortgage payoff when selling your house helps determine the price you need to sell your home. A mortgage payoff shows you the total amount you need to pay to settle your mortgage debt, including your interest and other unpaid fees. If you tell your lender about your plan to sell your home, they’ll provide you with a mortgage payoff quote.

2. Short Sale

When your house has too little equity to pay for your mortgage, it has negative equity. Without enough cash to cover your remaining mortgage balance, plus the closing costs, a short sale may be your only option. In a short sale, the buyer purchases the home for less than the seller’s debt against the property. These sales require approval from your lender because they leave the mortgage company at a financial loss.

The approval process for a short sale usually takes longer than for a traditional sale since the seller has to convince the lender they can’t pay off their loan. To convince the lender, the seller must either show that the housing market dropped, so their home is worth less than their debt, or prove they’re incapable of keeping up with their payments. Because the lender is trying to recoup as much of their losses as they can, the process may take a while.

Another negative aspect of short sales is they remove the seller’s negotiating power. This entire process depends on the lender’s approval, including the sale of the house. Even when the buyer and seller agree on a price, the lender may end up declining the buyer’s offer to hold out for a higher one. Ultimately, short sales negatively affect a seller’s credit score and make it more challenging to get a home in the future.

Selling Your Current Home Before Buying Another

If you’ve examined all of your options and want to go ahead with the sale of your home, you may want to know whether you should sell it before or after buying a new one. This answer could be as simple as establishing how much you have in savings to spend on a down payment. Most sellers find that selling their current home opens up their home’s equity so they can use that profit for their next home.

Pros of Selling First

By selling first, you can enjoy the following benefits:

More negotiating power: When you buy a new house before selling your current one, you put more pressure on yourself to sell quickly and at a high price. Depending on what strategy you use to purchase a new home while still responsible for an old one, you may feel compelled to accept the first offer you receive. However, selling first allows you to negotiate with buyers and wait to sell until you get the offer you want.
Less pressure: Buying a new home before someone purchases your old one puts you on a crunched timeline to get rid of your current home as fast as possible. Waiting for the right buyer while paying for two properties can be a lot to handle. If you sell first, you can take your time considering sales strategies and making any renovations or repairs.
Total equity for future purchases: Perhaps one of the most compelling reasons to sell before buying another house is the potential to tap into your current home’s equity when you make your next purchase. If you pocket a considerable profit, you may be able to pay a larger down payment and take out a smaller mortgage on your next home. With a high enough profit, you may even be able to offer cash, which is very appealing to sellers.

For the above reasons, selling a current home before buying another is usually the most straightforward course to take. When stepping into the market to purchase a new home, the lack of pressure on your time and funds can help you make the best decision regarding a sale and give you more money to put toward your next home.

If you’re in a seller’s market, selling before buying can be even more profitable. In a seller’s market, sellers have the upper hand in negotiations because there are fewer homes than potential buyers. This situation gives sellers the ability to keep their asking price high or even raise it. Because there’s such high demand, homes usually sell quickly in a seller’s market.

Cons of Selling First

However, selling before buying could also cause some logistical concerns. If you sell your home quickly, you might have to find temporary housing before purchasing your new home. When there’s a lot of competition in the housing market, a seller could reject your offer, and the property could go to another buyer. Should that happen unexpectedly, you might need to move your belongings into a rental unit or pay for storage until you can move somewhere else.

Before deciding when to sell, calculate the costs involved and whether you may experience a time crunch when going to buy. There may be a situation where timing forces you to move in with a friend or sublet an apartment for a while. That said, the cost of moving twice and storing your furniture and belongings until you buy a new house generally won’t outweigh the benefits of selling before buying a new home.
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Buying a New Home Before Selling Your Current One

Sometimes, buying first can be appealing when you can afford to buy without recovering the equity in your old home or you’re in a buyer’s market and have negotiated an excellent deal for a house. This option may require some extra steps and additional help with financing the purchase. If you’re unable to pay for a new home out of pocket, you have several options for financing:

1. Home Sale Contingency

A home sale contingency is a clause you can include in your offer to purchase a house. This clause tells the seller you need to find a buyer for your own home before closing on the purchase. A sale and settlement contingency gives you the legal right to exit a contract if you don’t receive an offer for your current home in time. A settlement contingency protects you if an offer on your old home falls through.

A significant drawback to a home sale contingency is that it could make your offer less competitive to sellers. If the seller sees you can’t make a firm offer, they could pass over you in favor of a committed buyer when negotiating a deal. If you’re only able to make less competitive offers, buying a home could take longer. However, if the seller accepts your offer, you’ll be able to keep the home you want under contract while you wait for a buyer.

2. Bridge Loan

Another option for financing a purchase is taking out a bridge loan. These are short-term loans designed to bridge the time between when a homebuyer needs financing and when it becomes available. With a bridge loan, you can access the resources you need to pay for your current mortgage and make a down payment toward your new house.

These loans can be a simple way to get financing quickly. Note that you’ll need to make monthly payments on the bridge loan while also paying for your existing mortgage. However, when you sell the old home, you can use your profit to pay off the bridge loan. If your home takes a while to sell, you could be paying two mortgages on top of the bridge loan payments as you wait.

3. Two Mortgages

If you can afford it, carrying two mortgages may be the least complicated option for financing a home. Maintaining two mortgages while you wait for your old house to sell can keep you from entering into another loan like a bridge loan.

However, carrying two mortgages at once probably doesn’t sound enjoyable. The cost of two mortgages can become steep, so you may not be interested. Still, it could give you greater freedom to make an offer without being tied to a home sale contingency.

How to Get a Mortgage on a New Home

Whether you’ve already sold your old home or are just beginning the house-hunting process, you’ll need a mortgage before closing on a new house. Here are the steps you need to take to be ready to make that purchase and move into your next home.

1. Save for a Down Payment

The down payment may look different depending on whether you’ve already sold your old home. With the profits from your old home in your pocket, you can use it for a down payment along with any other funds you saved. Because a larger down payment means a smaller loan size, choosing to save the money you would have spent on your morning later can go a long way.

If you’re buying a home without the benefit of your previous home’s equity, you may qualify for a conventional loan with a down payment of only 3-10%. There are also mortgage programs that require as little as 0% down, like United States Department of Agriculture (USDA) loans and Veterans Affairs (VA) mortgages. With certain qualifications, you can reduce the amount you need for a down payment and avoid paying for private mortgage insurance.

2. Explore Mortgage Options

Before applying for a loan, consider which loan types are most beneficial for you in your financial situation. Some homebuyers choose to go with a conventional mortgage with 15-, 20- or 30-year loan terms. Special considerations — such as your credit score, veteran status or location — can qualify you for other loan types. With some careful research and the help of our dependable loan advisors, you can find the best mortgage type for your needs.

Also, think about what features you want in a house and what you’re willing to sacrifice. It may be best to buy a smaller or less updated home to keep your mortgage debt lower or concentrate your monthly debt payment on loans with higher interest rates, such as school or credit card payments. On the other hand, you may be comfortable buying at the higher end of your price range if you have few or no other debts.

3. Complete an Application

Once you’re ready, you’ll want to apply for the mortgage of your choice. To apply, you’ll need some paperwork, including:

Your last two years of completed personal tax returns
Your business’ previous two years of tax returns, if applicable
Proof of income from a 30-day period, like pay stubs and bank statements
Photo identification like a driver’s license
Your last two years of W2 forms

Once you have your forms in order, you can apply online, and your lender will look over your financial information to give you an estimated interest rate. With the online application at Assurance Financial, you can submit all of this documentation in as little as 15 minutes and get pre-qualified for a loan within 24 hours.

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4. Wait for Processing and Underwriting

Once you’ve found the home you want and the seller has accepted your offer, your lender sends your financial information over to a loan processor, who double-checks all of the details and will contact you if they need any clarification.

After processing, your lender will likely order a home appraisal to determine the value of the property you intend to buy. Once an appraiser looks over your home, a loan underwriter will review your credit score and application once more to make the final approval. This stage finalizes the amount of your loan and your interest rate.

5. Head to Closing

When your loan is cleared, you can begin the final steps in your journey to homeownership. The title company will set up a closing day with you, and you can sign many of your closing documents online beforehand.

On closing day, you’ll bring your down payment in the form of a cashier’s check, plus any other fees and closing costs you may be required to pay. Alternatively, you can choose to set up a wire transfer for the funds. After you sign the last bit of paperwork, you’ll get the keys to your new home.

