Not only do they have smart and streamlined processes in place to make the entire process hassle-free, but they offer plenty of loan options, competitive interest rates, and flexible closings.

If you’re in the market for a mortgage refinance, it helps to know which lenders offer the lowest mortgage rates and the best shopping experience.

We compared all the major mortgage refinance lenders available today to find options with low rates and fair terms. Keep reading to see how they stack up.

Company Reviews for Best Mortgage Refinance

The mortgage refinance process requires some upfront legwork, but the effort can be worth it if you wind up with a better loan. The companies we chose for our ranking of mortgage lenders can help you save money, pay off your loan faster, or both. 

Read over the basic information for each home loan company to find the best option for your needs.

Quicken Loans

Also referred to as Rocket Mortgage, Quicken Loans is known for its seamless online mortgage refinancing process and how easy it is to get started.

Through Quicken’s dynamic online platform, a borrower can upload all the required paperwork, oversee their process, and finish the bulk of the refinance process online.

The company also boasts excellent reviews from past users, and it earned the second spot in J.D. Power’s U.S. Primary Mortgage Origination Satisfaction Study.

Quicken Loans offers origination loans, traditional refinancing, cash-out refinancing, and more through its online portal. Customers can also lean on this lender for help with conventional home loans, VA home loans, FHA loans, USDA loans, and more.

Better

Better promises mortgage refinancing with no lender fees or commissions, and it has streamlined the entire process with modern-day technology. Better applicants get instant mortgage rates after answering just a few questions, and the process is visible and transparent all along the way. 

Although the company has only been in operation since 2016, Better has already funded over $1.7 billion in loans. Applying for a mortgage refinance can be done entirely online, and you’ll get a quote immediately without having to speak with a mortgage officer.

AmeriSave

AmeriSave is an online mortgage lender that offers new home loans as well as mortgage refinance products. This company lets you qualify for lower rates than many brick-and-mortar banks, and you can even wrap your loan closing costs into your new loan if you agree to a slightly higher APR.

AmeriSave also lets you get a free quote for your new loan online. From there, you can complete the entire loan application process using their website and online portal to upload documents.

When it comes to closing on your new loan, they’ll complete the closing anywhere you want — even in your home.

loanDepot

If you’re wondering how to get a mortgage and hoping to complete the bulk of the process from the comfort of your own home, look no further than loanDepot.

This online lender promises refinance products with lower interest rates and/or lower monthly payments than you have now, and with a seamless application process, you can complete entirely online.

After you refinance with loanDepot once, they’ll also waive all the lender fees the next time you use them to refinance a mortgage.

While newer in the industry than some of the other refinance companies out there, loanDepot has funded more than $100 billion in loans since 2010. It’s also important to note that loanDepot scored higher than average in J.D. Power’s U.S. Primary Mortgage Origination Satisfaction Study.

Bank of America

Bank of America promises consumers who want to refinance a “digital mortgage experience” that makes the process more convenient. You can apply for a refinance online, over the phone, or in person, and you can choose from a wide range of mortgage products to suit your needs.

Online preapproval is also offered, and Bank of America offers competitive interest rates and low down payment options.

Bank of America Preferred Rewards clients can also qualify for a $200 to $600 reduction in their loan origination fee. This makes Bank of America an especially lucrative option for consumers who already have a working relationship with them.

Veterans United Home Loans

Veterans United Home Loans is a premier mortgage company for veterans and active-duty military who meet “the basic service requirements set by the Department of Veterans Affairs (VA), have a valid Certificate of Eligibility (COE), and satisfy the lender’s credit and income requirements.”

This means you must have a qualifying military affiliation to refinance your mortgage with this lender.

Veterans United can help connect you with the best VA home loans today — often with lower closing costs and the most competitive rates out there today. Veterans United has also received excellent reviews with an average star rating of 4.9 out of 5 stars across more than 10,000 reviews on Trustpilot. 

Chase

While Chase Bank is popular for its banking products and rewards credit cards, it also offers home loans and mortgage refinancing.

Their mortgage refinancing product lets you replace your home loan with a new one that offers better rates and terms, and you can likely complete the bulk of the mortgage refinance process online. 

Chase promises some of the lowest rates available, and you can even begin the mortgage refinancing process online. The bank also offers a closing costs guarantee that promises you’ll close on time in as little as three weeks, or you’ll get a check for $5,000.

Loans offered: Traditional home loans, adjustable-rate mortgages, jumbo loans, VA loans, FHA loans, USDA loans.

LowerMyBills.com

LowerMyBills.com is not a mortgage lender, but it is a marketplace that lets you compare multiple home loans in one place.

This platform lets you enter basic information about your current mortgage, your monthly payment, and your credit score range to get an idea of the new loan term you could qualify for.

If you decide to move forward and apply, you can enter your information once and get quotes from multiple lenders on the same day. LowerMyBills.com also offers a nifty mortgage refinance tool that lets you see how much you could save with a new home loan.

Mortgage Refinance Guide

If you’re wondering what to do before refinancing, when to refinance, or how to begin the process, you’re in the right place. Read on to learn more about what goes into refinancing your mortgage, why refinance rates are higher than purchase rates, and the paperwork and forms you’ll need to get started.

Benefits of Refinancing a Mortgage

The benefits of a mortgage refinance depend on the homeowner and their specific situation. For example, many consumers refinance in order to decrease the length of their loan term or lower their monthly mortgage payments.

Due to the fact that you get the chance to change up your loan term, refinancing is also one of the best ways to pay off a mortgage early.

If interest rates are considerably lower than they were years ago, refinancing to secure a lower interest rate can also help consumers save money on interest over the life of their loan.

Another benefit of refinancing right now could come into play if the value of your home has increased but you’re still paying private mortgage insurance (PMI) on your original home loan.

By comparing mortgage options, applying for a refinance, and seeking out an appraisal, homeowners with considerable home equity can get the PMI removed from their mortgage.

Cost to Refinance

According to ClosingCorp, the average cost of refinancing worked out to $6,837 nationally including taxes and $3,836 excluding taxes in 2021. Further, closing costs as a percentage of purchase prices declined in 2021 to 1.03% when compared to the 1.06% average in 2020.

That said, your personal closing costs will depend on a broad range of factors including your current income, your debt-to-income ratio, your credit history and credit score, the type of loan you choose, the loan amount, and your loan term.

Potential costs to watch out for and compare include closing costs, loan origination fees, points, and more.

Best Time to Refinance 

Generally speaking, there are a handful of times it makes sense to trade your current home loan for a new one. Should you refinance your mortgage, one of the scenarios below will likely come into play:

• Securing a lower monthly mortgage payment

• Getting a lower interest rate

• Reducing the loan term on your mortgage

• Switching loan products from a 15 vs. 30-year mortgage

• Refinancing to remove PMI

• Switching from a variable rate to a fixed rate (or vice versa)

Any of these situations can create a prime opportunity for mortgage refinancing, but you should still run the numbers to make sure you’ll still end up ahead.

A mortgage calculator can help you compare your future monthly payment to your current one, as well as see how much you could save on interest based on current mortgage rates.

Requesting for Refinancing a Mortgage

After you compare loan offers and decide on a mortgage lender, you’ll need to gather some documentation to begin the refinancing process. Documents you’ll need to have ready can include:

• Proof of income, including W2s or pay stubs

• Homeowners insurance information

• Documents relating to other debts you have

• Statement of assets

• Tax returns

According to Quicken Loans, you may also need to present other documentation based on your situation.

For example, you may need to prepare letters of explanation for past credit issues or employment gaps, documentation that shows child support or alimony payments, or documentation related to bankruptcy on your credit history.

While knowing what you need and gathering this documentation may feel overwhelming, remember that the best mortgage lenders can help walk you through the process. The majority also lets you upload required documentation online and from the comfort of your own home.

Different Kinds of Refinancing Products

When it comes to refinancing your home mortgage, you get to choose from nearly any type of mortgage out there. Generally speaking, your options can include the following:

Adjustable-Rate Mortgage

• Adjustable-Rate Mortgage: An adjustable-rate mortgage comes with a fixed rate for a fixed timeline followed by a variable interest rate for the duration of the loan. With a 7/1 ARM, for example, consumers pay a low fixed rate for seven years followed by a variable rate that changes based on market conditions.

