Author: Ryan Hillard
Founder & Managing Broker
The Definitive Guide to PMI Removal
Are you tired of paying for private mortgage insurance (PMI) and looking for ways to remove it from your mortgage? Look no further. This definitive guide covers everything you need to know about PMI removal, from understanding its impact on your mortgage to exploring different strategies and alternatives to eliminate it. Buckle up and get ready to save money and increase your home equity. For more detailed information, don’t forget to download our quick-read info sheet on this topic!
Key Takeaways
- Understand PMI and its impact on a mortgage.
- Explore the different types of mortgage insurance available, as well as strategies for PMI removal.
- Consider legal rights & responsibilities, costs & benefits, and alternatives to PMI when navigating the process.
Understanding PMI and Its Impact on Your Mortgage
Private Mortgage Insurance (PMI) is an insurance policy that protects mortgage lenders in case a borrower defaults on their loan repayments. While it might seem like an insignificant detail, PMI can have a substantial impact on your mortgage payments. The cost of PMI varies and is based on a number of factors including the number of borrowers, property type, credit score, and loan amount. It can also change based on the type of program you’re looking at. For the purposes of this article we will be referring to conventional loans.
The good news is that you can get rid of PMI once you reach a certain level of equity in your home. As you continually reduce your mortgage balance and your home value appreciates, you will have multiple avenues for eliminating PMI. This could mean significant savings and lower monthly mortgage payments for you.
The Different Types of Mortgage Insurance
Mortgage insurance comes in three main forms.
- Borrower paid mortgage insurance monthly (BPMI): The borrower is responsible for the payment of premiums on a monthly basis as part of their mortgage payment. This is the most common.
- Lender-paid mortgage insurance (LPMI): The lender assumes the responsibility of the PMI premium, often incorporating the cost into the mortgage through a higher interest rate or a larger loan amount.
- Borrower paid single premium (SP): The borrower can buy out the mortgage insurance upfront with an additional cost payable at closing.
Understanding your specific type of mortgage insurance is key, as it directly influences your PMI removal process. While BPMI can be removed, LPMI is already part of the agreed upon interest rate and won’t change. Single premium will have already been bought out and therefore there is no mortgage insurance to remove.
Key Factors Affecting PMI Cancellation
The journey to PMI cancellation involves understanding several key factors, such as:
- The loan-to-value (LTV) ratio: the ratio of the outstanding balance of the mortgage’s principal to the appraised value of the home.
- Payment history: ensuring that you are current on your payments.
- Home value: cancellation can depend on either the original home value or a new, appraised value depending on the option(s) available.
You can request PMI cancellation once your LTV ratio reaches 80%. Lenders will typically want to see that you’ve made 1-2 years of payments on your mortgage before considering this request.
Alongside the LTV ratio, your payment history also significantly impacts the PMI cancellation. To be eligible for PMI cancellation, borrowers must have a record of making their mortgage payments on time and must not have missed any payments. By staying on top of these factors, you can ensure a smoother journey towards PMI removal and enjoy the financial benefits that come with it.
Strategies for PMI Removal
Now that you have a grasp on the factors affecting PMI cancellation, let’s explore the four main strategies for PMI removal:
- Reaching the automatic cancellation threshold
- Requesting early PMI cancellation
- Accelerating mortgage payments
- Refinancing.
Each strategy presents unique benefits and drawbacks; hence understanding the most suitable one for your situation is imperative.
Reach the Automatic Cancellation Threshold
Automatic cancellation occurs when your loan balance reaches 78% of the original value of your home or at the halfway point of your loan term. A 30-year mortgage is split into two parts: one half spans 15 years, the other half the remaining 15 years. At the end of the first 15 years, the borrower reaches the halfway point.
By being proactive about automatic PMI cancellation, you can ascertain the exact month in which your PMI should no longer be included in your mortgage payment, and you can take the necessary steps to cancel PMI.
Maintaining a record of your mortgage payments and staying informed about your loan balance is vital for reaching the automatic cancellation threshold. Regularly reviewing your mortgage statement can help you monitor your progress and ensure you’re on the right track towards automatic PMI cancellation.
Request Early PMI Cancellation
If you’re eager to get rid of PMI sooner, you can request early cancellation once your LTV ratio reaches 80% based on your home’s current value. However, early cancellation comes with certain requirements, such as demonstrating an acceptable payment history and not having a second mortgage, like a home equity loan or line of credit.
Before investing in a new appraisal for early PMI cancellation, consult with your lender to understand their specific process and requirements. Keep in mind that they may require an appraisal and may decline your request if your home’s value has decreased since its purchase.
Accelerate Mortgage Payments
Accelerating your mortgage payments can help you reach the required equity threshold faster, either through extra payments or biweekly payments. To figure out the mortgage balance required to get PMI cancellation eligibility, you have to multiply the amount paid for the original home purchase price by 0.80. This result will give you a good estimate of the final mortgage balance eligible for PMI cancellation.
The process of reaching the equity threshold and reducing your loan balance can be delayed by making additional mortgage payments or increasing your monthly payment amount. This strategy not only helps you eliminate PMI, but also reduces your overall interest costs and shortens the term of your mortgage.
Refinance Your Mortgage
Refinancing can be a powerful tool for eliminating PMI, as it allows you to obtain a new loan without PMI or with more favorable terms, such as a lower interest rate if rates have gone down. The overall loan-to-value would be based on a new appraisal and would need to be less than or equal to 80% in order to remove mortgage insurance.
Another option, besides a conventional loan or an FHA loan, is a piggyback loan, which involves obtaining a second loan for 10% of the home value in addition to a first mortgage for 80% of the home value, thus allowing you to avoid PMI.
Note that refinancing does have its own costs, such as closing costs and prepaids/escrows so a careful evaluation of the benefits and drawbacks is necessary before proceeding.
Increasing Home Value to Facilitate PMI Removal
Homeowners can increase their home’s value through renovations or expansions, which can help them reach the required equity threshold for PMI removal. Some ways to increase home value include updating hardware, creating usable outdoor spaces, and modernizing the home’s appearance.