Get Started With Assurance Financial

If you’re looking to get a mortgage for your new home or refinance an old mortgage, Assurance Financial is ready to help. We provide complete support at every step of your loan application, and our licensed loan officers are experts at getting the home loan that best suits your needs. With a variety of loan types and competitive rates, we provide mortgage solutions for homebuyers at any stage of life.

At Assurance Financial, we understand you want a smooth mortgage process that leads you to your dream home. To get started and discuss your mortgage options, find a loan officer today and see why Assurance Financial stands out from other online mortgage lenders.

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Many homebuyers make a list of the things they’d like in their new home — including the number of bedrooms, the types of amenities and the size of the yard, to name a few. When shopping for a home, it’s just as important to make a list of things you’d like from your mortgage — including the length of the loan, the interest rate and the repayment terms.

You have lots of options when choosing a mortgage. Some home loans are designed for people who meet specific criteria, and others for people who might not qualify for another type of loan. Take a look at some of the different types of mortgages available and what they offer to find the best mortgage for you.

What is a Mortgage?
What Mortgage Do I Need?
Fixed-Rate Mortgages
Adjustable-Rate Mortgages
Other Mortgage Options
Programs to Help You Get a Mortgage
Apply with Assurance Financial Today

What Is a Mortgage?

A mortgage is a type of loan you acquire to purchase a home. When you apply and are approved for a mortgage, the lender agrees to let you borrow a sum of money that is usually less than the home’s value. You need to repay the mortgage according to the terms of the loan. Most mortgages require you to make monthly payments of principal, interest and other fees, such as private mortgage insurance (PMI).

When you have a mortgage, the home acts as collateral. If you stop making payments and don’t work something out with the lender, they can foreclose on the home. Since the home is collateral, many mortgages have lower interest rates than unsecured loans, such as personal loans or credit cards.

When choosing a mortgage, there are several things to pay attention to:

The length of the loan term:30 years is a popular mortgage term, but 10, 15 and 20-year mortgages are also available.
The size of the interest rate: The market influences your interest rate, as does your credit score, income and loan size.
The type of interest rate: Your rate can be fixed, meaning it will stay the same throughout the life of the loan or adjustable.
The type of fees, such as PMI, lender’s fees and other fees: You’ll most likely need to pay an assortment of closing costs and may need to pay fees such as PMI premiums each month.
The loan size:The amount you borrow depends on the size of your down payment, the cost of the house and what you can afford.

What Mortgage Do I Need? The Best Type of Mortgage to Get

How do you know which mortgage is right for you? It helps to consider your financial stability, your employment situation and your credit history. Two broad categories of mortgages exist, private loans and government-backed loans. Private loans often have stricter requirements, while government-backed loans are guaranteed by various federal agencies or departments and have looser requirements.

Your lender will let you know which mortgages you qualify for and help guide you to the one that best meets your needs. Get to know some of the most common mortgage options:

1. Conventional Conforming

A private lender makes a conventional mortgage. It’s not guaranteed or backed by the government. A conforming loan aligns with the standards created by the Federal Housing Finance Agency. One of those standards is a loan limit for all loans that Freddie Mac and Fannie Mae purchase. As of 2021, the limit for a conforming loan is $548,250* for a single-family home. The limit in areas with a high cost of living and higher-than-average housing prices is $822,375*.

You need to meet stricter requirements to qualify for a conventional loan. One of the requirements is a higher credit score. While you might get approved for a conventional loan with a score around 620, to get the best possible terms, including the lowest possible interest rate, it’s better to have a score in the mid-700s or higher.

The down payment requirements for a conventional loan are typically different than for other mortgage types. The standard advice is to put down at least 20% to get a conventional mortgage. But your lender might be willing to approve you if you have a smaller down payment. If you put down 5% or 10%, you can expect to pay PMI premiums in addition to your monthly principal and interest payments. How long you need to pay for insurance depends on how long it takes you to pay off at least 20% of the home’s value.

Once the loan-to-value ratio is 80% or less, you can ask the lender to remove the PMI premiums. The lender should automatically cancel your PMI premiums when the loan-to-value ratio falls to 78%.

A conventional conforming mortgage offers you a fair amount of flexibility. You can choose the mortgage term and the type of interest rate, such as fixed or adjustable. Some conventional loan programs even allow you to put down just 3% of the home’s value, making homeownership potentially more attainable and affordable.

Are you eligible for a conventional loan? Review these requirements to determine whether you qualify for this mortgage loan type and whether it’s right for you:

Your credit score is above average. A higher score can potentially result in a lower interest rate, especially for those with a score over 740.
You have a reasonable or low debt-to-income ratio. The ratio of your financial obligations to your monthly income should not exceed 43%.
You have saved up enough for a down payment between 3% and 20%. Keep in mind that with a smaller down payment, you will most likely need to buy private mortgage insurance.

2. Conventional Non-Conforming

Some homes cost way more than the conforming loan limits set by the Federal Housing Finance Agency due to the home’s size, amenities or location. You can still get a mortgage for an expensive home, but the type of mortgage you get will be slightly different from a conventional conforming loan.

Conventional non-conforming mortgages are also called jumbo loans due to their size. As a general rule, lenders consider jumbo loans to be riskier than conforming loans. The borrower is borrowing more from the lender, so there is a slightly higher risk of default. For that reason, jumbo loans traditionally have slightly higher interest rates than conforming loans. They also usually have stricter eligibility and down payment requirements.

For example, while you might get a conventional conforming loan with as little as 3% down, you can expect to put down at least 20% to get a jumbo loan. You also need a higher credit score to qualify for a jumbo loan. Usually, the minimum score a lender will consider is 700. The higher your score, the more likely you are to get approved and potentially get a lower interest rate.

A lender will also carefully consider your debt-to-income ratio before approving you for a jumbo loan. The more existing debt you have, the less likely you are to get approved for the loan. There is a limit to jumbo loans. Usually, the maximum amount you can borrow to buy a single-family home is around $1 million.

Are you eligible for a jumbo loan? Review these requirements to determine whether you qualify for this mortgage loan type and if it’s right for you:

Your credit score is above average.
You have a debt-to-income ratio below 36%.
You have saved up a hefty down payment, at least 20% of the home’s price.
You need to buy a home that costs more than the conforming loan limit.

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3. FHA

Government-sponsored mortgage programs aim to help people who might have difficulty qualifying for conventional loans purchase a home. The first type of government-backed mortgage is an FHA loan. The FHA loan program dates back to 1934. The government created it to ease credit requirements, allow for smaller down payments and reduce closing costs, making it possible for people to buy their first homes.

Usually, FHA loans allow borrowers to put down between 3.5% and 10% of the home’s value. How much you need to put down depends on your credit score. FHA loans allow borrowers to have slightly lower credit scores than conventional mortgages. To get an FHA loan with a 3.5% down payment, your score must be at least 580. If your score is at least 500, you’ll need to put down 10%.

Although FHA loans are government-backed, the mortgages themselves don’t come from the government. Instead, private lenders issue them with the understanding that the government will step in and cover the cost if the borrower defaults or stops making payments on the loan. The government guarantee protects the lender from losing too much money on a potentially risky loan.

In exchange for the government’s backing, you need to pay mortgage insurance if you decide to take out an FHA loan. FHA mortgage insurance is slightly different from the PMI premiums you pay on a conventional mortgage. First, the mortgage insurance is for the entire term of the loan if your down payment is under 10%. Unless you refinance an FHA loan to a conventional loan at some point, you’ll be responsible for premiums from the first payment until the last. You’ll also have to pay a mortgage insurance premium upfront, along with a monthly premium.

FHA loans can have terms of 15 or 30 years. The interest rate is fixed, meaning it stays the same throughout the entire term. An FHA loan might be a good option if you’re having trouble qualifying for a conventional loan due to a lower credit score or lower income.

Are you eligible for an FHA loan? Review these requirements to determine whether you qualify for this mortgage loan type and whether it’s right for you:

You have a FICO credit score in the range of 500 to 579 with a down payment of at least 10%.
You have a FICO credit score of at least 580 with a down payment of at least 3.5%.
You’ve been employed for the past two years.
You can verify your income with pay stubs, bank statements and tax returns.
Your FHA loan will be used for your primary residence.
Your property is appraised and meets property guidelines.
Your monthly mortgage payments won’t be more than 31% of your monthly income. Some lenders may allow up to 40%.