Cash-Out Refinance

• Cash-Out Refinance: While you can refinance your mortgage to secure a lower monthly payment, a lower interest rate, or both, you may also be able to take cash out based on how much equity you have.

FHA Loan

• FHA Loan: FHA loans come with low closing costs, down payment requirements as low as 3.5%, and easy credit requirements.

Fixed-Rate Mortgage

• Fixed-Rate Mortgage: Fixed-rate mortgages come with competitive fixed rates, fixed monthly mortgage payments, and a fixed repayment timeline.

Jumbo Loan

• Jumbo Loan: Jumbo loans are mortgages for homes that cost more than $647,200, and they have stricter qualification requirements as a result.

USDA Home Loan

• USDA Home Loan: USDA loans are zero down payment mortgages that are aimed at buyers in rural areas of the United States.

How We Found the Best Mortgage Refinance Companies

To find the best mortgage lenders of 2024, we looked for mortgage companies that offer transparency when it comes to their mortgage rates, their loan processes, and their loan options.

We compared mortgage lenders based on their ratings from third-party agencies like the Better Business Bureau (BBB) and J.D. Power, and we sought out companies that let consumers complete their refinance process online or over the phone with the help of a mortgage broker. 

Ultimately, we chose the top home mortgage companies that offer mostly positive reviews, a broad range of mortgage options, competitive mortgage rates, and plenty of educational content for their customers.

We also gave preference to lenders who let consumers get a rate quote online without a hard inquiry on their credit report.

Bottomline – Best Mortgage Finance Companies

In 2024, for those on the hunt to refinance their mortgage, the landscape is rife with promising options. With companies like Quicken Loans leading in customer service and Better offering competitive rates, homeowners have a robust selection. 

Whether you prioritize online processes, loan comparisons, or specific discounts, there’s a lender tailored to meet those needs. Before diving into the decision, it’s worth exploring these top contenders to ensure a smooth refinancing experience.

The post Best Mortgage Refinance Companies of 2024 appeared first on Good Financial Cents®.

Though we’re going to go through the many steps necessary to learn how much house you can afford, you can also take advantage of our home affordability calculator to speed the process.

What Affects How Much House Can I Afford?

Getting a mortgage is unique to each individual because it’s based on several factors:

Type of Loan

There are different types of mortgage loans, and each has its own specific requirements. For example, you may choose to apply for a conventional, Jumbo, FHA, VA, or USDA mortgage. Each is likely to result in a slightly different loan amount.

The Loan Term

You’ll need to do an analysis of the 15 vs 30-year mortgage. With its longer term, a 30-year mortgage will result in a lower monthly payment. That will enable you to qualify for a larger loan amount, and thus a higher-priced home — though you’ll be paying back the mortgage for longer.

Down Payment

The smaller the down payment, the higher the mortgage amount, and the higher the monthly payment, the less house you’ll be able to afford.

For example, a VA mortgage requires no down payment at all. But the 100% financing feature will produce a high monthly payment. By contrast, taking a conventional or Jumbo loan with a 20% down payment will enable you to buy more houses due to its lower house payment.

Income, Debt and Debt-to-Income Ratio (DTI Ratio)

Your ability to qualify for a mortgage will depend on the combination of your annual income and debt. Not only will you need sufficient income to carry the new house payment, but also any existing debt you will have after closing.

Your debt burden will include any student loan payments, car loans, and credit card debt.

This is calculated using what’s known as the DTI. The formula takes the new house payment, plus other monthly debt payments, and divides the total by your stable gross monthly income.

Though the “ideal” DTI is no higher than 36%, most lenders will go up to 43%. And if you have strong compensating factors, like a large down payment and excellent credit, a DTI of 50% may be allowed.

Credit Score

The minimum credit score for each loan type is generally as follows:

• Conventional – 620

• Jumbo – 660 or higher

• FHA – 580, but some lenders will go as low as 500 with a 10% down payment

• VA loans – no minimum credit score specified, though individual lenders may have their own requirements

It’s important to understand that not only will your credit score determine your loan approval, but it will also affect your interest rate. The higher your credit score, the lower the interest rate.

This will translate into a lower monthly payment, and into the ability to qualify for a higher mortgage amount.

If your credit score is below those listed above, you may want to enlist the services of one of the best credit repair companies. That may offer you the fastest way to improve your score.

Interest Rate

The interest rate you’ll pay on your mortgage is one of the primary factors in your monthly payment.

As an example, let’s look at a $300,000 mortgage using two different interest rates. The first is a 4% rate for someone with a credit score well above 700; the second is 5.5% for a borrower with a credit score of 630.

• A 30-year mortgage at 4% will result in a payment of $1,761.

• A 30-year mortgage at 5.5% will result in a payment of $2,032.

The difference between the two payments is $271 per month. That means you’ll qualify for a larger mortgage at 4% than you will at 5.5%.

This is just as important when it comes to refinancing your current mortgage into a new one. When that happens, be ready to investigate the best mortgage refinance companies.

How to Calculate Your Down Payment

The amount of the down payment you make will have a major impact on your loan amount. The more you put down, the lower your loan amount and your monthly payment.

It will help to know what the minimum down payment requirements are based on the type of loan you are applying for.

The minimum down payment requirements for each of the four primary mortgage types are as follows:

• Conventional: 5% but can be as low as 3% for first-time homebuyers and for lower-income borrowers

• FHA: 3.5%

• VA: 0% (100% financing)

• Jumbo Loans: 10% or higher, depending upon the purchase price of the property, or the property value for refinancing

The down payment percentages above are only the minimum requirement for each loan type.

Strategies for Saving for a Down Payment

How to save for a house down payment is one of the biggest issues for would-be homebuyers. Since most mortgage loan types will require a down payment, it’s important to have a strategy to at least reach the minimum requirement.

Here are five general strategies to implement to help you reach your down payment goal:

1. Set Your Down Payment Target: This will require knowing how much home you can afford, the loan amount you’ll qualify for, and the cash you’ll need at the closing table.

2. Set Up a Budget: Saving money for any goal will likely require gradually reducing expenses to find cash to save.

3. Open a Dedicated Savings Account: This is a mission-critical step. Setting up a separate account specifically for your down payment will not only help you track exactly how much you have saved, but it will also avoid mixing your dedicated home-buying funds with other savings intended for other purposes.

4. Automate Your Savings: The best way to do this is through payroll deductions directly into your dedicated savings account. That will enable you to save money without any additional effort on your part.

5. Bank Windfalls: By saving your tax refund, bonus income, or other windfalls, you’ll reach your down payment target even faster.

You should also know that it may be possible to make a down payment using a gift from a family member. Check with the mortgage lender you’re working with to see what the specific requirements are based on the loan program you’re using.

Why Shopping for a Lender Is So Important

This may be the most underrated part of the homeownership experience. You may assume all lenders charge essentially the same rates and closing costs, but that isn’t true, especially when you factor in the different types of mortgages, from FHA loans to conventional loans.

In the search for the best mortgage rates, you may come across a lender with a lower interest rate than anyone else.

But that should raise a red flag, alerting you of two possibilities:

1. The Lender Is Quoting a “Floating Rate.” That is, it may be the rate is available today, but not 30 or 60 days from now when you plan to close on the home. Always inquire what the rate will be if you lock it today for your intended closing date.

2. The Lender May Be Advertising a Very Low Interest Rate, but One With Very High Closing Costs. That’s most likely because the rate will have been “bought down” through the payment of discount points.

Those points will raise your closing costs, making the loan more expensive than those of the lender’s competitors.

In conducting your search for financing, be sure to concentrate on the best mortgage lenders. Those are the lenders that have either been recommended to you or are among the major lenders in your area or the industry in general.

Factors That Influence Your Decision-Making

The only way to know your housing budget for certain is to meet with a mortgage representative and get prequalified. The lender will request your employment and income information and may even run a credit check.

Armed with that information, as well as the amount you intend to put down on the home, the lender will be able to give you a fairly accurate house price.

If you’re planning to buy a home in the next 60 to 90 days, you may even want to get pre-approved.

A pre-approval is different from a prequalification because the lender will actually request and obtain documentation supporting your income, assets, and credit.

Based on that information, they’ll issue a formal approval, subject only to the selection of a property, property appraisal, and routine closing conditions.