Increasing your home’s value may enable you to achieve the necessary equity amount for PMI elimination earlier, allowing you to enjoy the financial benefits sooner. However, it’s essential to carefully consider the costs and potential return on investment of any home improvement projects before proceeding.
Legal Rights and Responsibilities Regarding PMI
The Homeowners Protection Act outlines borrowers’ rights and lenders’ responsibilities regarding PMI cancellation and disclosure, including the use of a PMI disclosure form. According to the Act, lenders are legally required to cancel mortgage insurance upon the borrower fulfilling the criteria, such as reaching the required LTV ratio.
Being well-versed in your rights and responsibilities under the Homeowners Protection Act can strengthen your position on the path to PMI removal. By staying informed about your legal rights, you can ensure a smoother process and hold your lender accountable for their obligations.
The Costs and Benefits of PMI Removal
PMI removal can lead to significant cost savings, as it reduces your mortgage payments and eliminates the need to pay for mortgage insurance premiums. The savings can be substantial, especially if your PMI cost is on the higher end of the typical range.
Considering these financial benefits, a careful evaluation of the costs and potential savings of PMI removal is vital before settling on the most suitable strategy for your circumstances.
Navigating the PMI Removal Process
Successfully navigating the PMI removal process requires understanding your equity position, communicating with your lender, and potentially obtaining a new appraisal. To comprehend your equity position, subtract the amount you owe on your mortgage from the current market value of your home.
When communicating with your lender regarding PMI removal, inquire about any fees related to the process and the documents that need to be submitted. If your lender requires a new appraisal, reach out to a certified appraiser and discuss any fees and necessary documents. If you are refinancing, then you may also want to consider the breakeven point, or how long it would take to recover the additional costs based on the monthly savings you should be realizing.
Staying proactive and informed will aid in successfully navigating the PMI removal process, enabling you to enjoy its financial benefits.
Alternatives to PMI: No-PMI Mortgages and Piggyback Loans
For those looking to avoid PMI altogether or eliminate it from their current mortgage, there are alternatives worth considering.
- No-PMI mortgages: If you qualify for a VA loan or USDA loan, those programs do not require mortgage insurance and typically have lower rates.
- Piggyback loans: This involves taking out a second mortgage to cover part of the down payment, thus avoiding the need for PMI.
- Lender-paid PMI (LPMI): In this option, the lender assumes the responsibility of the PMI premium, but this may result in a higher interest rate.
Piggyback loans, also known as 80-10-10 loans, involve obtaining a second loan for 10% of the home value, in addition to a first mortgage for 80% of the home value, which allows borrowers to avoid PMI. Weighing the pros and cons and consulting a mortgage professional before opting for one of these alternatives is critical to identifying the best option for your circumstances.
Summary
In conclusion, PMI removal can lead to significant cost savings and increased home equity. Understanding the different types of mortgage insurance, the factors affecting PMI cancellation, and the various strategies for PMI removal can empower you in your journey toward a mortgage free of insurance premiums. By staying informed, proactive, and weighing the costs and benefits of each strategy, you can make the best decision for your financial future and enjoy the rewards that come with PMI removal.
Frequently Asked Questions
Do I have to wait two years to remove PMI?
You may need to wait at least 12 months before being able to get the PMI removed. It is best to consult with your lender to see what they would require.
In any event, the lender should automatically dissolve it when you have 22% equity in the home.
What are the requirements to remove PMI?
To remove PMI, you must have owned your home for at least two years, have a history of making all mortgage payments on time, and meet the required loan to value.
You can also request that it be removed once you have 20% equity in your home.
How much does it cost to remove PMI?
PMI is automatically canceled by law, at no cost to you, when the loan balance is at or below 78% of the home’s value or once you are at the midway point of your mortgage. If you are looking to cancel it early, the fees may vary by lender and could include the cost of a new appraisal.
What is the difference between BPMI, LPMI, and SP?
BPMI is borrower-paid mortgage insurance which includes it as a monthly payment on your mortgage statement. LPMI is lender-paid mortgage insurance and rolls the mortgage insurance into the rate. SP is a single premium that you can pay upfront at closing so you do not have a monthly mortgage insurance payment.
What are the advantages of accelerating my mortgage payments?
Accelerating your mortgage payments can help reduce your overall interest costs, shorten the term of your mortgage and reach the required equity threshold faster.
VA Loan Colorado – Everything You Need to Know
Are you a military member, veteran, or family member looking for the perfect home in the beautiful state of Colorado? VA home loans offer incredible benefits and opportunities, making your dream of homeownership a reality. This comprehensive guide will walk you through everything you need to know. Let’s dive in!
Short Summary
- VA Loans in Colorado offer no down payment, no mortgage insurance & more lenient credit requirements.
- Obtaining a VA loan involves finding an approved lender and understanding closing costs & the funding fee.
- There are no loan limits on VA loans over $144,000 for eligible veterans, service members and survivors who have full entitlement.
Understanding VA Loans in Colorado
VA loans in Colorado provide a cost-effective solution to home buying for active service members, military veterans, and their families. They are an excellent option for those looking to purchase a new home. These government-backed mortgages provide flexible and affordable terms, making homeownership more accessible for qualifying borrowers.
So what exactly is a VA loan, and how can it help you achieve your dream of owning a home in Colorado?
What is a VA Loan?
A VA loan is a government-backed mortgage option available to veterans, service members, and surviving spouses. It allows them to finance a home with no down payment, no mortgage insurance, and lenient credit requirements. This means you can secure a home loan without having to save up a large down payment or worry about additional mortgage insurance costs.
VA loans are issued by lenders, such as mortgage companies, mortgage brokers, and some banks, and are guaranteed by the United States Department of Veterans Affairs (VA).
Benefits of VA Loans in Colorado
One of the most significant benefits of VA loans in Colorado is the ability to purchase a home with no down payment. Additionally, VA loans offer lower interest rates compared to conventional loans, which can save you thousands of dollars over the life of your mortgage.
Furthermore, VA loans do not require private mortgage insurance (PMI) or mortgage insurance premiums, which can be a substantial monthly expense for homeowners with conventional or FHA loans. These benefits make VA loans an attractive option for eligible military members, veterans, and their families.