4. VA

VA loans are available to people who are veterans or who are currently serving in the armed forces. Similar to an FHA loan, a VA loan is government-backed. In this case, Veterans Affairs guarantees the mortgages, which private lenders issue.

VA loans have two distinct advantages over conventional and FHA loans. The first advantage is that they don’t require a down payment. They are one of the few types of mortgages available that allow for 100% financing. Unlike conventional or FHA loans, you don’t have to pay mortgage insurance premiums on a VA loan, even if you put down 0% upfront.

VA loans also offer reduced closing costs. If you take out a VA loan, you need to pay the VA funding fee, which ranges from 1.4% to 3.6%, depending on the size of the down payment and whether you’re buying your first home or not. Other closing costs can be negotiated with the seller, meaning you might be able to get the seller to agree to pay for a portion of the costs.

Since VA loans come from private lenders, the lender might have its own requirements when deciding who to approve for the mortgage. A lender can determine what credit score you need, for example. It might also have certain income requirements.

If you’re a current or former member of the U.S. armed forces, a VA loan might offer the best value for you when buying a home. Spouses and widows of former or current service members can also qualify for VA loans.

Are you eligible for a VA loan? Review these requirements to determine whether you qualify for this mortgage loan type and whether it’s right for you. You may qualify for a VA loan if:

For 90 consecutive days, you served in active service during a time of war.
For 181 days, you served in active service during a time of peace.
For 6 years, you have been an active member of the Reserves or National Guard.
You are the spouse of a service member who died during active service or from a disability related to their service.

5. USDA

The United States Department of Agriculture (USDA) loan program aims to help borrowers who want to buy homes in rural areas and don’t have high incomes. Like FHA and VA loans, USDA loans are guaranteed by the government — in this case, the USDA. Private lenders issue the mortgages.

To qualify for a USDA loan, you need to meet several requirements. Your income can’t be higher than 115% of the median household income in the area. The home you want to buy needs to be in a rural area or a qualifying part of a suburb. Homes in cities or metropolitan areas don’t qualify for USDA loans.

Since one of the USDA mortgage program goals is to provide housing to people with the greatest need, it’s usually a loan program worth considering if you don’t qualify for other types of mortgages and want to live in a rural area. Though the loan program targets people with low to moderate incomes, you still need to prove a steady income, such as at least two years of stable employment, to qualify. You can get a USDA loan with a lower credit score, but you are likely to get a better interest rate and terms with a score of at least 640.

Like a VA loan, you can get a USDA loan with as little as 0% down. To further assist you with the homebuying process, USDA loans allow sellers to contribute to your closing costs.

Are you eligible for a USDA loan? Review these requirements to determine whether you qualify for this mortgage loan type and whether it’s right for you:

You have a relatively low income in your area. You can check the USDA’s page on income eligibility to determine whether you qualify.
You’ll be making the home your primary residence, or for a repair loan, you occupy the home.
You must be able to verify that you’re able and willing to meet the credit obligations.
You must either be a U.S. citizen or meet the eligibility requirements for a noncitizen.
You must be purchasing a property in an eligible area.

What Are Fixed-Rate Mortgages?

An additional thing to consider when choosing the right home loan is the type of interest rate the loan has. A variety of factors influence the rate a lender offers you, including your credit score, income and the loan size.

Another factor that comes into play is whether the rate is fixed or adjustable. A fixed-rate mortgage has an interest rate that stays the same throughout the term of the loan. One advantage of a fixed-rate mortgage is that it lets you lock in a low interest rate, provided rates are on the low end when you buy the home.

A potential drawback of a fixed-rate mortgage is that it can confine you to paying a high interest rate, even after rates have dropped. If you’d like to lower your interest at some point due to a drop in interest rates overall or an improvement in your credit score, you’d need to refinance, taking out an entirely new mortgage.

A mortgage with a fixed rate might be right for you if you plan on staying in your home for the long term and rates are low when you apply for the loan and buy the house. With a fixed-rate loan, you have some reassurance that your principal and interest payment will stay the same throughout the loan term, allowing you to create a steady budget and have a good idea of what to expect when it comes to your housing costs.

What Are Adjustable-Rate Mortgages?

The interest rates on an adjustable-rate mortgage (ARM) fluctuate throughout the life of the loan. Often, ARMs offer an introductory rate that stays the same for several years. For example, you might get a 5/1 ARM, which has a five-year introductory period. After the first five years, the rate changes based on what’s going on in the market.

After the introductory period, your rate can increase or decrease. If it increases, your monthly mortgage payment will also increase. If it drops, your monthly payment will also drop. When the introductory period is over, the interest rate will adjust based on a set schedule. In the case of a 5/1 ARM, the rate adjusts every year.

ARMs often have a rate cap, which keeps the interest rate from increasing too much and helps you avoid a monthly payment beyond your reach. The cap can be on each adjustment, as well as a lifetime cap on interest increases. For example, your ARM might have an adjustment cap of 2% and a lifetime cap of 5%.

One feature that makes ARMs appealing is a low interest rate when you take out the mortgage. The rate you’re offered on an ARM will often be lower than the rate on a fixed-rate mortgage. For that reason, it can make sense to choose an ARM over a fixed-rate loan if you’re not planning on staying in the home for the long run. If you anticipate selling before the end of the introductory period, you can enjoy several years of reduced interest.

Another potential benefit of an ARM is that your rate could fall even more in the future. If you feel that interest rates will keep falling, getting an ARM can help you take advantage of lower rates without the need to refinance your mortgage.

It’s important to note that adjustable rates aren’t offered on all types of mortgages. You can choose a conventional mortgage, FHA loan or VA loan with an adjustable rate.

Other Mortgage Options

In addition to conventional mortgages and government-backed loans, there are several other home loan options for borrowers who might be in unique situations. If you already own a home, it’s possible to get another mortgage on the property, for example. You can also get a loan to build your home.

1. Construction Loan

This type of mortgage loan involves buying land on which to build a house. These loans typically come with much shorter terms than other loans, at a maximum term of one year. Rather than the borrower receiving the loan all at once, the lender will pay out the money as the work on the home construction progresses. Rates are also higher for this mortgage loan type than for others.

There are two types of construction loans:

Construction-to-permanent: A construction-to-permanent loan is essentially a two-in-one mortgage loan. This is also known as a combination loan, which is a loan for two separate mortgages given to a borrower from a single lender. The construction loan is for the building of the home, and once the construction is completed, the loan is then converted to a permanent mortgage with a 15-year or 30-year term. During the construction phase, the borrower will pay only the interest of the loan. This is known as an interest-only mortgage. During the permanent mortgage, the borrower will pay both principal and interest at a fixed or variable rate. This is when payments increase significantly.
Construction-only: A construction-only loan is taken out only for the construction of the house, and the borrower takes out another mortgage loan when they move in. This may be a great option for those who already have a home, but are planning to sell it after moving into the home they’re building. However, borrowers will also pay more in fees with two separate loans and risk running the chance of not being able to move into their new home if their financial situation worsens and they can no longer qualify for that second mortgage.

2. Second Mortgage

Second mortgages are taken out after a borrower’s first mortgage and are generally used for financing home improvements, consolidating debt or for covering enough of the first mortgage to avoid the requirement of paying the mortgage insurance. Second mortgages generally have terms that last only up to 20 years and can be as short as one year.

Programs to Help You Get a Mortgage

If you’re buying your first home, several programs exist that help simplify the process or make homeownership more affordable. First-time homebuyers programs are usually available on a state or local level. Some offer grants to help you afford a down payment, while others might help with closing costs or other fees.

Another thing to consider if you’re about to buy your first home is working with a financial counselor. A counselor can help you make a plan for saving for a down payment or help you work on improving your credit so you’ll get the best mortgage terms possible, whether you qualify for a conventional loan or a government-sponsored one.

One thing worth noting is that specific mortgage types aren’t limited to first-time buyers. You might qualify for a USDA or VA loan if you’re buying your second or third home, provided you plan on using the home as your primary residence. The same is true of FHA loans. While the loan programs expect you to live in the home as a condition of qualifying for the mortgage, they don’t require you to be a first-timer.

Another option is the Good Neighbor Next Door Program. It is sponsored by the U.S. Department of Housing and Urban Development and assists law enforcement, firefighters, teachers and emergency medical technicians with housing. The program offers a 50% 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.

Your mortgage lender is also happy to discuss the different types of home loans available. They can work with you to help you choose a mortgage that works best with your current financial situation and that will help you achieve your goals in the future.