Pre-approval upfront will not only provide assurance that you’ll be qualified for the loan you need, but it will also help when you submit offers on houses you’re interested in.

Property sellers love a pre-approved borrower because it removes the risk of inability to get financing. The preapproval may even help you to get a better price.

In this guide, we’ve used a similar methodology to mortgage lenders in assessing home affordability.

We spelled out the need to consider your overall financial situation, including income, non-housing debts, the interest you’ll pay on the new loan, and the down payment in calculating approximately how much house you can afford. 

Final Thoughts on How Much House You Can Afford

As you can see, there are many moving parts in determining how much house you can afford. That’s why we’ve spelled out all the factors involved in coming up with a reliable estimate of what you can afford.

Just remember that your current budget isn’t necessarily the upper limit. As discussed in the previous section, there are steps you can take that will help you to qualify for a higher-priced home.

The post How Much House Can I Afford? appeared first on Good Financial Cents®.

We’re going to discuss both the different types of mortgage loans and the various programs that offer them. However, this is a general discussion of the most popular types, since there are more less-popular loan types and even issuers.

The Different Types of Mortgage Programs

There are four primary mortgage programs available:

Conventional

Generally speaking, conventional mortgages refer to loans that are funded by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

They’re typically originated by banks, credit unions, mortgage banks, mortgage companies, and other lenders, then sold to one of the two major mortgage agencies.

These loans are also typified by what’s known as their conforming loan limits. That is, there is a limit to the amount that can be loaned under a conventional program. That limit is generally $766,550 for 2024.

However, conventional loans can be higher for two- to four-family homes, and also for properties located in areas designated as high cost.

(These are the higher cost housing markets usually located on the East and West Coast, including New York City, Boston, Washington DC, San Francisco, and Los Angeles.)

Conventional mortgages are also distinguished from FHA and VA loans by the mortgage insurance requirement.

Commonly referred to as private mortgage insurance, or PMI, it is a type of insurance coverage that pays the mortgage lender part of the loan balance if you default on the loan.

Some of the Major Features of Conventional Mortgages Include the Following:

• The minimum down payment is 5%, but they do offer loans with as little as 3% down for first-time homebuyers as well as low- and moderate-income households.

• Unlike FHA and VA mortgages, PMI is only paid on a monthly basis as part of your loan payment. There is no required upfront mortgage insurance cost.

• The minimum credit score for conventional loans is 620, but you’ll get a better interest rate the higher your credit score is.

• Conventional loans can be used for the purchase of second homes and investment properties in addition to primary residences.

• Loans are available in both fixed-rate and ARMs.

FHA

FHA loans work much the same way as conventional loans, but the parameters are more basic. For example, the minimum down payment requirement is 3.50%, even for first-time homebuyers.

But the two main features of FHA loans, the ones that most differentiate them from conventional mortgages, are:

Mortgage insurance is collected in two ways. Much like conventional loans, there is a monthly premium added to your house payment.

But there’s also an upfront mortgage insurance premium (UFMIP) that’s added to your loan balance, though it can be paid out of pocket at the time of loan closing.

Other Features of Fha Loans to Be Aware of Include:

• Though the minimum down payment is 3.5%, FHA loans are commonly used in conjunction with down payment assistance programs that enable buyers to purchase homes with no down payment.

• While FHA is more accommodating to lower credit scores, the program should not be viewed as a subprime mortgage. You won’t be able to get a loan if you’re six months out of bankruptcy, or if you have a recent pattern of significant late payments.

• FHA loans are available for owner-occupied, primary residences only. They cannot be used to finance investment properties or second homes.

• Loans are available in both fixed-rate and ARMs.

VA Loans

VA loans have much more in common with FHA loans than they do with conventional loans. That’s because, much like FHA loans, VA loans have mortgage insurance provided by a government agency (the Veterans Administration).

Mortgage insurance is charged as a one-time, upfront fee, with no monthly premium added to your house payment.

The loans are provided by participating lenders, which can include banks, credit unions, and other mortgage lenders. They are available only to eligible veterans and current members of the US military.

However, the big advantage of VA loans is that they provide 100% financing. That means an eligible veteran can purchase a home with no money down. And while the mortgage insurance premium is charged upfront, it’s added to the loan amount, so there is no upfront cost.

The 100% loan provision applies to the conforming loan limit. But VA loans are also available for higher-priced properties if need be. However, the borrower will have to produce a down payment equal to 25% of the amount that the loan exceeds the conforming loan limit.

For example, if the loan exceeds the limit by $100,000, the borrower will be entitled to 100% financing on up to $548,250 but must front $25,000—25%—for the excess amount.

Basic Features of VA Loans Include the Following:

• The loans are available only to eligible current and former members of the US military and their families.

• Though there is an upfront mortgage insurance premium for the loans, there is no monthly premium payment required.

• Loans are available for financing only for owner-occupied primary residences. Much like FHA loans, they’re not available for investment properties or second homes.

• The VA has no established minimum credit score, but borrowers are expected to demonstrate responsible credit management.

Jumbo Loans

As the name implies, Jumbo loans are larger loans that exceed conforming loan limits. As such, they’re typically used to purchase or refinance higher-priced properties. Loan amounts can be as high as several million dollars.

Jumbo loans have more in common with conventional loans than they do with FHA and VA loans. But unlike conventional loans, which are funded by Fannie Mae and Freddie Mac, Jumbo loans are provided by independent lenders, like banks.

Because they are, lending guidelines are less standardized than they are with other loan programs. In general, they have stricter loan requirements.

Basic Features of Jumbo Loans Include the Following:

• Loan amounts can range from just above the conforming loan limit to as much as several million dollars.

• Loans may be available for second homes and investment properties, but a lender may also restrict them only to owner-occupied primary residences.

• They generally need good or excellent credit to qualify. Minimum credit scores can be anywhere from 650 to more than 700.

• The typical down payment requirement is at least 20%. And you can expect that percentage to increase on higher loan amounts.

• Because they are larger loan amounts, interest rates charged on Jumbo mortgages are typically higher than what they are on other loan types.

Fixed-Rate vs Adjustable Rate Mortgages (ARMs)

Fixed-rate and ARMs are the two primary types of mortgage loans offered under the four main mortgage programs (conventional, FHA, VA, and Jumbo). While they’re both offered by FHA and VA, most borrowers choosing one of these loan programs opt for a fixed-rate loan.

However, the same is not true with both conventional and Jumbo loans. ARM loans are somewhat more popular with each of these loan types. This is especially true of Jumbo loans, which cater to higher-income borrowers who are often interested in getting the lowest interest rate possible.

Overall, however, ARM loans tend to be fairly rare these days. According to information released by Bankrate in 2023, ARMs comprise less than 18.6% of mortgages made in 2023. This is due to the recent phenomenon in which ARM loans are only slightly lower than fixed rates.

In addition, with fixed rates at record lows, it makes sense for most borrowers to lock in those rates rather than taking a chance on still lower rates with ARMs.

A fixed-rate loan is exactly what the name implies. Both the interest rate and the monthly payment are fixed for the life of the loan. Loan terms range between 10 and 30 years.

At the end of the loan term, the principal of the loan will be fully repaid. That will be true in the case of both a fixed-rate loan and an ARM.

ARMs

ARMs offer a fixed interest rate for a specific amount of time. Typical initial terms are three years, five years, seven years, and 10 years. After the initial fixed-rate period, the loan will become a one-year adjustable, with the rate changing nearly every year.

Interest rates on ARMs are based on a common index, such as the one-year US Treasury bill, or the six-month LIBOR. The lender will then add a margin (percentage points) to the index to produce the interest rate that future rate changes will be based on.

For example, if the yield on one-year US Treasury bills is 1.00% at the time of adjustment, and the margin is 1.50%, your interest rate will reset at 2.5%. That rate will be good for one year and will be readjusted using the same formula as the date of the next adjustment.

ARM Interest Rate Cap Limits

Fortunately, ARMs have rate caps that limit how high the rate can go on any single adjustment, or even over the life of the loan.

A common cap structure is 5/2/5. Each number represents the maximum percentage by which the fully indexed rate (index plus margin) can adjust at the time of adjustment.

The first number means the rate cannot increase by more than 5% above your original interest rate for the initial rate change. If your original rate is 2.50%, the most the lender can increase it to is 7.50%.