Eligibility for Colorado VA Loans
In order to qualify for a VA loan in Colorado, you’ll need to meet the Department of Veteran Affairs’ qualifications and those of the mortgage lender. This includes obtaining a Certificate of Eligibility (COE), which verifies your military service and eligibility for a VA loan, as well as meeting specific credit score and income requirements set forth by the lender.
It’s important to note that even if you have a bankruptcy or foreclosure in your financial past, you may still be eligible for VA financing.
Certificate of Eligibility
A Certificate of Eligibility (COE) is a document that proves your eligibility for a VA loan based on your military service. Veterans, active military personnel, and members of the national guard are eligible for a Certificate of Eligibility (COE). Additionally, families of service members may also be approved to receive this document. To obtain a COE, you can submit evidence of your service or your spouse’s service to the VA by mail or through the VA’s eBenefits portal. Mortgage lenders provide a convenient way to apply for a COE. Get in touch with one today to get the process started.
Proof of service typically includes documents such as discharge or separation papers (DD 214, Certificate of Release or Discharge from Active Duty), history of retirement benefits, or signed statements of service. These documents help validate proof of service.
Multiple VA Loans
Did you know that you may be eligible for multiple VA loans under certain circumstances? If you have sold a previous VA-financed home or have paid off a previous VA loan, you may qualify for another VA loan. Having two active VA home loans at the same time is a one-time allowance, with the only exception being mandatory assignments that require purchasing a home in the new location.
This allows you to take advantage of the benefits of VA loans even if you have already used your VA loan benefits in the past.
VA Loan Process in Colorado
Securing a VA loan in Colorado involves several steps, including finding a VA-approved lender, obtaining a Certificate of Eligibility, and gathering necessary documentation such as employment and tax information, as well as bank statements. Additionally, the VA loan process requires a VA appraisal and pest inspection (if determined by the appraisal), as well as understanding and managing closing costs and the VA funding fee. While the conventional loan process may differ, it’s essential to be well-informed about the specific requirements for a VA loan.
Let’s take a closer look at each of these steps.
Finding a VA-Approved Lender
Finding a VA-approved lender is critical for a smooth VA loan process, as they are familiar with the specific requirements and guidelines of VA loans in Colorado. Examples of VA-approved lenders in Colorado can be found with an online search but it may be more beneficial to obtain a loan through a licensed mortgage broker such as Forward Mortgage Group.
You can also find additional resources for locating VA-approved lenders in Colorado on the official VA website. Make sure to research and compare lenders to find the best fit for your needs.
VA Appraisal and Pest Inspection
A VA appraisal is required to ensure that the property you’re purchasing meets VA guidelines and is free of any major defects or infestations. A pest inspection is only required in Colorado if the VA appraiser determines the property has an active infestation or a high probability of developing one, and is typically related to termites. The VA appraisal process in Colorado is similar to other states, with VA fee appraisers determining the reasonable or market value of a property for VA home loan guaranty purposes. This appraisal can take up to 10 business days to complete.
Additionally, the pest inspection must be completed by a VA-approved pest inspector who is licensed and certified in the state of Colorado.
Closing Costs and VA Funding Fee
Closing costs and VA funding fees are additional expenses associated with obtaining a VA loan. Closing costs typically include appraisal fees, title fees, and other administrative costs. The VA funding fee is a one-time fee paid to the VA to help cover the cost of the VA loan program. This fee is calculated based on the loan amount, the type of loan, and the borrower’s military status.
It’s important to note that some of these costs may be covered by the seller or lender, as the seller can pay up to 4% of the closing costs.
VA Loan Limits and Entitlements in Colorado
VA loan limits and entitlements in Colorado play a crucial role in determining the maximum loan amount you can obtain without a down payment. These limits, also known as the VA loan limit, vary based on the cost of living within each county and depend on your entitlement status.
Let’s explore how these loan limits and entitlements are determined and how they can affect your home-buying process.
County-Specific Loan Limits
In Colorado, county-specific loan limits determine the maximum amount a borrower can obtain without a down payment, which may vary based on remaining entitlement and the cost of living in each county. However, if there is full entitlement, then VA loan limits do not apply.
It’s important to research the available entitlement and loan limits in the county where you plan to purchase a home to ensure that you’re aware of any down payment requirements.
Zero Down Payment Options
VA loans in Colorado offer zero down payment options for qualified borrowers who are buying primary residences. VA loans offer many advantages, such as lower interest rates and no requirements for mortgage insurance. This is one of its biggest advantages.
To be eligible for a zero down payment VA loan, borrowers must meet the VA’s eligibility requirements, which include having a valid Certificate of Eligibility, being an active duty service member, veteran, or surviving spouse and having a good credit score. This allows eligible borrowers to purchase a home without the need for a large upfront payment, making homeownership more accessible.
Types of VA Mortgage Programs in Colorado
Beyond the standard VA home loan, there are several types of VA mortgage programs available in Colorado. These include VA direct loans, cash-out refinance loans, interest rate reduction refinance loans, and home loans for regular purchases.
Among the most popular options are fixed-rate and adjustable-rate VA loans. Let’s take a closer look at these two types of VA mortgage programs.
Fixed-Rate VA Loans
Fixed-rate VA loans in Colorado are mortgages that have a set interest rate for the life of the loan, typically with terms of 10, 15, 20, 25, or 30 years. The primary advantage of a fixed-rate VA loan is that it provides a consistent interest rate throughout the life of the loan, giving stability and predictability for borrowers.
To be eligible for a fixed-rate VA loan, borrowers must meet the VA’s eligibility requirements, such as having served in the military, being a veteran, or being a surviving spouse of a veteran.
Adjustable-Rate VA Loans
Adjustable-rate VA loans are another option for borrowers in Colorado. These loans have competitive interest rates that are fixed for the initial period and then adjusted annually or as specified thereafter. This means that the interest rate may change over time, offering potential savings for borrowers who plan to sell or refinance their home in the near future.
