Understanding home equity and how you can use it is important for making the most of your experience as a homeowner. You can use it to pay off debt, pay for college, make improvements on your home, remove private mortgage insurance, and more.
What is Home Equity?
Home equity is the difference between what your home is worth and what you still owe the lender. In other words, home equity is the percentage of your home that you actually own. You build equity as you reduce the principal on your loan by making payments on your home. Home equity can also grow when your home’s value increases.
What Can You Do with Your Home Equity?
There are many reasons you would want to tap into your equity and many advantages you can enjoy when you do so.
You can use cash from your home equity to pay off other bills such as credit cards, auto loans, or personal loans. This can help you save money if your mortgage interest rate is lower than the interest rates on those other loans. This also means you’ll have just one debt payment instead of multiple bills.
If you don’t have extra cash available to make home improvements, you can use your home equity to finance renovations. This way, you’ll be funding those renovations with the interest rate of your mortgage instead of using a credit card or personal loan with higher interest rates.
Pay for College Tuition
If you need to borrow money for college tuition or other college expenses like books, using your home equity can be a great way to finance these costs. Because student loans may not be the option with the lowest interest rate, using your home equity may be able to help you save some money. You can also use your home equity to pay off student loans you already have.
Remove Mortgage Insurance
If your mortgage required private mortgage insurance (PMI), you might be eager to cancel it. With a conventional loan, your PMI is canceled automatically as soon as you earn 22% equity, but you can request a cancellation at 20% equity. So, if you’re looking to stop paying for PMI, building equity is a great way to cancel it.
Want to learn more about your options as you build home equity? Contact us today to find out how we can help you achieve your goals.
If you’ve been researching in preparation to buy a house, you may have already encountered the terms “pre-qualification” and “pre-approval.” While these two terms sound similar, one will give you a much larger advantage when buying a home than the other.
What is Pre-Qualification?
Pre-qualification is a method of figuring out how much you may be able to borrow. When seeking pre-qualification, a client provides basic financial information to the lender who then uses that to make an estimate on how much a potential borrower can afford. The main aspect that sets pre-qualification apart is that most of the information is provided verbally and unverified.
What is Pre-Approval?
Pre-approval is similar to a pre-qualification in that the lender is still reviewing your financial information to determine your eligibility for a mortgage as well as how much you can afford. However, a pre-approval is much more formal and involves utilizing verified information to make that estimate. When giving pre-approval, a lender pulls and reviews a potential borrower’s credit report and score they also collect documents such as tax returns, bank statements, W-2’s, and pay stubs. One big advantage of a pre-approval is that you get a letter with the actual amount you qualify for based on the documentation provided.
So What’s the Difference?
The main difference between pre-qualification and pre-approval is, pre-approval requires verification of financial documents and provides a letter of pre-approval, it’s a much more accurate and credible indication of what you can afford compared to pre-qualification. This means that being pre-approved can give you a strong leg-up on the competition when making an offer on a house.
Why Should You Get Approved?
Before searching for a home, it’s important to be pre-qualified or pre-approved so you and your real estate agent know exactly what you can afford. When you’re ready to make an offer, having a pre-approval means the seller will be more likely to trust and accept your offer – plus, your mortgage process will go smoother and faster.
At Homestead Funding, we offer excellent service, fine-tuned to your unique needs so you can enjoy a smooth and simple mortgage process. Contact us today to find out how you can get pre-qualified or pre-approved for a mortgage.
Sometimes the home you want isn’t perfect. Everyone has different requirements and expectations of their home. Often, your dream house might need a little love to get where you want it.
Are you looking to purchase a new home and are curious if you can include renovation costs in your mortgage? Or maybe you’re looking to renovate your current home and would like to include the renovation costs in one loan? No matter what you’re looking for, there are plenty of options for renovation loans that can help you reach your goals.
Who Would Benefit from a Renovation Loan?
A first-time homebuyer looking to save money and spend less on an affordable home
Someone looking for a home in a specific location that might be older or in need of renovations and repairs
Someone looking to buy a home, fix it up, and resell it for a profit
What Types of Renovation Loans Are Available?
Homestead offers several options for renovation loans so you can achieve your goals no matter what they are. Loan limits apply and vary depending on program and property location.