Apply for a Mortgage With Assurance Financial Today

Buying a home starts with getting the right mortgage. Assurance Financial has home loan options for every type of buyer, from first-time homebuyers to more experienced buyers. If you’re a veteran, we can help you get a VA loan. If you’re likely to buy in a rural area, we can help you with a USDA loan. Start your application today, or reach out to find a loan officer near you.

Linked Sources:

*Not a commitment to lend or extend credit. Restrictions may apply. Loan limits, information and/or data subject change without notice. All loans subject to credit approval. Not all loans or products are available in all states. Assurance Financial is committed to compliance with Section 8 of RESPA and does not offer free marketing services in exchange for referrals or the expectation of referrals.

Buying a home is a major commitment, both on the part of the buyer and the lender. As a buyer, you agree to take care of your new home and repay your mortgage based on the terms of the loan. The lender is taking a chance by providing you a significant sum of money upfront, with the expectation that you’ll pay it back with interest.

Lenders use several factors when deciding whether or not to lend money to an individual or group of people. One of those factors is the borrower’s credit history and credit score. Learn more about the importance of your credit history when getting a mortgage and what you can do to make the most of yours.

What is a Credit History?
How Important is a Credit Score?
How Does Your Credit Affect Interest Rates?
What Happens to Your Credit After Approval?
Other Factors to Consider When Buying a Home
How to Improve Your Credit Score
Apply for Home Loan Insurance Today

What Is a Credit History?

Your credit history is a snapshot of how you’ve used money and loans throughout your life. Generally, your credit history includes the following:

The number of loans or credit accounts you have:Your credit history includes accounts that are currently open as well as closed accounts. Examples of closed accounts include a loan you’ve paid off or a credit card you canceled.
The amount you owe on each account:Your credit history also reflects how much you owe on each account. For example, you might have a student loan with a principal balance of $15,000, and you might owe $2,500 on a credit card. If the account has a limit, such as a credit card with a limit of $7,000, that will also be part of your credit history.
The types of accounts you have: Loans typically come in two forms — revolving and installment. Installment loans include personal, auto and student loans. Credit cards are common examples of revolving loans.
Your payment history: Whether you pay on time, have made late payments or have missed payments will all be part of your credit history. If you have any loans that went into collection or that were charged off, those will appear on your credit history, too.

The information that makes up your credit history is contained in a credit report. There are three bureaus that put together credit reports. What gets reported by one bureau might not get reported by another, which can affect the accuracy of your credit history. In addition to details about your credit and loan accounts, your credit report will contain identifying information, such as your current address and a list of your previous addresses, your birthdate and your Social Security number.

How Do Lenders Use Your Credit History?

Lenders look at your credit history to get a sense of your relationship to loans and money in the past. If you have a very short credit history or don’t have one at all, a lender doesn’t have much to work with. They have no way of knowing whether you’re likely to pay your loan as agreed or if there’s a high risk that you’ll default on it.

If you have a history of on-time payments and a variety of loan accounts, a lender might feel more confident in letting you borrow money. Lenders also look at how much you owe when making a decision about you. If you have a lot of outstanding debt, they might be hesitant to offer you more credit. Along with approving you for a mortgage, a lender might also offer you a lower interest rate or let you borrow more money if you have a strong payment history and don’t currently owe a lot of money.

How Important Is a Credit Score?

Your credit history plays a significant role in determining your credit score, a three-digit number ranging from 300 to 850. If you’re interested in getting a mortgage, your credit score is important, as it lets a lender see at a glance how you’ve handled money and loans in the past. The higher your score, usually the better the terms you’ll get on a mortgage.

Certain parts of your credit history influence your score more than others. Usually, the following five factors determine your total score:

Payment history: Your payment history has the biggest impact on your score, accounting for 35% of the total score. That makes sense, as a lender may hesitate to let someone who regularly misses payments or pays late borrow money.
Amount you owe: How much you owe on existing loans also has a considerable impact on your score, accounting for 30% of the total. A lender is likely to be nervous about lending money to someone who already has a significant amount of debt.
Length of history: The longer your credit history, the better, although the length of your history only accounts for 15% of your total score. If you’re interested in getting a mortgage one day, it may be a good idea to open up your first credit card or get another type of loan when you’re relatively young.
Types of accounts: The type of accounts you have play a smaller part in determining your score. Credit mix accounts for 10% of your total score. While you don’t have to have one of every possible type of loan, it’s useful to have a variety of accounts in your history, such as a credit card and a personal loan, or a credit card and auto loan.
New credit: New credit accounts for 10% of your score. Multiple new accounts on a credit report can be a red flag to lenders. They might wonder why someone opened several credit cards or took out multiple loans at once.

Your credit score has a part in determining how much interest you pay on a loan and can also play a role in the type of loans you’re eligible for.

What Is a Good Credit Score for a Home Loan?

If you’re going to pay for your new home in cash, you technically don’t need to worry about your credit history or score, as you aren’t borrowing money. But if you plan to get a mortgage to pay for part of your new home, your credit score is going to play a bigger role. The credit score you need to qualify for a home loan depends in large part on the loan you’re applying for and the amount you hope to borrow.

Conventional mortgages typically require higher credit scores than government-backed mortgages. A lender assumes more risk when issuing a conventional home loan, so it’s important for them to only lend money to people with strong credit scores. The minimum credit score for a conventional mortgage is around 620. But a borrower is going to get better rates and the best terms possible if their score falls in the “Excellent” range, meaning it’s above 740.

A borrower can qualify for certain government-backed mortgages, such as the FHA loan program or VA loans, with a much lower score. The FHA loan program may also accept borrowers with scores as low as 500, but those borrowers need to make a down payment of at least 10%.

How Does Your Credit Affect Your Interest Rates?

The higher your credit score, the lower your interest rate may be on a mortgage or any other type of loan. A lender will feel more confident issuing a mortgage to someone with a score of 800, for example, than they would approving a mortgage for someone with a score of 690. To reflect that confidence, the lender will charge less for the loan.

At first glance, the difference between the interest rate someone with a score of 800 is offered and the rate someone with a score of 690 is offered might not seem like much. For example, someone with a score of 800 might get a rate of 4%, while a person with a 690 score might be offered a rate of 4.5%. But over the 15-year or 30-year term of a mortgage, that half of a percentage point difference adds up to thousands of dollars.

Depending on the type of mortgage you apply for, you can qualify for a better rate with a lower score. For example, if you apply for an FHA loan with a score of 580, you’ll get a higher rate than someone who applies with a score of 700. But if the person with a score of 700 applies for a conventional mortgage, they are likely to get a higher rate on the conventional loan than on an FHA loan.

What Happens to Your Credit After You’re Approved for a Loan?

Your mortgage will appear on your credit reports and will affect your credit score. Overall, adding a mortgage to your credit history is a good thing. But there are a few things to note. One is that initially, your score might drop after you get approved for a mortgage and close on your home. When you get a mortgage, you add a significant amount to your total debts owed, which accounts for nearly one-third of your credit score. You also add new credit to your report, which accounts for 10% of your score.

Don’t panic if you see your score drop after taking out a mortgage. If you had a relatively high score to begin with, the drop is likely only to be a few points. You’re also going to improve your score relatively quickly. As you start paying off your mortgage, the lender that owns it will report your payments to the credit agencies. After a few months of on-time, consistent payments, you’ll have bolstered your payment history on your report.

Another reason not to panic about an initial drop in your credit score is that your mortgage will boost your score over time, provided you continue to pay regularly. Mortgages are examples of installment loans. You borrow X amount and as you pay it down, the amount you owe decreases. That reduces the total amount owed that shows on your credit reports, ultimately improving your score.

A mortgage also gives you a more diverse credit portfolio. If you previously had mostly credit cards, adding a mortgage increases the variety of your credit mix, which can boost your score.