The second number (2, or 2%), is the most the rate can change on subsequent adjustments. If your initial rate is 2.50%, and it increases to 3.50% at the first adjustment but then jumps to 7.5% on the second adjustment, the highest rate you’ll pay is 5.50%. That’s the 3.50% rate, plus 2%.

The third number in the sequence represents the most the interest rate can increase over the life of the loan. In the example above, that’s 5%. That means if your initial rate is 2.50%, the highest rate you can be charged over the life of the loan is 7.50%, regardless of how high-interest rates go.

If you’re interested in taking an ARM, be sure to familiarize yourself with the interest rate caps associated with the loan. The lender must disclose this to you at the time of application, but it will also be included in the closing documents.

Make it a point to request the documents that specifically indicate the cap arrangement on your ARM before signing any paperwork. Once the loan closes, the cap structure cannot be changed.

When Should You Use a Fixed-Rate Mortgage Over Other Types?

Fixed-rate loans are typically the better choice when you plan to stay in the home for many years. If you expect the current home to be your “forever home,” or you expect to be there for at least 10 years, a fixed-rate mortgage is usually the best option.

It will provide rate and payment protection regardless of what’s happening with interest rates. And should rates drop after you take your loan, you can always refinance to get the benefit of a lower rate.

A fixed-rate mortgage is also strongly advised if you want to minimize homeownership risk. An inherent disadvantage of ARMs is that rates can rise, perhaps enough to threaten your ability to remain in the home. If this is a concern you have, choose a fixed-rate mortgage.

Along the same line, fixed-rate mortgages are generally a better choice for first-time homebuyers. They provide greater predictability and eliminate a potential interest rate shock that comes with ARMs.

However, given that interest rates are currently at historic lows, it makes abundant sense to lock in a fixed rate now. Though it’s always possible interest rates will go even lower in the future, it’s hardly guaranteed.

And whenever anything is at a historic low, the likelihood of further declines is much less likely to happen.

When Should You Use an ARM?

An ARM is best used when you expect to stay in your home for no longer than the fixed-rate term of the loan. For example, if you expect to live in a home for the next five years, you may be comfortable with a 5-year ARM. It’s likely you’ll move out of the home before the first interest rate adjustment hits.

Of course, the single biggest reason for taking an ARM at all is because of an interest-rate advantage. For example, if an ARM carried an interest rate a full two percentage points below that of a fixed-rate loan, the savings in the initial years might justify the risk of rate adjustment.

Unfortunately, the rate spread between ARMs and fixed-rate mortgages is nowhere near that high. That largely explains why ARMs now represent a very small percentage of all mortgages taken.

Where to Get the Right Mortgage Type

There are plenty of institutions where you can get a mortgage, whether conventional, FHA, VA, or Jumbo. But if you don’t have a favorite bank or credit union, the big national mortgage lenders are an excellent choice.

Rocket Mortgage is the online face of Quicken Loans, the largest retail mortgage lender in the country. They provide all types of mortgage loans, but they operate entirely online, streamlining and speeding up the application process.

loanDepot is also a nationwide lender, offering conventional, Jumbo, FHA, and VA loans. Similar to Rocket Mortgage, they offer an all-online application to speed up the loan application process.

Veterans United is the go-to choice for veterans and active-duty military personnel looking for VA mortgages.

As the largest VA mortgage lender in the country, they specialize in the loan type and even offer a network of VA-friendly real estate agents to help you find a home and navigate the closing process.

Credible is an online mortgage marketplace that provides an opportunity to get rate quotes from several lenders.

In a matter of minutes, you’ll complete a brief online application and receive multiple quotes to choose from. That will eliminate the need to get quotes from individual lenders one at a time.

The Bottom Line on the 4 Main Mortgage Types for Every Buyer

Selecting the right mortgage involves understanding the pros and cons of different types. Conventional loans, funded by Fannie Mae and Freddie Mac, offer various terms and down payment options but require private mortgage insurance (PMI).

FHA loans, backed by the Federal Housing Administration, cater to lower credit scores, have lower down payments, and include mortgage insurance premium (MIP). 

VA loans, designed for veterans, offer 100% financing, no monthly mortgage insurance, and flexible credit standards. Jumbo loans suit high-value properties but need excellent credit and larger down payments.

Fixed-rate mortgages ensure stability, while Adjustable Rate Mortgages (ARMs) offer initial low rates with potential future adjustments.

The post The 4 Main Mortgage Types for Every Buyer appeared first on Good Financial Cents®.

Most of the top lenders also make it easy to shop around and compare mortgage rates online and from the comfort of your home, and many specialize in mortgage loan products that help first-time buyers ease their way into homeownership. 

If you’re shopping for a new home or you need to refinance the mortgage for a property you already own, you should find out which mortgage lenders offer the best loans and terms.

Keep reading to find out which lenders beat out the others to get on our list of the best mortgage lenders for 2024. 

Our Picks for Best Mortgage Lenders of March 2024

• Quicken Loans (Rocket Mortgage) – Best Overall
• Better – Best for Streamlined Process
• North American Savings Bank (NASB) – Best for First-Time Homebuyers
• Veterans United Home Loans – Best for VA Loans
• Citibank Mortgage – Best for Citibank Customers
• NBKC Bank – Best for Subsidized Loans

Best Mortgage Lenders – Company Reviews

Quicken Loans (Rocket Mortgage) – Best Overall

Founded in 1985, Quicken Loans has grown to become one of the largest mortgage originators in the United States. Be aware that the company officially changed its name to Rocket Mortgage in 2021, so both names are used interchangeably.

Either way, Quicken Loans (Rocket Mortgage) offers a wide variety of home loans of all sizes, and they specialize in both purchase loans and home refinancing products. They’re authorized for VA mortgage lending and other federal loan programs, jumbo mortgages, and adjustable or fixed-rate plans.

The Quicken Loans website makes it easy to find out what kind of loan fits your needs, how much you can qualify for, and what kind of interest rate you’ll pay. However, you can also call in to speak with a customer service representative who can answer your questions and give personalized mortgage advice. 

The best part? Borrowers can complete the entire mortgage process online from start to finish. Quicken Loans (Rocket Mortgage) also earned the top spot in J.D. Power’s 2023 U.S. Primary Mortgage Origination Satisfaction Study.

Better – Best for Streamlined Process

Better was originally founded in 2014, and the company stands out from the crowd as a modern solution to a complicated process. The entire mortgage process is completed online when you choose Better, so you don’t have to work with a mortgage representative or visit an office in person. 

While Better doesn’t offer some products, such as HELOCS or VA loans, its rates are quite low, thanks to investor-matching technology. Further, Better received above-average customer satisfaction scores from J.D. Power. Finally, it also has an average star rating of 4.13 out of 5 stars among more than 1,100 customer reviews shared with the BBB.

North American Savings Bank (NASB) – Best for First-Time Homebuyers

North American Savings Bank (NASB) was originally founded in 1927, and the company maintains its headquarters in Kansas City, Missouri. They have since grown to become a major provider of various home loan products, including VA loans for eligible military members and veterans.

NASB offers several mortgage assistant programs geared to first-time homebuyers as well, including a program called Home Buying Advantage and a Zero Down Home Loan Program. The company also offers a seamless online mortgage process with the option to monitor your loan through an online dashboard and upload your required documents through their portal.

Once you negotiate a successful offer on a home you want to buy, North American Savings Bank even offers personalized counseling to help guide you through the process.

Veterans United Home Loans – Best for VA Loans

Veterans United Home Loans is a highly rated mortgage company that focuses on VA home loans, which are only available to veterans, certain active-duty military, and qualifying spouses. These loans let you qualify for some of the lowest mortgage rates available today with easy qualification requirements. Borrowers can use their VA home loan benefit to purchase a home or to refinance into a home loan with better rates and terms.

Veterans United also boasts some of the best rankings of all mortgage companies in J.D. Power’s 2022 U.S. Primary Mortgage Origination Satisfaction Study.

In fact, it scored 905/1,000 possible points, earning the second spot only behind USAA. Veterans United also boasts an average star rating of 4.82 out of 5 stars across more than 1,900 reviews shared with the BBB, where the company is accredited with an A+ rating.