FHA 203K Standard Renovation
FHA 203K Limited Renovation
FHA Energy Efficient Mortgage (EEM)
HomeStyle® Renovation loans are good for covering the cost of purchasing a home as well as including money for improvements and renovations. They are very versatile and can accommodate a wide range of situations. Homestyle loans are great for almost any type of improvement, including luxury improvements such as swimming pools. The loan amount is based on the “as completed value of the home rather than the present value.
FHA 203(K) Standard Renovation
FHA 203(K) Standard Renovation loans can be an affordable way to fund home improvements whether you’re renovating your current home or are buying a home that needs some work. These types of loans are designed to be used for more complex projects such like room additions, exterior grading, and landscaping or reconstruction that would prevent you from immediately moving into the home. It is also used for renovations that require engineering or architectural drawings and inspections. This type of loan does not allow luxury projects.
FHA 203(K) Limited Renovation
The FHA 203(K) Limited Renovation loan is similar to the FHA 203(K) Standard Renovation loan but has some differences. For one, there is no consultant or plan reviewer required, no detailed work write-up, and you only need contractor bids and a signed contract. Borrowers may finance renovation costs up to $35,000 or up to $50,000 if the property is in a Qualified Opportunity Zone for non-structural related property repairs and improvements.
FHA Energy Efficient Mortgage (EEM)
The Energy Efficient Mortgage is availableto help finance energy efficient improvements for your home. These loans allow for eligible energy efficient improvements to be included in your mortgage. This includes improvements such as repairing dated windows, insufficient insulation, inefficient furnaces or water heaters, and any other feature in the home that compromises its energy efficiency.
Whether you’re looking to enhance your current home with renovations or include the cost of renovations and repairs in the mortgage for a new home, Homestead offers the programs and the service to satisfy your needs. Contact us today to find out how you can get started.
When selecting the right house for you and your family takes up so much of your energy and focus, it can be easy to neglect the research you should do to shop for the right mortgage. Here are some tips to help you determine which mortgage is right for you.
Ask Yourself Important Questions
Your first step in shopping for a mortgage should be to determine what your needs and desires are. Start by asking yourself relevant questions like, “How long do I plan on living in this home?” and “How much am I willing to spend for a down payment or a monthly payment?” Having the answer to these questions will help your Loan Originator provide you with the best options for your situation.
Get an Idea of What You Can Afford
Check your credit score to get an idea of your current situation. Lenders will be very interested in your credit score as it can be a larger factor in what mortgage products you qualify for and what your interest rate will be. Consult a mortgage calculator that allows you to plug in your own information and get an idea of what your ideal mortgage payments might look like.
Decide on the Length of the Mortgage Loan
While many people opt for the 30-year mortgage, there are shorter term options like 10 and 15-year loans, too. Typically, a short-term loan will require a higher monthly payment and a lower interest rate than a long-term loan. Consider your financial situation to determine which option works best for you.
Learn About Interest Rate Options
The interest rate is the price you pay to borrow money. Since mortgage rates change with the market all the time, there are two ways you can choose to have the interest work in your loan. Either lock your interest rate so it stays the same throughout the life of the loan and get a fixed-rate mortgage, or let it change as the market changes and get an adjustable-rate mortgage. Both fixed and adjustable rate mortgage have pros and cons. It is good to understand how they work, and your Loan Originator can assist you when it comes time to making a decision about what is right for you.
You will want to consider what your goals are with the mortgage and the house you are getting. If you plan on being in the home and paying on the mortgage for a longer term – say, 5 years or more – then you may want a fixed-rate. However, if you see yourself moving, refinancing, or paying off your mortgage very quickly, you might want to go for an adjustable-rate mortgage which can have a lower rate in the beginning.
Types of Mortgage Loans
Conventional loans are great for first-time or repeat buyers. They are ideal if you have a strong credit history with a good credit score, and money to put down.Typical down payments vary from 3% to 20% depending on first-time home buyer status and allows gifts.
FHA loans are ideal for first-time or repeat buyers. If you are looking for lower down payment options, an FHA loan could be a good choice for you. FHA programs allow as little as 3.5% down payments. These types of loans don’t have first-time homebuyer restrictions, allow for co-signers and gifts, and have liberal qualifying ratios.