Other Factors to Consider When Buying a Home

While your credit score is important, it’s not the only factor that determines the interest rate you’re offered or whether a lender approves your application or not. A few other things that influence your mortgage include:

Your down payment: How much you can afford to put down influences the interest rate you’re offered as well as the type of mortgage you qualify for. If you plan on taking out a conventional loan, your down payment can range from 3% to 20%, but only borrowers who meet certain requirements can qualify for a 3% down payment. Usually, the more you put down, the lower your interest rate.
Market conditions: The overall market also influences the rate you get offered on a home loan. When rates are high, your interest rate will be higher, even if you have the best credit possible. When rates are low, you can qualify for a lower rate than you would otherwise. How competitive the market is also influences your mortgage options. It can be more challenging to qualify for a mortgage with a low down payment or lower credit score when there’s a lot of demand from buyers and few homes available for sale.
Mortgage options: Depending on the type of mortgage you apply for, you might not need to have a credit score in the “excellent” or “very good” category. Certain government-backed loan programs are available to borrowers with less-than-stellar credit. If you have a lower score and don’t have much for a down payment, an FHA loan, for example, might be your best option. On the flip side, if you plan on buying a very expensive home and need to take out a jumbo mortgage to do so, you’ll need to have a higher-than-average credit score and a sizable down payment.
The price of the home: How much the home costs compared to how much you want to borrow also influences whether or not you get approved for a mortgage. The pricier the home, usually the bigger the risk to the lender. If you’re buying an inexpensive property, you’re likely to get a better interest rate, especially if you’re able to put down a large payment upfront.
Your income: A lender is going to ask you how much you earn and ask you to verify your income before they agree to lend money to you. They want to ensure you can pay back what you’ve borrowed. The higher your income and how it compares to your total debt influences how much a lender will let you borrow and the interest rate they charge.
Type of interest: The type of interest rate your mortgage has is another thing to consider. Mortgages with adjustable rates have lower rates at first, but those rates can increase when they adjust. A fixed-rate mortgage might charge a slightly higher rate than an adjustable-rate loan, but you have reassurance the rate will remain the same for the life of the home loan.
Length of the mortgage:How long you have to repay the mortgage also influences your rate. Mortgages with longer terms, such as 30 years, usually charge higher rates than loans with shorter terms, such as 15 years.

Your lender is likely to look at the big picture, taking your credit score, income, down payment and other factors into consideration before making a lending decision.
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How to Help Improve Your Credit Score

If you don’t have a credit history, have limited credit or have a poor credit history, you’ll want to focus on improving your credit before you apply for a mortgage, even if you plan on applying for a government-backed loan. Fortunately, there are a few ways you can boost your credit.

If you don’t have a credit history at all, the first thing to do is open your first account. You have a few options for doing that:

Get a secured credit card:Secured credit cards help people with limited credit histories or with poor credit boost their scores. When you apply for a secured credit card, you put down a deposit, such as $500. The deposit acts as collateral on the card, reducing the risk to the lender.
Apply for a credit builder loan: Another option is to apply for a credit-builder loan from a credit union or bank. Credit builder loans are slightly different from other types of loans. In effect, it works backward. You don’t get the borrowed money upfront. Instead, you pay the lender each month, and it holds your payments in an account. Once you’ve paid off the full balance of the loan, you can receive the funds and use them as needed.
Apply for a store credit card: If a credit-builder loan or secured credit card doesn’t appeal to you, another way to establish credit is to apply for a store credit card. Be cautious with this approach, though. You don’t want to charge so much on the card that you have trouble paying off the balance and end up with missed or late payments.
Ask someone to co-sign with you:Finding a co-signer is another way to qualify for a loan with a limited credit history. Your co-signer is a co-borrower, meaning they are responsible for paying the loan if you fall behind. Make sure the person who agrees to co-sign with you understands the risks they are taking on before going forward.

If you do have a credit history but your score isn’t what you want it to be, there are things you can do to improve your score. It might take a while to get your credit where you want it to be, so it can be useful to check out your credit report months or years before you plan on buying a home:

Pay on time:Remember that payment history is the big one when it comes to your overall score. If you’ve fallen behind on certain accounts, do whatever you can to make them current. Commit to paying every other account on or before the due date.
Avoid new credit accounts: Try to avoid opening lots of new credit accounts, as doing so will cause your score to drop. It’s especially important to avoid new accounts while you wait for final approval on your mortgage, as opening a new credit card or taking out a different loan during that time can disrupt the approval process.
Keep your debt balances low: How much you owe overall plays a major part in the calculation of your credit score. If you currently have a lot of credit card debt or student loans, try focusing on paying them off or significantly reducing the balance before you apply for a mortgage.

Apply for a Home Loan With Assurance Financial Today

Is your credit score where you want it to be? Even if it’s not, our helpful loan officers can help you decide the what’s best for your home buying goals. You can start the application process online with Assurance Financial. A loan officer will then get in touch to finalize your application.

Linked Sources:

https://www.myfico.com/credit-education/whats-in-your-credit-score
https://assurancemortgage.com/conventional-loans/
https://assurancemortgage.com/va-loans/
https://assurancemortgage.com/fha-loans/
https://assurancemortgage.com/how-to-build-credit-to-get-loan/
https://assurancemortgage.com/apply/

Selling your current home to move on to bigger and better things is an exciting milestone for many homeowners. Though you’ll miss the house that gave you so many cherished memories, you can look forward to more exciting adventures that await down the road.

However, as you approach your closing date, it’s natural to have questions about what will happen, both in the days leading up to closing and on the big day itself. The guide below will provide some tips on preparing your home and discuss the closing process in detail, so you’ll know more about what to expect on closing day.

How to Prepare for Closing Day
Final Steps
What Should You Bring?
FAQs About Closing
Apply for a Mortgage

How You Can Prepare for Closing Day

Once you’ve accepted an offer on your house, you may feel as if your process is nearly over. But closing is a considerable undertaking, one you’ll want to prepare for carefully. You’ll have a lot of work to do before you’re ready to sign the paperwork and hand over your keys.

What can you expect on closing day? Here are a few of the steps you’ll likely need to take.

1. Pack up Your Home

On closing day, one of the first things you should do is pack for your move, if you haven’t already. Depending on how long you’ve been in your current house and how many possessions you’ve accumulated, boxing everything up may be a Herculean task.

If you know you have much more to pack than you can accomplish in a single day, plan to begin the process early. Maybe you can get a head start on putting everything into boxes and disassembling some of your larger pieces of furniture at the beginning of the week. Then, when your closing day gets closer, you’ll be able to move your belongings into a U-Haul or moving van more quickly.

If you plan to hire packers and movers, you should start arranging those logistics early as well — ideally, several days before your closing date so you can have your house emptied by closing.

Schedule your packing and moving appointments, pay the fees and ensure you’re ready for the teams when they arrive. Have clear instructions prepared for how you’d like your rooms boxed up, and have your belongings packed and ready to go once the movers get there. And in all the chaos of preparing to close, remember to have extra cash on hand as well. If you’re so inclined, so you can tip the pros for their services.

2. Review Your Disclosures

Reviewing your disclosures before closing is a good idea as well. In your initial listing and sale, you likely stipulated specific details about your home. For instance, you may have detailed which implements and appliances, like garden hoses and refrigerators, would stay with the house and which you would take with you.

On your closing date, review this list and check that you’ve abided by your initial agreement. The other parties will be reviewing the list as well, and you don’t want to shortchange them by taking items you agreed to leave.

3. Clean Your Home

Should a seller clean the house before closing? Though it’s not legally part of the transaction, it’s a considerate thing to do. Just as you’ll want your new home to be clean and shiny once you’re ready to move in, you should also leave your old home pristine for the new owner.

When you’re cleaning, remember to check tasks like these off your list:

Removing posters and artwork
Spackling nail holes
Sweeping
Mopping
Dusting
Wiping down countertops and baseboards
Scouring bathrooms
Scrubbing mirrors
Cleaning windows, inside and out
Tidying the garage
Mowing lawns
Hauling away trash

At the end of a long, mentally exhausting selling process, a long list of cleaning duties may seem daunting. Remember, though, that when you close on your new house, you’ll be grateful that another kind soul performed these same tasks for you.

4. Leave a Blank Canvas

Cleaning and readying your home for the new owner also involves emptying your home of extraneous items — unless you agreed in your disclosures that you would leave them.

That broken bathroom shelf you don’t want to make time to haul to the dump? Find a way to dispose of it somehow. The old lawnmower that technically still runs but you haven’t used in years? Though it’s easy to convince yourself the new homeowner might get some use out of it, it’s generally considerate to dispose of it and let the new owners fill the house as they please.

You also don’t want to leave the new owner with any repair headaches to deal with. In your initial agreements, you likely hammered out the specifics of any repairs and painting you would complete before closing. Be sure to check those tasks off your list, so you can leave the new owners a spruced-up and move-in-ready house.