Citibank Mortgage – Best for Citibank Customers

Citibank is known for its checking and savings accounts as well as its top credit card offers, but this bank also offers a variety of mortgage products. Not only does it offer purchase loans for buyers who are looking for a new home, but it also offers refinance loans for homeowners who want to trade their mortgage for a new one with better terms.

The company lets customers manage the bulk of their mortgage process online, even making it possible to qualify for a $500 credit at their mortgage closing. It also promises fast pre-approval with its SureStart® program, which can help you secure a deal on a home when you make an offer.

Citibank also offers periodic promotions for its mortgage products, which may include a specific amount of your closing costs and lower interest rates for existing Citi customers.

Overall, Citibank is worth exploring — particularly if you bank with it already.

NBKC Bank – Best for Subsidized Loans

NBKC was originally founded in 1999 as the National Bank of Kansas City, yet the company has changed its focus to online banking since its early days. The bank currently focuses on subsidized loans, plus VA loans for military members, veterans, and eligible family members.

While in-person customer service is available only in Kansas and Missouri, the bank’s phone support makes its services available to customers in all 50 states. NBKC also promises a fully online mortgage application process, although you may need to speak with an agent to get a rate quote based on your home’s value and where you live.

Finally, it’s worth noting that NBKC has an average star rating of 4.85 stars out of 5 across more than 1,400 user reviews with the BBB. The company is also accredited by said agency, and they have an A+ rating to boot.

Mortgage Loan Guide

As you take the time to compare the best mortgage lenders, it’s smart to learn as much as you can about the application process, the different lenders, and your various loan options. Read on to learn more about mortgage products and how they work.

How Do Mortgages Work?

When consumers take out a mortgage, they borrow a specific amount of money and agree to pay it back over time. Generally speaking, buyers need to have a down payment to purchase a home, and they’ll be charged an interest rate on their mortgage that’s based on an annual percentage rate (APR).

The mortgage loan is backed by the equity in the home they’re purchasing, so borrowers can lose their home to foreclosure if they fail to keep up with their monthly payments. That said, homeowners also build equity in their homes as they make payments over time, and they will own their property outright once the final mortgage payment is made.

Mortgages come in many different forms and may include fixed-rate mortgages, adjustable-rate mortgages, and other home loans geared to veterans and first-time homebuyers. 

Types of Mortgage Loans

There are many different loan products for potential homeowners, with some geared specifically to certain types of homebuyers. The main loan options available for a home purchase or refinance are highlighted below:

• Conventional Home Loans: Conventional home loans are the most common type of mortgage, and they are geared toward consumers with good credit and a down payment of at least 3%.
• Fixed-Rate Mortgages: Fixed-rate mortgages offer borrowers a fixed interest rate, fixed monthly payment (principal and interest), and a fixed repayment timeline that usually lasts 15 to 30 years.
• Adjustable-Rate Mortgages (ARM): ARMs are 30-year home loans that come with interest rates that can change with market conditions. With a 5/1 ARM, for example, you pay a competitive fixed interest rate for the first five years, followed by an interest rate that adjusts with market conditions.
• FHA Loans: Federal Housing Administration home loans let borrowers get a mortgage with easy credit qualifications, low closing costs, and a down payment as low as 3.5%.
• VA Loans: Veteran’s Authority home loans are only for eligible military members, and they come with no down payment requirement, competitive rates, low closing costs, and no requirement for private mortgage insurance (PMI).
• USDA Loans: United States Department of Agriculture loans are insured by the United States Department of Agriculture, and they help eligible borrowers purchase homes with no money down in specific rural areas.
• Jumbo Loans: Jumbo loans are mortgages that are for higher amounts than conforming loan standards in your area. In most parts of the country, the 2024 conforming loan limits are set at $766,550 for one-unit properties.

How to Apply for a Mortgage

Whether you’re buying a home or hoping to refinance a mortgage you already have, there are several steps required to move through the process. Once you check your credit score and confirm you can get approved for a mortgage, follow the steps below to apply.

• Step 1: Research Mortgages to Find the Right Type. The first step in the process is figuring out the type of home loan you want, as well as which type you can qualify for. While you can research on your own, speaking with a mortgage expert to find out which type of loan is suited to your needs can help. 
• Step 2: Compare Multiple Lenders. Once you decide on the type of home loan you want, you should take the time to compare multiple mortgage companies and lender offers. Not only should you read over user reviews and rankings, but you should also compare lenders based on their advertised interest rates and loan fees.
• Step 3: Get Pre-Approved. Next up, take the time to get pre-approved for a mortgage. This step can be completed entirely online, although you’ll need to provide some information, such as your employment history, your income, and your credit score. 
• Step 4: Start Shopping for a Home. Once you’re pre-approved for a mortgage, make sure you have a preapproval letter handy as you begin shopping for a home. This letter should clearly state the loan amount you’re pre-approved for, and it can help you stand out from other buyers when you’re making an offer on a home.

How to Get the Best Mortgage Loan Rates

Several steps can help you qualify for the best mortgage rates and loan terms, including the following:

• Improve Your Credit Score: If you are able to improve your credit score so it falls into the “good” range or better, you’ll be in the best position to qualify for competitive mortgage rates. Having good credit typically means having a FICO score of 670 or higher.
• Pay Down Debt: Paying off unsecured debts can help lower your debt-to-income ratio, which is a major factor involved in qualifying for a mortgage.
• Compare Multiple Lenders: Shopping around with more than one lender is one of the best ways to find the best rates. If you want to save time, consider comparing mortgage rates with a comparison site like LowerMyBills.com.
• Shorten Your Loan Term: Generally speaking, you’ll qualify for lower mortgage rates if you choose a shorter loan term, such as a 15-year fixed-rate mortgage instead of a 30-year home loan.
• Pay Discount Points: In some cases, you may be able to pay discount points that let you lock in a better mortgage rate. These points require a flat upfront fee, and each point can lower your mortgage rate by 0.25% on average.

How We Found the Best Mortgage Lenders

To find the best mortgage lenders of 2024, we compared companies based on features such as their online functionality, customer service options, and third-party ratings from organizations such as J.D. Power and the Better Business Bureau. We also looked for mortgage companies that offer several loan options, including conventional mortgages, VA loans, FHA loans, and more. 

Last but not least, we sought out lenders that offer competitive interest rates and loan terms, as well as those that are upfront and transparent about their fees and processes.

Summary of the Best Mortgage Lenders of 2024

• Quicken Loans (Rocket Mortgage) – Best Overall
• Better – Best for Streamlined Process
• North American Savings Bank (NASB) – Best for First-Time Homebuyers
• Veterans United Home Loans – Best for VA Loans
• Citibank Mortgage – Best for Citibank Customers
• NBKC Bank – Best for Subsidized Loans

The post Best Mortgage Lenders for 2024 – 6 Picks appeared first on Good Financial Cents®.

Then again, I trusted my wife’s judgment so much that I was willing to become a first-time homeowner – even from the other side of the world. Even though we didn’t have a huge down payment, we had several factors working in our favor.

First, we qualified for a VA home loan, which is a type of mortgage that offers looser credit requirements and is backed by the federal government. Because my active military status helped us qualify for this perk, we were able to avoid paying PMI or private mortgage insurance.

Also, our VA home loan allowed us the flexibility to put down a much smaller down payment than we would have otherwise. Lastly, we were entirely debt-free when we became homeowners for the first time.

Since we were taking on the burden of a mortgage, home maintenance, and upkeep for the first time, not having any other debts was a huge bonus in my eyes. When all was said and done, I returned home from Iraq as a first-time homeowner.  As if returning home from a war zone to a wife I loved wasn’t rewarding enough, I returned to a house I actually owned!

What Do I Need to Buy My First Home?

Buying a home is as exciting as it gets, but there are plenty of financial details to consider before you take that first step. First and foremost, you’ll want to make sure your credit is in tip-top shape. By and large, the best interest rates and loan terms go to individuals with good credit. Generally speaking, “good credit” is any FICO score that is 720 or higher.

Once you figure out whether or not your credit needs improvement, you’ll also want to make sure you can truly afford a home and all the upkeep that comes with it. After all, your mortgage isn’t the only new expense you’ll have when you become a homeowner.

Beyond your house payment, you’ll also need to pay for utilities, taxes, homeowner’s insurance, major component replacements, and repairs.