This program is for qualifying military veterans and active servicemen and women, it offers no down payment, no monthly mortgage insurance, and liberal qualifying requirements. Gift funds may be used for down payment, closing costs, and prepaid expenses.
Anyone looking to finance a home in eligible rural areas and benefit from no down payment options might be interested in a USDA loan. This is a great option for anyone financing in eligible rural areas who is looking for no down payment options and liberal qualifying requirements.
Jumbo loans are ideal for those who are looking to finance a home for more than what a typical conforming loan allows. You can think of a jumbo loan as being similar to a conventional loan except that it exceeds loan limits. These are good for someone looking to purchase a higher value property, including second homes and vacation homes. Jumbo loans typically require a 20% down payment.
When comparing lenders, you will find that Homestead focuses on each of our borrowers' unique needs. You will receive the best service and we will help you achieve your individual home financing goals. Contact us today to speak to find out find out how we can make getting a mortgage simple.
As a small business owner or someone who is self-employed, you may find yourself in unchartered territory with the current pandemic that’s affecting so many small businesses. Luckily, as of March 27th, the CARES Act – or Coronavirus Aid, Relief, and Economic was signed into law to provide relief and economic aid to individuals and businesses facing financial struggles and instability.
You’ve probably got a lot on your plate and don’t have a lot of time to decipher these loan programs and figure out how they can help you, so we’ve compiled everything you need to know right here so you can figure out which program is right for you.
Paycheck Protection Program (PPP)
The Paycheck Protection Program is a federally guaranteed loan program that helps businesses and nonprofits cover up to 8 weeks of payroll and some other expenses up to $100,000/year per employee. Businesses can apply for 2.5 times their average monthly payroll costs up to $10 million. This number is based off the payroll costs for the previous year.
What Can I Use the Funds For?
Interest on mortgage payments
As long as a business doesn’t lay off any employees or it rehires by June 30, 2020, these loans can be forgiven. Note that loan forgiveness may be decreased if a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees occurs. Loans may not be forgiven if funds are used for other expenses not as outlined above. Whatever amount may not be forgiven will convert to a fixed two-year repayment.
How do I Know if I'm Eligible?
You are eligible to apply for the PPP if you are one of the following:
A small business or nonprofit with less than 500 employees
A sole proprietor
An independent contractor
A gig worker
How Do I Apply?
Applications are just beginning to be accepted. Loans can be applied for by calling your current bank or lender. Here is an example of what you might be able to expect from the application.
Economic Injury Disaster Loan (EIDL)
The EIDL offers both grants and loans, including a $10,000 emergency grant that doesn’t have to be repaid that both business and nonprofits can apply for. This grant will most likely be the fastest way to obtain funds as the SBA states funds will be received within three days of approval. The EIDL also offers low-interest loans that will have to be repaid. Businesses can apply for these loans of up to $2 million in order to cover operating expenses while they experience a lack of revenue. When it comes to repaying the EIDL, the terms are 3.75% for business and 2.75% for nonprofits for up to a 30-year term.
What Can I Use the Funds For?
Unlike the PPP which specifically requires funds to be spent on specific expenses in order to be forgiven, there is more flexibility around what the EIDL funds can be used for. These include expenses such as rent and mortgage, salaries, employee paid leave, and operational expenses. A business cannot, however, use both the PPP and the EIDL for the same purpose.
How Do I Know if I’m Eligible?
The same eligibility for the PPP applies to the EIDL. The applicant also needs to have been in operation on January 31, 2020 and been negatively economically impacted due to COVID-19.
How Do I Apply?
The application for the EIDL is now live and can be found here. While the application is for the loan, there is a spot for you to indicate you also want the $10,000 emergency grant.
How Do I Know Which Program is Right for Me?
First, assess the eligibility requirements described above to determine which program you are eligible for. Bear in mind that the PPP can be entirely forgiven as long as the requirements are met, while the EIDL must be paid back in its entirety except for the $10,000 emergency grant.
You may apply for both programs but remember not to use the funds for the same purpose.
Important Note: Homestead does not grant or finance any of these loans and we have no control over qualification guidelines. This information is merely provided as a guide, as we may feel this could help many of our borrowers and referral partners at this critical time. This information and the details and/or loan availability may change at any time. Please visit sba.gov to find a lender and for up to date information.