The eligibility requirements for adjustable-rate VA loans are similar to those for fixed-rate VA loans, with borrowers needing to meet the VA’s eligibility criteria and obtain a Certificate of Eligibility.
Colorado VA Home Buying Tips
Navigating the Colorado VA home buying process can be challenging, but with the right knowledge and preparation, you can successfully achieve your dream of homeownership. Understanding the VA home loan process is crucial to ensure a smooth experience. Here are some tips to help you through the process. First, consider the total cost of the loan, including closing costs, the VA funding fee, and any other fees associated with the loan. This will help you create a realistic budget and ensure you’re financially prepared for your home purchase.
In addition to budget considerations, it’s crucial to research neighborhoods and find the perfect location for your new home. Take the time to visit different areas, research school districts, and consider factors such as commute times and local amenities. Working with experienced real estate professionals can greatly assist in this process and make your home buying journey smoother and more enjoyable. They can help you find the perfect property, negotiate the best price, and guide you through the necessary paperwork.
Summary
VA loans in Colorado offer incredible benefits and opportunities for military members, veterans, and their families. From no down payment options to lower interest rates and flexible loan terms, VA loans make homeownership more accessible and affordable. By understanding the VA loan process, eligibility requirements, loan limits, and entitlements, you can successfully navigate the Colorado VA home buying process and achieve your dream of owning a home. With the right knowledge, preparation, and professional guidance, your dream of homeownership in Colorado can become a reality!
Frequently Asked Questions
How to qualify for VA loan Colorado?
Be current active military with 90 consecutive days of service, an honorably discharged Veteran, a member of the National Guard, a Reserve member, an eligible surviving spouse, or granted Veteran status through civilian employment to qualify for a VA Loan in Colorado. For Veterans, National Guard and Reserve members the minimum active-duty service requirements will depend on when you served.
What are the benefits of a VA home loan in Colorado?
VA Home Loans in Colorado offer significant benefits to Veterans, such as zero down payment, lower interest rates, no mortgage insurance requirements and the VA guaranteeing a portion of the loan amount.
These favorable conditions make VA loans an attractive option for eligible borrowers.
What credit score is needed for a VA loan?
While the VA does not have a minimum credit score requirement, some lenders will have their own overlays and it can therefore vary by lender.
What is a Certificate of Eligibility, and how can I obtain one?
A Certificate of Eligibility is a document that proves your eligibility for a VA loan based on your military service. You can easily obtain one by submitting proof of service to the VA or applying through a VA-approved lender.
Can I have multiple VA loans at the same time?
Yes, you may be eligible for multiple VA loans under certain circumstances.
An Introduction to Forward Mortgage Group
Welcome to Forward Mortgage Group: Our Commitment to Transparency, Financial Education, and Technology
Ryan Hillard: Hi, I’m Ryan Hillard with Ford Mortgage Group. You’re going to be seeing a lot of videos come out on different topics related to mortgages, the mortgage process, and the home-buying process in general. But before I get into those, I wanted to provide you with a little bit of an overview on what the Forward Mortgage Group is all about and why I started it. There’s a lot of information and a lot of clutter in the mortgage space that typically leads to a pretty clunky, cumbersome, and a very frustrating process. For that reason, the Forward Mortgage Group is based on three underlying principles and beliefs:
- Transparency
- Financial Education
- Utilizing Technology
Transparency
Ryan Hillard: Starting with transparency, we will always be upfront about what we’re doing, that there are no hidden fees, and help you understand exactly what you’re looking at as we go through the process.
Financial Education
Ryan Hillard: On the financial education front, I believe that personal financial education should be taught at the high school level. Not everyone will go on to a four-year university, and even if you do, or if you did, not everyone will be in business school. And even for those of you that did go on to business school, I can tell you that specific items related to personal financial education are not taught there. The general concepts are, but not the specifics. I was a double major in finance and marketing. I also have a master’s in finance, and I can tell you that nowhere along the way in any of those classes did we talk about personal financial management. I’m talking about things like:
- managing your credit score
- how to responsibly use credit or credit cards
- setting up savings and retirement accounts
- Getting an auto loan
- how to get a home loan or a mortgage.
Technology
Ryan Hillard: When it comes to technology, we want to make sure that this is as easy and streamlined for you as possible. From getting started online, using software programs to help explain mortgage scenarios, and moving through closing, we’re always looking to make this process as clear and simple as possible.
Ryan Hillard: After talking with a lot of my clients, another reason for these videos is that I believe people do not start the mortgage process for a few different reasons. First, they simply just don’t know where to start. Next, once they’ve decided to dig in and begin doing some research, they realize there’s so much information out there that they get overwhelmed and just shelve it for a later date. Finally, they still believe in old myths, like needing 20% to put down that are no longer applicable. We’re going to cover all of these things and more to help make sure that you have a great experience, come out with a better understanding of the mortgage process and have a clear mortgage plan going forward.
Ryan Hillard: If there are any topics that you’d like me to discuss, if there were anything that went wrong in your process, or have questions about anything at all, please reach out to me at 720-201-7261. You can email me. I am me. Leave a comment. Either way, I look forward to hearing from you.
Pre-Qualification vs. Pre-Approval: What’s the Difference?
Pre-Qualification vs. Pre-Approval: Understanding the Crucial Difference
Transcript
Ryan Hillard: Hi, this is Ryan Hiller with the Ford Mortgage Group, and today I want to talk about the difference between a prequalification and a preapproval and why they’re important. What often happens is that these two terms are used very interchangeably, and it depends on who you’re talking to. Someone can mean the same thing by them, but it’s important to create a distinction. When someone begins the process, they’re going to reach out, and they’re going to say, “Our agent told us that we need to talk to you in order to get pre-qualified or pre-approved.”
Pre-Qualification
When you fill out an application, either online or in person, and pull your credit.
Ryan Hillard: What happens is that if we’re pre-qualifying someone, then what they are doing is they’re filling out the application, which you can do online, and we’re pulling their credit. That’s it. We’re not going the extra step further to look at any documents or verify anything, and we’re kind of taking their word for it to say, okay, this is what it looks like right now. Everything based on the information that you’ve given us in the application as you presented it looks good.