While this percentage may vary some between lenders, most will only loan you money if your total debts – including your mortgage – encompass less than 36 percent of your gross income.

If your family’s gross household income is $100,000 this year, for example, your lender will want you to keep your total debts – including your mortgage and housing costs – under $36,000, or $3,000 per month.

Make sure to keep your debt-to-income ratio in mind as you start saving for your first home. If you’re carrying quite a bit of debt already, you should seriously consider paying it down as you save up your down payment.

Not only will paying off debt give you more wiggle room in your budget, but it may also allow you the flexibility to buy a larger or nicer home.

Related:

• How Much of a House Payment Can You Really Afford?

8 Ways to Save Up for a Downpayment on Your House

Once you have assessed your credit and have your debt situation squared away, one more major hurdle stands between you and your home purchase.

That’s right; it’s your down payment – or the amount of money you “put down” when you purchase your home.

This figure is crucial for a few reasons; first, putting at least 20 percent down on your new home can help you avoid paying private mortgage insurance, or PMI. Second, saving up a large down payment can help you secure a better loan with a lower interest rate. And third, saving up a large down payment makes it easier to afford a house you truly want instead of being forced to settle.

No matter how you cut it, your down payment is more important than many people realize.

And if you hope to become a homeowner in the near future, you would be wise to start saving right away. Want to get started? Here are eight tips that can help you build an epic down payment for your new home:

#1: Figure Out How Much House You Can Actually Afford

First things first. Before you start saving up for a down payment, it helps to know how much house you can actually afford – and how much you need to save. Most of the time, a housing affordability calculator can help with the first part.

By entering details regarding your personal income and debts, you can usually get a general idea of how much you might be able to spend on a home. Once you have a price range to shoot for, it’s fairly easy to figure out a savings goal.

If you hope to save at least 20 percent to avoid paying PMI, which you should, you’ll simply multiply your desired home purchase price by .20.

A $200,000 home multiplied by .20 will leave you with $40,000, which is the down payment you’ll want to shoot for. If you expect to save less, that’s perfectly okay. Shooting for 20 percent is a dream goal, but it’s just not feasible for everyone.

#2: Start a Targeted Savings Account

Once you have an idea of how much you need to save, you should start a targeted savings account that will keep your new housing fund separate from the rest of your savings. By keeping it separate, you’ll ensure your earmarked savings don’t accidentally get spent on something else.

And since you’re saving to hit a specific monetary goal, having those funds separate makes it a lot easier to monitor your progress.

When it comes to savings accounts, the best options are almost always online. Not only can you usually get higher interest rates with an online account, but you can transfer money quickly and easily with the touch of a mouse.

Related:

• Top 8 Best High-Yield Online Savings Accounts

#3: Make Savings Automatic

If you’re worried you’ll get distracted and forget to save, you might want to make your savings automatic. By setting up automatic bank withdrawals or deposits, you allow the bank to take on the bulk of the work for you.

One strategy to consider is having your bank transfer a certain dollar amount from your primary checking to a targeted savings account every payday or on the first or last day of the month.

By having the bank do this automatically each month, you’ll never have to worry about it again.

Related:

• The Best Free Online Budgeting Tools

#4: Save up Windfalls and Raises

While saving money from each paycheck can help you reach your goal in time, adding more money to the pile will help you get there even faster. If you get windfalls, bonuses, or raises at work frequently, make sure these “extra” sums of money don’t go to waste.

Instead of spending your tax refund on a new toy or a vacation, have it transferred to your down payment fund right away.

The same thing should be done with any end-of-the-year bonuses you get at work or other windfalls you might receive. By moving that money “out of sight and out of mind,” you can save it for a time when it really matters.

#5: Use a Cashback Credit Card to Rack up Rewards, Then Stash Them Away in Savings

If you don’t have a cashback credit card already, now may be the perfect time to get one. Across many different card types, some cashback cards offer between 1 – 5 percent cash back on every purchase you make.

By getting a cashback credit card, you’ll earn cashback for every dollar you spend on groceries, utility bills, and household expenses. If you let those rewards rack up over time, you could easily earn hundreds – or even thousands – of dollars towards the down payment on your new home.

Of course, this strategy isn’t for everyone. If you have no trouble paying off your credit card balance each month and avoid credit card interest like the plague, getting a cashback card can be a smart move. But if you have struggled with debt in the past, you should continue avoiding credit altogether.

#6: Open a Certificate of Deposit (CD) or Money Market Account.

If you’re not thrilled with the amount of interest you’re earning in an online savings account or simply want another way to beef up your savings, you can also consider opening a Certificate of Deposit (CD) or Money Market account. With both options, you’ll earn slightly more interest than you would in a traditional savings account, but with very little risk.

Generally speaking, Certificates of Deposit, or CDs, require you to put your money on deposit for a specific length of time in return for a predetermined interest rate or payout. If you know exactly how much you need to save and how long you plan to save for your home, a CD might be a smart bet.

A Money Market account can offer more flexibility since you aren’t required to commit your funds for a specific length of time. On the other hand, you may not earn as much interest as you would with a Certificate of Deposit (CD).

As an aside, you can sign up for a money market account with several excellent online brokers, including TD Ameritrade and E*Trade.

Related:

• 11 Best Low-Risk Investments for High Returns

#7: Go After Bank Bonuses

If you think credit card rewards are easy to earn, you’ll love bank bonuses. Depending on the bank you open an account with, you might earn several hundred dollars just for signing up and meeting certain requirements.

To earn some bank signup bonuses, you’ll need to keep a certain amount of money on deposit for a specific length of time. To earn others, you’ll need to set up a direct deposit each month instead.

Either way, it’s crucial to understand all of the requirements for any bank bonus before you sign up. If you misread the fine print or don’t follow directions, you could miss out on your bank bonus altogether.

#8: Cut Your Spending to Save Even More

If you’re having trouble saving up your down payment, I’ve got one final piece of advice to offer: Cut your spending!

There are times when getting what you want requires some sacrifice, and this might be one of those times. If you can’t seem to save enough to get ahead, you must look for ways to reduce your spending and consumption.

This part may not be fun, but it will help you reach your goal of becoming a homeowner. To start things off, look for the easy ways and “low-hanging fruit” to cut from your monthly budget.

If you’re eating out at restaurants several times per week, for example, stop. If you’re paying a few hundred bucks for your smartphone package, switch plans, for goodness sake. If you’re withdrawing cash to spend each month and have no idea where it goes, make sure to stay away from the ATM altogether.

We all have our own budget drains to deal with, and dealing with yours is one of the best ways to save more money in the long run. So, sit down with your budget and brace yourself for a few painful cuts. It might hurt at first, but it will be worth it in the long run.

Final Thoughts

Buying a house can be absolutely life-changing, but it will be even more rewarding if you have your financial ducks in a row first. Beyond having good credit and keeping your debt at a minimum, a huge down payment for your first home will make life easier.

And the earlier you start saving, the better off you’ll be.

How much did you put down on your first home? Did you have to pay PMI, or did you avoid it?

The post 8 Ways to Save Up the Down Payment for a House appeared first on Good Financial Cents®.

Most lenders don’t do many VA loans, and some do none at all. Since VA loans are a highly specialized mortgage type, it’s best to go with lenders who focus mostly or even entirely on this loan type.

To help you with the decision, we’ve prepared this guide listing what we believe to be the best VA home loans of 2024. We’ll cover each lender, then provide you with a thorough understanding of VA home loans and how they work.

Before we go any deeper, you can scan the comparison table below to get a quick overview of the eight best VA loan lenders of 2024:

Our Picks for the Best VA Loan Lenders March 2024

We’re not going to keep you waiting – below is our list of what we believe to be the best VA home loans of 2024, and what we believe each is best for:

• Veterans United: Best Overall
• USAA: Best for Lowest Rates
• Quicken Loans: Best Online Lender
• PenFed Credit Union: Best for No Lender Fees
• Navy Federal Credit Union: Best for First-Time Homebuyers
• LendingTree: Best Online Mortgage Marketplace
• Wells Fargo: Best Mortgage and Banking in One Place
• loanDepot: Best for Other Mortgage Options

Best VA Loan Lenders – Company Reviews

Below are summary reviews of each of the eight best VA home loans for 2024. Under each summary review is a link to our full review of each particular lender. Feel free to click through if you’d like more information before making a decision on which VA lender to use.