5. Handle Utility Cancellations

If you haven’t done so already, cancel the utilities for your home on your closing day. Remember to include the following services, as applicable:

Electricity
Gas
Internet
Recycling
Sewer
Trash
Water

As a courtesy, you may want to arrange to have your utilities canceled after closing so the new owner has a grace period to set up new accounts. And if you cancel your trash pickup before you’ve finished cleaning, be sure to remove all extra trash from the property yourself before closing.

Final Steps to the Closing Process

On closing day, after you’ve completed all the tasks above, you’ll finally be ready to take the last steps in selling your home.

1. Sign Legal Documents

On closing day, you and the buyer will sign various legal documents. You may need to sign a settlement statement, the deed and transfer documents and any other legal paperwork required to complete the sale.

The amount of paperwork you’ll need to go through at closing can seem daunting — 50 to 100 pages of paperwork is not uncommon. Faced with that much reading material, you may feel tempted to skim over the denser sections. We strongly advise you to resist this impulse. If there are any mistakes in your paperwork, you’ll need to get them ironed out before you sign, so they don’t cause you difficulties afterward.

You won’t be alone in going through your paperwork and signing the obligatory legal documents. Your real estate agent will be there to help you navigate the legal jargon and talk you through any thorny points you encounter.

Many people wonder how long it takes to close on a house once the day finally arrives. Because there’s generally so much paperwork to get through, you probably won’t be able to complete closing in a tight window — on your lunch break from work, for instance. It could take a couple of hours in some cases. However, if you choose to work with Assurance Financial our digital E-Closing experience allows you to sign most of your documents before you get to the closing table, significantly cutting down time the day of closing.

2. Pay Closing Costs

Once you and your buyer have completed all the signing, you will pay costs. These are any costs you owe to third parties for expenses related to your home’s sale. The appraisal fee, attorney fees and other outstanding bills are likely to form part of the closing fees.

How much can you expect to pay in closing fees once you reach that point? On average, total closing fees add up to about 2 to 7% of the home’s value. However, as the seller, you’ll likely be paying lower closing costs than the buyer will. Buyers often pay about 3 to 4% of the home’s value in closing costs, while sellers pay between 1 and 3%. While both sides must pay fees to people like their lawyers and real estate agents, the buyer incurs additional costs like inspection and appraisal charges.

Additionally, one of the parties sometimes offers to pay closing costs for the other. During negotiations, to obtain an otherwise more favorable deal, you may have agreed to pay the buyer’s closing costs, or the buyer may have consented to pay yours. In some cases, you may not need to pay any closing fees. Or, you may be responsible for both sets of fees if that’s the deal you agreed to in advance.

3. Remove Remaining Loans

If you still have a mortgage on your home, you’ll have it removed once you’ve completed all payments and deposits. Generally, the title insurance company pays off your mortgage lender and any other lienholders you may have.

4. Transfer the Title

After closing, you’ll also hand over the title to your property and the keys to your home. If you and the buyer have a joint closing, the buyer can take those items right then. If you’re closing separately, you can give the title and keys to one of the agents present.

5. Receive Your Sales Proceeds

You may not receive your sales proceeds on your closing day. You may get them a few days later, or you may have to wait for the relevant financial institutions to sort out the transactions. If your proceeds come in on closing day, you’ll be that much further on your way to whatever comes next.

What Should You Bring?

On closing day, bring the following items to your appointment.

1. Necessary Documents

At the closing, you may meet with your real estate agent, mortgage loan officer and a representative from the title company. You’ll need to bring along any outstanding paperwork.

The most critical piece of paperwork to bring to closing is your home’s title. The title is the document through which you’ll transfer your home’s ownership from you to the buyer.

2. Photo Identification

You’ll also need to bring a valid photo ID like a passport or driver’s license to closing to verify your identity. Because selling a home involves such monumental transactions, this requirement helps protect you from fraud.

3. Payment

Even though you’re selling rather than buying, you’ll still have closing costs to pay. If these costs are substantial enough, you may need to bring a cashier’s check instead of using a conventional check or credit card. Get with your Realtor and lender on the payment amount.

4. Keys

It’s easy to get so caught up in paperwork that you forget to bring your keys to closing. Be sure to bring them, though — that way, you can hand them over and finalize the transaction.

5. A Lawyer

Though you don’t necessarily need to bring a lawyer to your closing, you can if you want to. You may choose to have a lawyer present if you’d like additional assistance in going over the documents and navigating the day’s proceedings. You might also call in your lawyer if the terms of the sale are particularly complicated.

Frequently Asked Questions About Closing on a Home

Below are a few other common questions about closing on a home as the seller.

1. What Is Closing Day?

Closing day is the day you fulfill your sales contract and formally transfer ownership of your house to the new buyer. At the end of this process, though, you’ll be well on your way toward the next stage of your homeownership journey — getting ready to buy or move into a new home.

2. How Do You Determine When Closing Day Will Be?

Generally, you’ll know several weeks in advance when your closing day will be. During the sale’s contract negotiation phase, you and the buyer will set a mutually agreeable closing date. This date will then appear on the purchase agreement contract after you accept the offer. It will become the date by which you strive to complete all intermediate tasks like appraisal, inspection and walk-through if the buyer chooses to proceed with them.

3. Where Does Closing Take Place?

Closing usually takes place at the offices of the escrowee, or the entity that holds your funds before the transaction. Usually, though not always, the escrowee is the title insurance company, the entity that secures your legal ownership of your home.

4. Who Will Be Present at the Closing?

Generally, you can expect some or all of these agents to be present at the closing:

A title company representative
The mortgage lender
Your real estate agent
The buyer’s real estate agent
The closing or escrow agent
Your attorney, or the buyer’s attorney, if either or both or you choose to bring one

As the seller, though, you don’t necessarily need to be present at the buyer’s closing as long as you sign the deed and transfer documents ahead of time. Some sellers choose to be present to discuss any relevant details about the house. To minimize scheduling conflicts and avoid intruding on discussions of the buyer’s finances, many sellers opt for separate closings.

5. How Long Will You Wait Between Accepting an Offer and Closing?

You’ll likely wait several weeks between accepting an offer and officially closing the sale. In 2018, for instance, the average wait between the sale and closing was 43 days.

The delay occurs for a good reason — it protects you and the buyer by giving you time to hammer out logistics, ensure the necessary financial frameworks are in place and make sure the house is in good repair. The extended timeline also benefits the lenders and title brokers involved in the sale — they need time to get the paperwork together and make the deal legally sound.

Be aware, though, that delays are common in the period between the sale and the closing. According to the National Association of Realtors, a third of all home sales meet with delays that defer the closing date. About 46% of those delays arise because of financing issues. Appraisal and inspection concerns account for many of the other postponements.

6. What Can You Expect in the Final Week Before Closing?

Many homeowners wonder what to expect one week before closing. The sheer number of tasks to accomplish in the run-up can lead to uncertainty, and knowing what will likely happen in the final days helps you feel more prepared and confident.

As a general rule, in the week leading up to closing, it’s smart to create a closing checklist. You can write the list down, print it out or merely keep it readily accessible on your phone. Using a list to keep track of what you need to do before closing helps you make sure you remember everything amid the stress and excitement of getting ready.

Below are a few specific activities you can expect to take place before closing.

Inspection: At some point in the escrow period, the buyer will likely have had a professional complete a home inspection. The inspector will have notified you and the buyer of any significant structural or safety issues and what you need to do to address them. If the buyer chooses to have an inspection and has not yet arranged it, you’ll need to prepare for that to occur in the final week before closing.
Appraisal: You’ll also need to prepare to receive a professional appraiser at your home. This appointment will likely be separate from the inspection. The appraisal benefits you indirectly because it allows the buyer to receive the funds to purchase your house.
Walk-through: In the final days before closing, you should prepare for the buyer to perform a final walk-through. The final walk-through is the buyer’s last chance to ensure that the house is structurally sound and its condition hasn’t changed since the buyer last saw it. During the walk-through, the buyer may inspect everything, including major appliances, doors, windows and light fixtures. The buyer will probably also have the original contract in hand and will want to confirm that the home’s original agreed-upon condition matches its actual status. The buyer will want your home to be empty or nearly empty, so you should prepare for the possibility that the walk-through will take place as late as the closing day itself.
Packing and cleaning needs: As we’ve discussed above, you’ll want to get a head start on packing, cleaning and arranging moving logistics in the days before your official closing. Leaving yourself some breathing room provides some cushion in case of an emergency.
Closing disclosures: The law requires you and the buyer to receive a document titled Closing Disclosures at least three days before the official closing date. You will receive these documents from your real estate agent. The Closing Disclosures list all the sale’s final terms and describe in detail who pays which closing costs. Double-check the details and make sure the terms are what you’d expected. If not, contact your real estate agent right away to find out why.