Pre-Qualifications are a good start but is not what you need for a smooth transaction.
Ryan Hillard: While that’s a good place to begin, it’s not the place that we need to be, especially in a very competitive market, in order to ensure a smooth transaction, which is always going to be our goal.
Pre-Approval
After submitting an application, we will send a request for a list of documents needed to verify the information on the application.
Ryan Hillard: To get pre-approved, after we have the application, we’re going to then send a request for the documents to say, these are the items that you need so we can collect those, we can go through them, and we can confirm and validate the information that is in the loan application. An example of the difference may be something like someone said they had a certain amount in their bank account, and then we look at the bank account, and it either has more or less money.
Ryan Hillard: Obviously, we need enough to cover the down payment and closing costs, so that’s what we’re looking for. The bigger issue typically comes when we’re looking at income because examples of where this may get misconstrued and unintentionally, with no ill intent, but the difference would be where if someone puts in their net income, for example, and what I mean by that is they’re putting in their income after taxes and deductions and what we do is look at their gross income, so, before those items, if they are a W2 employee, for example. Other or bigger examples come when someone is self-employed, and we need to go through and look at tax returns in different documents for ad backs or deductions.
If someone puts in their NET income (after taxes) on the application, we would make sure to look at their gross income.
Ryan Hillard: Also, when there’s variable income, things like commissions, bonuses, overtime, so on and so forth, if the employee has not been receiving these items long enough or this type of income long enough, then we may not be able to use it, and it could not be eligible income. It’s important for us as a loan officer to take a look at it, understand the guidelines, go through, make any corrections that may need to be made in order to verify and validate the income. Now, if there is a trickier income situation, we do have the ability to do a full TBD underwrite and send this off to an underwriter, who can further confirm the income just to make sure that everybody is on the same page.
If the employee has not been receiving variable income (commission, bonuses, overtime, etc.) for a long period of time, it may not be used as eligible income.
Ryan Hillard: Our goal in doing this is always going to be to ensure a smooth transaction and that there are no hiccups or any issues with the underwriting process once we’re under contract. In order to get under contract, what happens is that when we present the offer, I’m going to pick up the phone, and I’m going to call the listing agent, and I’m going to have a conversation with them about the application and the client. I’m not giving away any confidential information, so there’s no concern about that, but what I’m saying is that we’ve looked at their income, we have the documents, so on and so forth. We’ve been able to confirm everything that is in there because what they want to know is that there aren’t going to be any issues with the underwriting process of this file once we are under contract. They know that everyone is going to be able to deliver as expected, and we’re going to be able to go through, have a great process, have a smooth transaction, and everybody will be happy at the end of the day.
I hope that’s helpful, but if you have any other questions, please feel free to reach out to me at 720-201-7261. You can email me at ryan@fwdmortgagegroup.com. Or you can go to my website at www.forwardmortgagegroup.com and get all of my contact information there. Have a great day.
5 Things to Consider Before You Refinance
Refinancing Your Mortgage: 5 Essential Considerations for a Smart Decision
Transcript
Ryan Hillard: Hi, this is Ryan Hilliard with Forward Mortgage Group, and I’m here today to talk about knowing if now is a good time for you to refinance your mortgage. Most people think about refinancing to lower their interest rate on their existing loan, and that is always something that’s important to take a look at. Before you jump into refinancing, there are a few other things that I think that you should look at as well. In this video, I’m going to talk about five things that you should consider if you’re thinking about refinancing your home loan.
Can You Lower Your Interest Rate?
Ryan Hillard: With that said, let’s jump into number one, and the number one reason that people think about refinancing is to lower their interest rate and monthly payment. Cutting your interest rate can definitely help you pay less interest over the life of a new loan compared to the remaining term of your original loan. But, even with the lower monthly mortgage payment, You could still be paying more interest by stretching out the new loan term. One of the first things that I’ll do is help you calculate how much interest you would be paying on both loans and then compare the two amounts. If it makes sense for you to refinance, especially if you’re going to be lowering your monthly payment, then it may be a good time for us to move forward. If you don’t know what your current interest rate is, you can find it by looking at your monthly mortgage statement. While this is where most people will stop, I want to help you take this a next step further and see what other options you have with the monthly savings. For example, we can develop strategies to make an additional principal payment to your monthly mortgage. And this would accelerate the total repayment and help you save on interest. You can apply it to other debt that may have a higher interest rate, like credit cards, or we can also work with your financial advisor to discuss investment options like setting up a retirement account. If you don’t already have a financial advisor, that’s not a problem. Just let me know, and I’m happy to make an introduction for you.
How Long Will You Be in Your Current Home?
Ryan Hillard: Let’s move on to number two, which is how long will you be in your current home? Even if you’re able to take advantage of lowering your interest rate and your monthly payment, refinancing still may not make sense if you’re only going to be in your home for the next year or two. It’s going to take a little bit of time to recover the costs associated with refinancing your home, and if you plan on moving soon, then you won’t have the time to recover those costs. Something else to consider is if you have, let’s say, for example, you have 21 years to pay off your existing mortgage, and you get a new 30-year mortgage, you’ve just added nine more years of paying on that before it’s paid off. In this case, you may want to consider a loan for less than 30 years, like a 25, a 20, or even a 15-year mortgage. This may be something to consider, especially if you can lower your monthly payment or even keep the payment the same but still pay off the term faster. This could help you become debt free sooner, maybe get you traveling, retiring, or meet what other financial goals that you have. These are all important things to consider when you’re financing your home and something that I can work with you on to help create a plan.
How Much Home Equity Do You Have?
Ryan Hillard: Next up, number three, which is how much equity do you have here? We’ve been very fortunate over the past few years with home values increasing in many areas, and this is great for you because you may have built up enough equity in your home to take advantage of different refinance options. Your equity is the portion of the home that you own, and it’s calculated by subtracting the mortgage balance, that’s what you owe on your current mortgage, from the home’s market value. If you don’t know the home’s market value, that’s okay. I can help you get an estimate of that by using some of the different tools that I have access to.
What Are Your Closing Costs?