Veterans United takes our top honors as the best overall VA mortgage lender. It’s easy to see why. It’s the largest VA mortgage lender in the country and one that specializes entirely in working with veterans.

For example, the company works with senior members of all branches of the US military, including the Army, Navy, Air Force, and Marine Corps, to help them stay on top of developments affecting veterans. They also offer their Veterans United Lighthouse program.

Not only does it help veterans build and improve their credit, but it also provides a network of real estate agents nationwide who are knowledgeable in VA home purchases.

Why We Like Veterans United: Having the status of the largest VA mortgage lender in the country means veterans are trusting their home financing needs to Veterans United more than any other lender. We also like that the company focuses entirely on VA loans, so they aren’t distracted by other loan programs.

See Our Full Veterans United Review

USAA tends to be on the low end of the interest rate spectrum with VA loans. But there’s a lot more to USAA than just VA loans. It’s a full-service financial provider offering a wealth of financial services designed specifically for veterans. In addition to banking, insurance, and investments, the company specializes in auto insurance, where it consistently ranks at the top of the list for the entire industry.

USAA provides the full range of VA loans, including fixed and adjustable-rate mortgages, as well as jumbo loans. Meanwhile, their USAA Home Learning Center will help educate veterans on the many details of the mortgage lending process.

Why We Like USAA: Not only does USAA provide low rates, but they also offer a wide variety of financial services for veterans. That includes banking, insurance, and investments.

See Our Full USAA Review

Though it’s not widely known, Quicken Loans is the largest retail mortgage lender in the entire country. But mortgage financing is offered through their online lending portal, Rocket Mortgage. It provides a full range of mortgage products, including conventional and FHA loans, in addition to VA loans. That’s important because if a VA loan is not the best option, Quicken Loans can present alternatives.

Quicken Loans gets our vote as the best online VA mortgage lender. That’s because the entire lending process takes place online, so you can apply and track your progress from the comfort of your home or place of employment. You can also upload most of the required documentation needed for the mortgage application process, right on the website.

Why We Like Quicken Loans: The company website indicates Quicken Loans will accept a debt-to-income ratio (DTI) as high as 60%. This is well above the normal maximum of 43%.

See Our Full Quicken Loans Review

With PenFed Credit Union, short for Pentagon Federal Credit Union, it should be obvious that this lender has a strong orientation toward VA loans. In fact, it mainly provides services for those employed by the US government and its agencies. In addition to mortgages, they also provide auto loans and credit cards. PenFed also offers FHA loans, in case that might be a better choice than a VA loan.

Why We Like PenFed Credit Union: PenFed charges no lender fees, like origination or application fees. The only closing costs you’ll pay will be those charged by third parties, like attorneys, appraisers, and title companies. The credit union also provides up to $2,500 in lender credits, which can be used toward third-party closing costs and other expenses.

See Our Full PenFed Credit Union Review

Navy Federal Credit Union is the largest credit union in the United States, and by a very wide margin. And although the name includes “Navy,” they welcome members of all other branches of the US Armed Forces. At the credit union, you can take advantage of banking services, like deposit accounts, auto loans, and credit cards, in addition to home mortgages.

Navy Federal also provides conventional and FHA loans, in addition to VA loans.

Why We Like Navy Federal Credit Union: The fact that this lender is a credit union, and one that caters to military families, makes it a top choice for first-time homebuyers.

See Our Full Navy Federal Credit Union Review

LendingTree is an online loan marketplace, where dozens of lenders offer their loan programs to consumers. Not only does it include mortgages, but you can also find car loans, credit cards, personal loans, and other financial products on the platform. LendingTree is not a direct lender, but the website is free to use.

Of course, the advantage of shopping on an online marketplace is that you can also consider other financing options. In addition to VA loans, participating lenders also offer conventional and FHA loans.

Why We Like LendingTree: It’s an excellent choice for anyone who is primarily shopping for the lowest mortgage rate. By completing a simple online loan application, you’ll get offers from multiple lenders. You can then choose the lender that offers the best combination of rates and terms.

See Our Full LendingTree Review

Wells Fargo is not only one of the largest mortgage lenders in the country but also one of the very biggest commercial banks. That means you can enjoy full-service banking, including checking, savings, CDs, access to a wide variety of loan programs, and even small business banking – with the same company you get your mortgage from.

Wells Fargo provides all types of mortgage financing, including conventional and FHA loans, as well as VA mortgages. And as a bank, they also offer secondary financing, including home equity loans and home equity lines of credit (HELOCs). Eligible VA borrowers should also be aware that Wells Fargo does not charge an origination fee on VA loans.

Why We Like Wells Fargo: Full-service bank that can accommodate all your financial needs, including small business banking if you are self-employed.

See Our Full Wells Fargo Review

loanDepot is a direct lender that, much like Quicken Loans, operates entirely online. That will make for an easy and convenient loan process, including the ability to upload required supporting documentation, right on the website.

loanDept is a direct lender, so you can be confident you will be working with them through the entire mortgage process. The company operates in all 50 states, as well as Washington, DC. Though it’s not as well-known as some of the other lenders on this list, it’s actually the fifth-largest mortgage lender in the country.

Why We Like loanDepot: They offer the full range of mortgage financing products, including conventional and FHA loans, as well as secondary financing options, in addition to VA mortgages.

See Our Full loanDepot Review

VA Home Loan Guide

How Does a VA Loan Work?

In most respects, VA loans work like any other type of mortgage, including conventional and FHA loans. The main difference is that you must be an eligible veteran or an active-duty member of the US military to qualify for a VA loan.

You should also be aware that VA loans are only available for owner-occupied, primary residences. If you want to purchase a vacation home or rental property, you’ll need to consider a conventional loan instead.

Probably the biggest advantage of VA loans is that they provide 100% financing. Not only will that eliminate the need for a down payment, but also for a second mortgage or a home equity line of credit (HELOC).

Though HELOCs have become common for homeowners, it’s always best to understand the pros and cons of a HELOC. Though they have definite advantages, there are certain risks. Either way, they’re usually not necessary if you qualify for a VA loan.

VA loans are available for both purchases and refinances. Rates and fees are lower when you do an Interest Rate Reduction Refinance Loan (IRRRL), as opposed to a cash-out refinance. It’s important to understand when to refinance, then to work with the best mortgage refinance companies for VA loans.

Because of the 100% financing factor, refinances can be more complicated with VA loans than with conventional loans.

Whether you are purchasing or refinancing, it’s important to know how to get the best VA loan rates. Under “How to Qualify for a VA Loan” below, we’ll go over the factors that will affect the rate you’ll pay.

What Is the VA Funding Fee?

When you make a down payment of less than 20% using a conventional mortgage, you’ll be required to pay what’s known as private mortgage insurance, or PMI. This is an insurance policy, you as the homeowner, are required to purchase to partially compensate the mortgage lender should you default on the loan.

VA mortgages do not use PMI. Instead, they have what is referred to as the VA funding fee. This is a fee collected by the Veterans Administration, which will partially compensate lenders for borrower default on the loan. This is especially important with VA loans since they involve 100% financing.

The VA funding fee is paid at the time of closing. If it isn’t paid by the property seller, lender, or a gift from a family member of the borrower, it will be added to the loan amount. This is the most common scenario.

For example, on most purchases, the funding fee will be 2.3%. If the loan amount is $300,000, the amount owed will be $306,900, with the VA funding fee added to the principal amount of the loan. The borrower will then effectively pay the funding fee over the life of the mortgage.

There are various rates that apply to the VA funding fee. Those rates are as follows for 2024:

The VA funding fee is different for refinances. If you are doing an Interest Rate Reduction Refinancing Loan (IRRRL), in which you are refinancing only to lower the interest rate and payment on your loan, the fee is 0.5%.

If you are doing a refinance and taking cash out with the loan, the VA funding fee will be 3.6%.

Just for comparison’s sake, conventional mortgages charge monthly mortgage insurance premiums, which VA loans don’t have. FHA loans have both upfront and monthly premiums.

If you do have to add the VA funding fee to your loan amount, think of it as one of the costs of owning a home. When it comes to VA loans, the funding fee is a big reason why you’ll qualify for the loan.