In general, keeping in touch with your team throughout the final week before closing is an excellent idea. By touching base with your real estate agent, mortgage officer, title insurance agent and any other relevant professionals, you can ensure your documents are in order and you’ve completed all requirements. The more thoroughly you prepare, the more peace of mind you’ll have that you won’t meet with any surprises on closing day.

It’s a Good Time to Contact Assurance Financial to Apply for a Mortgage

Now that you know what to expect on closing day on a house, you’ll be able to get ready for your closing and whatever new adventures come next.

And when it’s time to purchase another home, let Assurance Financial help you with your mortgage application. We make it easy to apply for a mortgage and estimate costs simultaneously, and our licensed loan officers have the knowledge and experience to get you attractive, custom competitive rates. You can get prequalified in 15 minutes and apply for a wide range of loans, from conventional loans to VA loans to FHA loans, among many others.

Apply for a loan online, or contact us to learn more about getting started with a mortgage.

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Purchasing a home is one of the largest investments you’ll make. As such, you probably want to do what you can to ensure your home is as up-to-date and comfortable as possible. However, it can be challenging to save up enough to complete home repairs and renovations. If you’ve found yourself in this situation or another situation where you need a large amount of cash, the answer may be a cash-out refinance.

With cash-out refinancing, you can accomplish your financial goals without relying on a second mortgage, personal loan or credit cards. A cash-out refinance can allow you to borrow from the equity you’ve built in your home and receive cash that can be used for just about anything like paying off high-interest debt, student loan debt or home renovations. At Assurance Financial, we have developed these cash-out refinance guidelines to help you determine if this is the right option for you.

Topics Covered

What Is a Cash-Out Refinance?
Uses for a Cash-Out Refinance
How Much Cash You Can Get With a Refinance
Benefits of Cash-Out Refinancing
Things to Consider With a Cash-Out Refinance
How a Cash-Out Refinance Works
Cash-Out Refinance FAQ

What Is a Cash-Out Refinance?

While your mortgage matures, you continually gain equity in your property. Your home’s equity is the amount of your home’s value that you have already paid off. Gaining equity can happen in two ways:

Your mortgage principal decreases as you pay your monthly payments. Each time you make a mortgage payment, you gain equity in your home.
The value of your home increases.

To use cash-out refinancing, you must have equity built up. With a cash-out refinance, you can take advantage of your home’s equity and use the cash in exchange for a larger mortgage. When you decide to pursue cash-out refinancing, you’ll borrow more than what you owe on your current mortgage and receive the difference in cash.

Unlike taking out a second mortgage, when you decide on a cash-out refinance, you won’t be adding another payment to your monthly bills. With a cash-out refinance, you’ll pay your old mortgage, and it’ll be replaced with a new mortgage.

For instance, if you purchase a home for $300,000 and you pay off $100,000, you still owe $200,000 on your home. However, you want to make $30,000 worth of renovations. With cash-out refinancing, you’ll take a portion of your home’s equity and add what you take out of the equity to your new mortgage’s principal. As a result, your new mortgage will be worth $230,000 – the $200,000 you owe plus the $30,000 for the renovations. After closing on the loan, you will receive the $30,000 in cash from your lender.

Uses for a Cash-Out Refinance

With cash-out refinancing, you can use the money from your home’s equity for anything you want. You can use it to meet various financial needs, such as:

Unexpected bills: If you get an unexpected car bill or medical bill, you can use your cash-out refinance to cover these unexpected expenses.
Home improvements: With cash-out refinancing, you can make home repairs and renovations like constructing an addition or building a new roof. By refinancing, you’ll free up cash each month to put toward these improvements.
Investing or saving: By refinancing, you’ll have more cash in your pocket that can be saved, invested or spent as you choose. If you want to take advantage of the market to build your retirement savings, for example, you can use your home’s equity to invest in your 401(K).
Family expenses: If you are planning to start a family, your kids are heading to college or you need to support an elderly family member or a relative with medical bills, then you may want to free up some extra cash each month.
Expenses related to the cost of living: When you purchased your home, you may have had a different cost of living due to a new job, a growing family or more expenses. Refinancing may help make your current financial reality more affordable.

How Much Cash You Can Get With a Refinance

A cash-out refinance also typically gives you access to a lower interest rate monthly than a credit card. Keep in mind that you may not be able to pull out all of your home’s equity, though you can pull out a large percentage. One exception is a VA loan, which allows you to take out the full amount of your home equity.

The amount you can take out generally depends on the value of your home. Before you can find out how much you qualify for in a cash-out refinance, your home may need to be appraised. The percentage you can take out depends on your circumstances and varies from lender to lender. Some lenders may allow you to take out all of your home equity depending on your credit score, for example, but others may not.

With cash-out refinancing, you’ll be withdrawing some of your home equity in one lump sum. After you complete a cash-out refinance, you also may pay more in interest since you’re increasing the amount of your loan.

Benefits of Cash-Out Refinancing

Homeowners choose a cash-out refinance for many reasons. If you determine that cash-out refinancing is the right option for you, you can enjoy the following benefits:

1. Renovations and Home Improvements

From a broken HVAC system to a leaky roof, upgrades are often needed at some point during homeownership. With cash-out refinancing, you can use the equity in your home to fund the renovations and home improvements needed. Whatever improvements you decide on, you may want to choose safe projects that future buyers will value.

2. Increased Credit Score

By using the cash from this type of refinancing, you may be able to increase your credit score. This is because a cash-out refinance can reduce your credit utilization, as you will now have a greater amount of credit available to you. Additionally, you can use your cash to pay off debt, further improving your credit utilization and positively impacting your credit score.

3. Debt Consolidation

Cash-out refinancing can provide you with the money needed to pay off outstanding debts. You can also transfer debts to a lower-interest payment. When you choose cash-out refinancing to pay off your high-interest credit cards, this can save you thousands in interest. Tapping the equity in your home may be less expensive than other forms of financing, such as credit cards or personal loans.

4. Lower Interest Rates

Getting a lower interest rate is one of the most common reasons homeowners choose to refinance. If you originally purchased your property when mortgage rates were higher, a cash out-refinance may offer you a lower interest rate.

Additionally, if you are suddenly hit with an unexpected bill, you may have to pay a higher interest rate, especially if you pay the bill with a home equity line of credit or a credit card. Credit cards typically have higher interest rates than mortgages. If your home’s equity is enough to cover an unexpected bill, using a cash-out refinance could save you thousands of dollars in interest.

5. Lower Monthly Payments

With cash-out refinancing, you may be able to enjoy lower monthly payments. When you have lower monthly payments, you can put more money toward other financial needs, such as a parent’s medical bills, your child’s college tuition or a special vacation.

Additionally, if something like your child’s student loan rate is higher than the rate for your new mortgage, then tapping your home’s equity to help pay for your child’s college education may be a smart financial move.

6. Tax Deductions

Additionally, you may be able to deduct your mortgage interest from your taxes with a cash-out refinance if you use the cash to purchase, build or significantly improve your home. Eligible projects for tax deductions may include:

Installation of a home security system.
Construction of a fence around your home.
Replacement of windows with storm windows.
Construction of a new bathroom or bedroom.
Addition of a central heating or air conditioning system.
Addition of a hot tub or swimming pool in your backyard.
Improvements to your roof that allow it to more effectively protect you and your belongings from the elements.

Home improvements should make your home more accessible or add value to it to qualify for tax deductions.

Things to Consider With a Cash-Out Refinance

Before you commit to cash-out refinancing, there are a few considerations to be made. The following are various aspects of a cash-out refinance for you to consider if you are interested in this option:

Leaving Equity in Your Home

Depending on your loan, you may need to leave a certain percentage of equity in your home. Conventional loans and FHA loans both require homeowners to leave some equity in their homes after cash-out refinancing. The only exception is for a VA loan for which you are not required to leave any equity following a cash-out refinance.

Cash Isn’t Immediately Accessible

As when you purchase a home, you may need to submit to appraisal and underwriting processes before the lender can approve your cash-out refinance. Even after closing, you have a few days to cancel the loan. You also won’t receive your cash immediately after closing. Instead, it will take a few days after closing before you receive your cash, so if you need money immediately, then cash-out refinancing may not be the best option for you.