Ryan Hillard: Let’s move on to number four, which is to know how much your closing costs are going to be. Once we’ve had time to sit down and chat about your refinancing goals, I’ll be able to give you an estimate of what your closing costs will be to refinance your home. Your closing costs are going to vary based on things like the interest rate and the loan amount, and then the closing costs will also generally include:
- credit fees
- appraisal fees
- points (which are an optional expense to lower the interest rate)
- insurance
- property taxes
- escrows
- title fees
- lender fees.
If you have enough equity in your home at the time of refinancing, you may choose to finance your closing costs and fees by adding them to the mortgage balance. By the way, don’t be fooled about any of the no-cost mortgage advertisements. There is no such a thing. It does not exist. No-cost mortgage does not mean that it costs nothing. In these cases, the mortgage is basically adding in the fees to the interest rate, so you end up with a higher interest rate than what you otherwise would have.
Can You Pull Out Equity to Consolidate Debt or Make Home Repairs?
Ryan Hillard: The fifth thing to consider when refinancing your home is your equity. Now we just talked about equity a little bit, but what we want to look at here is the possibility of taking out equity to consolidate debt, like credit cards or student loans, maybe buy that boat that you’ve been looking at. You could also think about eliminating mortgage insurance or taking cash out for home improvement projects, or even using it as a down payment on a new home.
Ryan Hillard: Whatever your reason to refinance, the most important thing to do is to work with a licensed mortgage professional like myself. I can help walk you through the steps and look at the options to be sure that the refinance does make sense and fits your goals, and if it doesn’t, I’m not afraid to tell you that. With all of that said, now may be the perfect time to refinance. Be sure to let me know of any questions that you have, anything that we haven’t discussed, and we can come up with a plan just for you.
Ryan Hillard: This is Ryan Hillard with the Forward Mortgage Group, and you can contact me at ryan@fwdmortgagegroup.com 720-201-7261 or my website at www.forwardmortgagegroup.com
5 Ways Junk Mail Pre-approvals Take Advantage of Consumers
Unraveling Junk Mail Pre-approvals: 5 Ways They Exploit Consumers
Transcript
Ryan Hillard: Are you receiving junk mail saying you’ve been pre-approved or pre-selected for a mortgage loan that maybe sounds too good to be true? If you are, you’re going to want to watch this because I’m going to go through five different reasons why the letter that we received in the mail is not good for most consumers.
Ryan Hillard: I’m Ryan Hillard with Ford Mortgage Group, and this is a letter that we got in the mail the other day. And it says, “Congratulations, you’ve been pre-approved for a loan amount up to $566,950,” which sounds great, at an interest rate of 2.75%. Now you really have my attention. As I first look at it, like most people would, you think that that sounds like a pretty attractive offer. If you’re out there thinking about purchasing a home, maybe you’re going to want to pursue this a little bit more.
The Letter is Meant for an FHA Loan so They Can Appeal to More People Even Though it’s Not the Best Program Based on the Terms Provided
Ryan Hillard: The first thing that I see when I look at this is that it’s for an FHA loan. Not that there’s anything wrong with FHA loans. We do a lot of them, but the problem with it is that it’s probably going to appeal to more people, and that’s why they put this out there rather than a conventional loan. With having this maybe more appealing, that they might be able to cast a little bit wider net. There’s a few reasons why they might do that. One of them is the debt-to-income ratio can sometimes go higher, although they cap that in this letter. Other reasons are that they can typically offer a better interest rate. FHA loans, with everything else being equal, we’ll almost always have a better rate than a conventional loan. This is an instance where. rate doesn’t always mean that it’s the best program for you, and you should explore other things rather than only the interest rate.
Rate Doesn’t Always Mean it’s the Best Program for Your Situation.
Ryan Hillard: As we get to the interest rate, we’re looking at this, and again, it was a rate of 2.75%, which, nothing wrong with that. I’ll take it. The problem that I have with this is that when we go out, and I take a look at where rates actually are or what rates we have available for an FHA loan with everything else equal in this letter, our rates aren’t in the upper twos, our rates are in the lower twos. And you might be saying, well, maybe there’s a difference in time between when they sent this letter and when you’re looking at rates and maybe rates have moved because they do change on a daily basis. And you’re right. They do change on a daily basis.
Ryan Hillard: The thing is that there has been a little bit of time since they sent this letter. And when I’m looking at rates today, but in that time, rates have moved up. You would think that the rates would be maybe a little bit more close, but their rate and the higher twos are rates in the lower twos, everything else equal shows that they’re already inflating this rate, which they’re going to be making more money on and charging a rate to the customer that doesn’t have the customer’s best interest in mind.
The Rate in the Letter is Worse Than Current Market Rates
Ryan Hillard: When we talk about not having the customer’s best interest in mind, we’re going to my third point, which is in order to get the rate that they’re offering. There is a cost. When you go to the fine print, it says that it is a charge of 0.25 points. That means 0.25% of the loan amount. And so when you do the math, it ends up being $1,417. In order to obtain what we’ve determined is an already worse rate, they’re still charging you an extra $1,400 in order to get that. That doesn’t sound like a good deal to me, and I know that it’s not a good deal for you or for most consumers. There’s no reason why you need to pay more to get less.
The Credit Score That the Letter Uses to Qualify Consumers is at 832, Which a Majority of Consumers Do Not Have
Ryan Hillard: Moving ahead to the fourth point is credit. Going through the fine print again on this, and that’s where everything is, you’re going to want to always read the details of these types of things. The credit score that they’re using is a score of 832. Now, I don’t need to ask anybody to raise their hand to show me or tell me who has a 832 credit score. If you do, and if you want to tell me that you do, you can leave it in the comments below. You can private message me if you don’t want that public. I’d be curious to know who has an 832 credit score and I’m talking about a FICO score, and there’s a difference between a FICO score and something that you might receive from Credit Karma or if you’re looking at the credit score that your banker or credit card gives you where we as mortgage lenders will always use the FICO scoring model and in doing so it is extremely rare to see an 832 credit score where I’ve not seen it once in the entire time I’ve been doing this. So they’re using a score that is an unrealistic level, and that’s one of the ways that they get away with re-trading on an offer like this, again, not having your best interest in mind.