At Assurance Financial, you can cancel your cash-out refinance for no cost within three days after closing. After these three days, your new loan will be funded, and your previous loan will be paid.

Closing Costs

Similarly to purchasing a home, you will pay closing costs if you refinance. Common closing costs include:

Appraisal fees
Lender origination fees
Credit report fees
Attorney fees

If you only need a small loan, review whether the closing costs may negate what you will be saving with a lower interest rate.

To avoid paying closing costs upfront, you may be able to roll them into your new mortgage. However, in this case, you may pay a higher interest rate. If you take out another 30-year mortgage or you refinance at a higher interest rate, you may pay more interest in total. Shop multiple lenders to make sure you are getting the most competitive terms and rates.

Changing Loan Terms

With cash-out refinancing, you will pay your original mortgage and then replace it with a new mortgage. As a result, since your new mortgage may take you a longer amount of time to pay off, your interest rate may change, and your monthly payment may be adjusted.

For example, if you have an adjustable-rate mortgage (ARM), you may want to replace it with a fixed-rate mortgage. Alternatively, you may want to switch to an ARM if you began with a fixed-rate mortgage. Whatever you choose, make sure you review your lender’s Closing Disclosure and analyze the new loan terms.

How a Cash-Out Refinance Works

The steps involved in the cash-out refinancing process are similar to the steps of purchasing a home. After determining that you meet the requirements for a cash-out refinance, you select a lender, submit your application, get approval and receive your check.

How to Qualify for a Cash-Out Refinance

Since lenders take on more risk with cash-out refinancing, it can be a bit harder to qualify. However, every lender sets their own requirements for determining which homeowners qualify for a cash-out refinance. The following are some of the common requirements for a cash-out refinance:

Equity in your home: If you want to pursue a cash-out refinance, you need to have equity in your home. Unless you are eligible for a VA refinance or another exception, you may not be able to cash out all of your home equity, so you may want to carefully review your current equity before committing to a refinance and ensure you can convert enough to meet your goals.
High or improved credit score: For a cash-out refinance, you typically need a score of at least 600. If you have a high credit score, you’re more likely to qualify for a cash-out refinance and more likely to get a lower interest rate.
Low credit utilization: If you are concerned about your credit score, you may want to review your credit utilization. Generally, it is recommended to keep your credit utilization below 30%. This means you use less than 30% of your total credit limit. If you have a credit limit of $3,000, this means spending less than $900.
Low debt-to-income ratio: Your debt-to-income (DTI) ratio refers to the total amount of your monthly payments and debts divided by your monthly income. If you pay a total of $2,000 per month in bills, for instance, and your total income per month is $5,000, your debt-to-income ratio is $2,000 divided by $5,000, which is 40%. Keeping your DTI ratio as low as possible can make you more likely to qualify for a cash-out refinance.

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Cash-Out Refinance Process

The following are the steps in the cash-out refinancing process:

Determine how much cash you need: After you determine that you meet the requirements to qualify for cash-out refinancing, you may want to do some math to determine how much you need for your goals. If you want to perform renovations or repairs, for example, you may want to get estimates from contractors. If you plan on consolidating your debt, you may want to review your bank and credit card statements to determine how much cash you’ll need to pay your debts.
Contact a lender: At Assurance Financial, we strive to make your refinancing process as fast and painless as possible. You can get pre-qualified in as little as 15 minutes and receive a no-obligation quote. We offer every type of mortgage loan available, and we can provide you with a credit check and a rate quote for free.
Complete your application: When you’re ready to pursue a cash-out refinance, you can start your application with us by speaking with one of our loan officers.
Sign disclosure forms: At Assurance Financial, we will send your initial disclosures to sign. You can also use this opportunity to ensure you’re achieving your goal and to verify your loan terms.
Provide documentation: After you sign your disclosures, you will provide your documentation, such as income and asset verification.
Submit loan conditions: Next, we will send your paperwork to an in-house underwriter who will inform us about any additional items that are needed.
Sign final paperwork: After you are approved for your cash-out refinance, you will sign your final paperwork with a notary.
Start making your payments: At this point, the refinancing process is complete. After the funding process, you’ll start making payments in 30 to 60 days on your new mortgage.

Getting Approved for a Cash-Out Refinance

After applying for cash-out refinancing, you will receive the decision from your lender about whether you have been approved for the refinance. Your lender may request financial documents, such as W-2s, pay stubs or bank statements as proof of your debt-to-income ratio. After you are approved, your lender will guide you through the next steps.

Cash-Out Refinance FAQ

Do you have additional questions or concerns about cash-out refinancing? The following are a few of the most frequently asked questions we receive about cash-out refinancing:

1. Can I refinance and roll auto loans into my mortgage?

Yes, any debt can be paid off with cash out of your home. You cannot necessarily “roll” the debt, but you will get an account, like a checkbook, and you can make it payable to anything you want.

2. If I have a home equity loan, can I consolidate that into my mortgage if I refinance? What about with HELOC?

Yes, a lot of homeowners choose to do this, and some choose to open another equity line.

3. Can I consolidate student loans into a mortgage?

Yes, you can consolidate your student loans into your mortgage. This is also referred to as debt reshuffling, and it can be particularly attractive to those who have sufficient home equity.

4. Do I need to pay taxes on a cash-out refinance?

Since the cash you take out through a cash-out refinance is a loan, it is not considered income by the IRS. As a result, you don’t need to report it when filing your taxes, though you may get a beneficial tax deduction if you do report it. To better understand your options, speak with a tax professional.

Learn More About Cash-Out Refinancing From Assurance Financial

Are you ready to refinance? At Assurance Financial, we have been servicing loans to customers since 2001. When you choose to work with us, you can speak with one of our loan officers. Our loan officers are available across multiple states, and they have the expertise and knowledge needed to guide your cash-out refinancing and find the best deal available to you.

We will aim to find you a competitive rate or a deal that lets you draw on your equity. Contact us at Assurance Financial to learn more about cash-out refi requirements or apply for a new loan today.

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1. Don’t Deposit Large Sums of Cash Into Your Bank Account

2. Don’t Change Your Bank Account

3. Don’t Make Any Large Purchases

4. Don’t Change Jobs or How You Receive Payments

5. Don’t Co-Sign on Another Person’s Loan

6. Don’t Start Applying for New Credit

7. Don’t Close Your Credit Accounts

8. Don’t Miss Your Payments

Secure a Mortgage With Assurance Financial

Should I Pay Off My Mortgage Before Selling My House?

1. Higher or More Frequent Payments

2. Refinancing

What Happens to My Mortgage When I Sell My House?

1. Traditional Home Sale

2. Short Sale

Selling Your Current Home Before Buying Another

Pros of Selling First

Cons of Selling First

Buying a New Home Before Selling Your Current One

1. Home Sale Contingency

2. Bridge Loan

3. Two Mortgages

How to Get a Mortgage on a New Home

1. Save for a Down Payment

2. Explore Mortgage Options

3. Complete an Application

4. Wait for Processing and Underwriting

5. Head to Closing

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Table of Contents

What Is a Mortgage?

What Mortgage Do I Need? The Best Type of Mortgage to Get

1. Conventional Conforming

2. Conventional Non-Conforming

3. FHA

4. VA

5. USDA

What Are Fixed-Rate Mortgages?

What Are Adjustable-Rate Mortgages?

Other Mortgage Options

1. Construction Loan

2. Second Mortgage

Programs to Help You Get a Mortgage

Apply for a Mortgage With Assurance Financial Today

Table of Contents

What Is a Credit History?

How Do Lenders Use Your Credit History?

How Important Is a Credit Score?

What Is a Good Credit Score for a Home Loan?

How Does Your Credit Affect Your Interest Rates?

What Happens to Your Credit After You’re Approved for a Loan?

Other Factors to Consider When Buying a Home

How to Help Improve Your Credit Score

Apply for a Home Loan With Assurance Financial Today

Table of Contents

How You Can Prepare for Closing Day

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1. Pack up Your Home

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2. Review Your Disclosures

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3. Clean Your Home

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4. Leave a Blank Canvas

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5. Handle Utility Cancellations

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Final Steps to the Closing Process

1. Sign Legal Documents

2. Pay Closing Costs

3. Remove Remaining Loans

4. Transfer the Title

5. Receive Your Sales Proceeds

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What Should You Bring?

1. Necessary Documents

2. Photo Identification

3. Payment

4. Keys

5. A Lawyer