The Mortgage Insurance of this FHA Loan is More Than You Need to Pay
Ryan Hillard: Finally, that brings us to our fifth point, which is mortgage insurance. And you’re like, well, wait a minute, you didn’t say anything about mortgage insurance. When we look at an FHA loan, we know that there’s going to be mortgage insurance, especially because they say that this offer was written with 5% down. In this scenario, if we’re putting 5% down, we are always going to have mortgage insurance. And that’s just the way it is. If we go back to taking a look at our credit score of 832, what we would want to do is say, well, what would our mortgage insurance look like with a conventional loan? Is that better or worse for us than a FHA loan? And I can tell you without having to do anything, without having to look at the math or any of that, that you’re going to have a lower mortgage insurance cost with a conventional loan than what you will with an FHA loan.
Ryan Hillard: When we go through all of these things when we look at the program, and we look at the rate when we know that they’re charging you extra money to obtain that rate when they’re using an unrealistic credit score, and we look at the mortgage insurance that they’re going to be charging you. It’s not worth the paper that it’s written on. If you have this, if you are getting these types of offers in the mail, I would love for you to send it into me because what I will do that they are not going to do is show you with specific figures specific to your situation, which program is going to be the best for you.
Ryan Hillard: Is an FHA loan going to be best for you, or is it a conventional loan? And rather than you calling in and them saying, yep, great, we want you to do this loan because frankly, they’re. It’s not their decision. It’s not my decision. It’s your decision. And all I want to do is empower you to make the best decision for yourself.
Ryan Hillard: I’m Ryan Hiller with the Ford Mortgage Group, and look forward to helping you.
Client Success Story – 3 Key Takeaways
Achieving Homebuying Success: Key Strategies from a Client’s Journey
Transcript
Ryan Hillard: I recently had a closing and this closing was made possible by three things that the clients did correctly. I want to share a little bit of their success story and some of the takeaways from that, that could be helpful for you as well. Just to give a little bit of brief background, I have clients that they were past clients, and they didn’t need to be because we could have worked the same way with anybody, but they knew that they wanted to buy a new home for a number of reasons, and also keep the home that they were departing, but they didn’t necessarily have the income to hold on to both at the same time and make the debt to income ratio work. There was a little bit of preparation that was necessary. In doing so, one of the first things that I would just say is beneficial for everyone is they reached out and got in touch with both me and their real estate agent at the same or similar time. I could help them understand and run the numbers, and then he could help them understand the markets that they were interested in. Identifying price points to see if these things would mesh and if it was something that was even going to be a possibility. If it was necessary to do the rest of the work that they needed to do.
Improve Credit
Ryan Hillard: One of the first things that they really needed to do beyond that… Was improve their credit a little bit, it wasn’t necessarily leaps and bounds that they needed to move their credit, but we were able to identify that if they got just a few points better on their credit score and If there were some things that they could do to take action on it was really gonna help them save quite a bit of money. They were able to do that, which was great. They took action. Where a lot of people don’t. But, because they knew what the goal was, they were able to take action. It wasn’t a ton of points, but it was enough to get them into that next tier, and that did two things. First, it allowed them to decrease their interest rate by about a quarter point. So a quarter point in rate would be moving from 3.5% to 3.25% or 3.25% down to 3.0%. On these loans, that obviously helps, and, you know, any savings is good savings. Even more impactful than that was the effect that it had on their mortgage insurance. Getting into the next tier for their credit score, it allowed them to decrease the monthly mortgage insurance payment by $300, give or take. That is a significant amount. I don’t care who you are; I would say that $300 a month on your housing payment is significant. There would have been a way that we would have still been able to work this, even if they hadn’t done those things, but it would have involved being able to close, working on the credit down the road, and then coming back, six or eight, nine months later. Rates would be different, other factors could be different as well, and then they’d have to refinance and incur some additional costs at that point that really weren’t necessary because they took action up front.
Putting a Lease in Place to Offset the Departing Residence
Ryan Hillard: The second thing that they did, remember that I had mentioned, wanting to hold on to the house that they were departing and still buy the new one. Being able to fit both in wouldn’t have really worked with their debt-to-income ratio, and what you’re able to do in these situations, because this is a conventional loan, they were able to get a lease, have that in place, knowing that this would start once they vacated. The lease would be in place and allowed it to use 75% of that lease income to offset the mortgage payment. For example, if their mortgage payment were $1,000 and their lease payment was $1,000, they wouldn’t be able to use one for one. They would use 75% of that, so it would be $750, that would offset the $1,000, but instead of a $1,000 payment impacting their debt-to-income ratio, only $250 of that would. Now, if the lease payment is more than that and you take 75%, then it just offsets the departing residence’s mortgage payment, and that was exactly the case that happened here. Because of that, it freed up that cash, so to speak, that income and allowed it to make the debt-to-income ratio work with the new residence. So, it improved their credit and got a lease in place to offset the departing residence.
Worked With a Full-Time Professional Real Estate Agent
The third thing that they did was they worked with a professional full-time real estate agent who was able to understand what they want, advocate for them, and negotiate on their behalf. There were a few times during this process that things had arisen with the house that they were looking at. Knowing that the seller did want to sell and make a deal happen doesn’t mean that they’re just gonna give it away, right? There could be someone a week later if they put it back on the market, a number of things that could happen, but working with a full-time professional real estate agent who knew how to negotiate, allowed them to keep the deal together, so all of the hard work that they did up front was still able to pay off and be rewarded by them getting into a new home.
Ryan Hillard: Just to recap, doing a few things by getting out in front of this process and weighing their options ahead of time, taking a little bit of action and working with a professional agent, allowed them to accomplish their real estate goals of maintaining an investment property while purchasing a new home in a new neighborhood with the school district that they wanted to be on so they could continue with their expanding family.
Ryan Hillard: If you need help with any of that, if you have questions on how any of that might work, please feel free to reach out to me, and I’d be happy to walk you through the process, provide any insights that I can, or connect you with a real estate agent as well.
Ryan Hillard: This is Ryan Hillard with the Ford Mortgage Group. Have a great day.
The Two Most Common Questions Homebuyers Ask
Navigating Homebuying: The Right Questions to Ask for a Smoother Process
Transcript
Ryan Hillard: Hi! This is Ryan Hillard with the Forward Mortgage Group and when we’re talking to homebuyers who are in the process of purchasing a home, getting pre-approved there are almost always two questions that they ask. I don’t want to say they’re the wrong questions, but they’re not the right questions. What we want to do today is address those two questions and then say, “How can we make them better?” What are the right or better questions that we can be asking to get information that is more specific, more pertinent, or more important to us as a homebuyer. As we go through the process and the discussion, we’re going to be asking you, the homebuyer, different things like:
- What are your plans for this home?
- How long do you want to stay there?
- How much money do you have to put down?
- Is this a primary residence or an investment property?
- Is this a second home?
- Do you have an idea of what your credit looks like?
Ryan Hillard: All of these different things that go into the equation to finding the best product and program for you! When we do that, and we kind of get to the end, or sometimes it’s even in the beginning. People may lead with this. They’ll ask the first question, which is…
What is my Interest Rate?
Ryan Hillard: Now, everyone seems to have a very big fixation on the interest rate, and I understand; I get it. It’s what has been marketed to everyone as the most important thing, but I’m here to tell you that maybe it’s not the most important thing; it’s one of the important things, but not always the most important thing. We know that if someone is only selling you on an interest rate, there’s a number of ways they can do that. I can tell you that your interest rate is going to be lower, but maybe not tell you and hide it in the fine print that you’re going to be paying a lot of money in order to get that rate. Might be a little deceptive, but there’s also a lot of online lenders and others that may do that and try to hide some of these things to hide the true cost of that rate to you. Now, another way or another tactic is someone could just put you in the wrong program. If everything were equal and I knew all that you cared about was the interest rate, than I can say, “Here you go, here is an FHA program, and it’s going to have a lower interest rate if everything is equal than what you might qualify for on a conventional loan.” That’s great. I’ve answered the question of, “What’s the best rate you can give me?” But, again, in those types of situations, you end up paying more for it in different ways; maybe more it’s more in mortgage insurance, maybe it’s more upfront costs. These are different items we would want to look for so we can make sure that we’re taking advantage of everything you have to put you in the best situation possible; so in doing that, what we’re going to do is run different scenarios. We’re going to show you what happens if your credit were to improve a little bit. Would that help you? What would happen if you put a little bit more down? If you were to get the funds or resources to put that down, would that help you? If you’re not going to be owning this home for a longer period of time, what does that make our options look like? Different things that will really assess how to put you in the best position to take advantage of the best rates, payment, and other factors once it comes time to lock in that rate. To wrap this part up, we know that rates are going to move on a daily basis, so the conversation we’re having about rates today may not hold true when you’re at the point of purchasing your home. Whether that’s next week or next month, or whenever that may be, the rates are going to change. We want to make sure we’ve accounted for all of those changes or potential changes by also showing you this is what it looks like today, but if rates were to move and they were to increase, here’s what it looks like. That way, you’re prepared for the market, you’re prepared as a homebuyer to go out and understand what the impact of changing or moving rates would be to make sure that it still fits within your budget.
What’s the Maximum Amount I Can Qualify for?
Ryan Hillard: The next question that we get a lot as we’re going through this process is, “Well, what’s the maximum amount that I can qualify for?” It’s a good question, I would want to know what the maximum I can qualify for as well, but it’s not always that pertinent or tailored to you. If I said, “You could get qualified for a 2 million dollar loan!” Would you want to be qualified for a 2 million dollar loan? I don’t know. The reason you might not want to is you might not want is because you don’t want the payment that goes along with it. Too often, there is a disconnect between the home purchase price and the monthly payment, so what we want to do is ask different questions. We want to understand if I’m looking around this price range and I want my monthly payment to be around this price range. How do I understand these types of things? So the question ends up being, “How much can I be approved for by keeping my payment within this range?” Then when we go back and look at the other factors like your down payment and your credit score, we can start drawing out scenarios and show you as you’re shopping if we keep everything else equal and we take your payment at $400,000, $425,000, $450,000, $475,000, now you’re better equipped as you start looking at homes to know what might happen to the payment if I start moving up or down that price range. There are no surprises as you get to the point where you really want to make an offer.
Ryan Hillard:
Just to recap, two questions we get asked are:
- What is my interest rate?
- What is the maximum amount I can qualify for?
But, if we’re looking at these a little bit differently, the two questions that I would argue are asked a little bit better would be:
- How do I get in the best position to keep my payment low, given my situation?
- If I want to keep my payment within this range how much can I afford based on that with all of the factors that you know?
Ryan Hillard: I hope that’s helpful. If you have any questions on this, if there’s anything else I can answer for you, please feel free to reach out to me. This is Ryan Hillard with the Forward Mortgage Group.
Would you Rather – Home Buyer Edition
Would You Rather: Homebuyer Edition – Low-Interest Rate vs. Higher Negotiation Power
Transcript
Ryan Hillard: We’re going to call this “Would You Rather: The Homebuyer Edition.” In this version of “Would You Rather,” we have two options.
- The first option is: would you rather have a lower interest rate that is going to look somewhere, let’s just say maybe down in the low 3’s or closer to 3%, but you have to give up your inspection rights, you don’t get to negotiate at all, and you’re going to have to look at multiple homes, submit multiple offers, probably get rejected a lot before you do finally go under contract if you’re willing to endure the market that long. And, just for fun, as a kicker, you’re going to have to pay an additional $50,000, $100,000, $150,000, maybe even more, over the asking price of a home. And, fully guarantee that amount if it doesn’t appraise.
- If we look at option B: would you rather have a higher interest rate, maybe something to the mid to upper 6’s, but you’re more likely to go under contract on your first, second, or third offer if it’s well-written, and you’re able to negotiate on things like possible the purchase price or maybe seller concessions that you can use to pay closing costs or help buy down the interest rate.
Ryan Hillard: Which would you rather do? Let me know in the comments!