Pros and Cons of a VA loan

What Is the VA Loan Limit?

For 2024, the standard maximum VA loan amount is $766,550 for a single-family property. However, in areas designated as “high cost,” the maximum loan amount can be as high as $970,800. The maximum limits are higher for owner-occupied homes with 2-4 living units in them.

But even if you want to purchase a home for more than the standard maximum, you can do so using the VA Jumbo program. That’s a program that enables you to buy a higher-priced home, but it will require you to make a partial down payment.

It works like this: Let’s say you want to purchase a home for $926,200. That’s $200,000 above the standard maximum loan limit.

If you only needed to borrow the maximum of $766,550, you could do so with no down payment whatsoever. But under the VA Jumbo Loan Program, you’ll be required to make a down payment equal to 25% of the amount by which the loan exceeds the standard maximum.

Since the property you are purchasing is priced $200,000 over the standard maximum limit, you’ll need to make a down payment equal to $50,000, which is 25% of $200,000.

That may seem like a big chunk of money. But $50,000 represents a down payment of just under 6% on a home worth $926,200.

That’s an outstanding deal since conventional Jumbo loans typically require a 20% down payment.

How to Qualify for a VA Loan?

To be eligible for a VA loan, you must be either an active-duty member of the US military or an eligible veteran. Eligibility is determined by acquiring a VA Certificate of Eligibility (COE). You may have received this certificate upon discharge from the military, but don’t worry if you didn’t. Your mortgage lender will assist you in obtaining the certificate.

Whether you are a veteran or currently on active duty, there are specific requirements for that eligibility based on when you served and for how long. Eligibility will not be granted if you were dishonorably discharged.

Apart from VA eligibility, you can qualify for a VA loan the same way you would with any other mortgage program. While the following information will help you understand the process, it’s best to let a lender show you how to get approved for a home loan.

Other Considerations Your Lender Will Look At

Credit

The Veterans Administration does not set a specific minimum credit score, but rather leaves it up to individual lenders. Most lenders set the minimum score at 620, though some will go lower. The lender will also consider individual components of your credit, such as any history of bankruptcy, foreclosure, or serious delinquencies.

Just as is the case with other types of mortgages, your credit will have a strong impact on the rate you’ll pay on your loan. Be sure to check current mortgage rates based on your current credit score.

Employment

Lenders will generally look for a continuous employment history of at least two years. Military service or college can partially or entirely satisfy this requirement, as long as you have the promise of employment in a job related to your military or college experience.

Debt Ratio

VA generally prefers your total fixed obligations, including both the new housing payment and any recurring debt payments, to be within 43% of your stable monthly income. However, lenders will sometimes go higher if you have compensating factors, like a down payment, cash reserves after closing, or excellent credit.Your debt ratio will be a major factor in answering the question, How much house can I afford?

Your debt ratio will be a major factor in answering the question, How much house can I afford?

Down Payment

Since VA loans are famous for providing 100% financing, a down payment is typically not required.

Closing Costs

These can be paid by the borrower, but also by the seller, the lender, or a gift from a family member.

Types of VA Loans Available

VA loans are available in three basic types, fixed-rate, adjustable-rate (ARM), and Jumbo loans.

Fixed-Rate

These are mortgages with terms ranging from 15 years to 30 years and carry a fixed rate and monthly payment. Though the interest rate on a fixed rate is higher than it will be for an ARM, it’s a much less risky loan since the payment will never change. This will be particularly important if interest rates rise in the future.

Before choosing a 15-year loan, which has a higher monthly payment, you should first consider the implications of a 15-year vs 30-year mortgage. For most borrowers, the 30-year loan will offer a lower payment, which will be a more comfortable fit.

ARM

This loan type has a fixed-rate term, which is followed by annual adjustments. For example, with a 5/1 ARM, you’ll have a fixed rate for the first five years of the loan. After that, the rate will change each year. To keep the payments from going too high upon adjustment, ARMs have rate caps.

For example, in a typical arrangement, the rate will not be able to increase more than 2% on the first adjustment. Subsequent adjustments will similarly be limited to 2%, with a maximum adjustment of 5% over the life of the loan.

However, even with the rate caps, your rate and payment can go up substantially from the initial term. If the loan starts at 4% and has a 5% lifetime cap, you may eventually end up paying 9%. These loans are suitable only if you plan to stay in the home for no more than the initial fixed-rate term of the program.

Jumbo Loans

We covered this earlier under “What is the VA loan limit,” so we won’t go into any detail here. A VA Jumbo loan is simply a program that enables an eligible borrower to borrow more than the standard loan amount, in exchange for making a down payment equal to 25% of the excess loan amount. Before taking a jumbo loan, be sure to gain a thorough understanding of the VA Jumbo loan. The higher dollar amount does represent a greater risk.

How We Found the Best VA Loan Lenders

There are many mortgage lenders offering VA loans, but only a small percentage specialize in this loan type. To come up with our list of the eight best VA loans for 2024, we considered the following criteria:

The number of VA loans the lender does.

• Specialization in VA loans.
• The number of VA loan programs the lender offers.
• The lender’s reputation.
• Specializations, like accommodating low credit scores, low closing costs, and other services offered by the lender.

In addition, we chose lenders that cover wide geographic areas to benefit as many people as possible.

Summary of the Best VA Home Loans of August 2024

• Veterans United: Best Overall
• USAA: Best for Lowest Rates
• Quicken Loans: Best Online Lender
• PenFed Credit Union: Best for No Lender Fees
• Navy Federal Credit Union: Best for First-Time Homebuyers
• LendingTree: Best Online Mortgage Marketplace
• Wells Fargo: Best Mortgage and Banking in One Place
• loanDepot: Best for Other Mortgage Options

We believe any one of these lenders will be an excellent choice to provide you with a VA loan.

Final Thoughts – 8 Best VA Loan Lenders of 2024

Selecting specialized VA loan lenders is vital in the competitive mortgage market. This guide highlights top choices: Veterans United for veterans, USAA for low rates, Quicken Loans for online convenience, PenFed Credit Union for no fees, Navy Federal Credit Union for first-time buyers, LendingTree for online comparisons, Wells Fargo for banking integration, and loanDepot for diverse options. 

Each lender addresses unique needs, offering tailored solutions for VA loans in 2024.

The post 8 Best VA Loan Lenders of 2024 appeared first on Good Financial Cents®.

Let’s start at the top—making the decision to buy a home—then work down to the closing at the very end.

1. Make Sure You’re Ready to Buy!

Most people are pretty sure when they’re ready to buy. Or are they?

This is a more important consideration than most people give it. Often, the motivation to buy a house comes from what we might call external sources. These include well-meaning family and friends, as well as a culture that emphasizes buying a home.

But before you pull the trigger, ask yourself a few important questions:

• Am I ready to take on the long-term obligation that a house requires?

• Will I be okay with performing needed maintenance, like landscaping, snow removal, and, sometimes, an endless run of repairs?

• Do I plan to be in the home for at least five years, or is it likely my career or my internal compass will have me looking to make a move in a year or two?

• Do I really have the financial strength to own a home, or will I be stretching my budget to an uncomfortable level?

Answer these questions honestly. If there are too many “no” answers, you may be better off renting for a while longer. Ownership requires commitment, and you shouldn’t be buying if you feel you can’t make that commitment.

2. Get Prequalified for Financing

This involves contacting a mortgage lender and completing an application. The prequalification will be based on the information you supply, and the lender doesn’t normally require you to provide documentation to support your income, employment, or savings.

It’s not an approval, and it shouldn’t be construed as one. But it does give you valuable insight into how much financing you can qualify for. By adding the amount of your anticipated down payment to that financing, you’ll get an idea of how much house you can afford.

3. Start a Workable Savings Plan for Your Down Payment

Unless you plan on getting a zero down payment mortgage, like a VA loan or an FHA or conventional loan with down payment assistance, you’ll need to have a down payment of at least 3%–5% of the purchase price of the home.

If you make a larger down payment, especially 20% or more, you may be able to eliminate the need for costly private mortgage insurance (PMI). In addition, a larger down payment can enable you to qualify for a higher-priced home.

Begin working now to accumulate your down payment funds. That may include a long-term savings accumulation program, or banking windfalls, such as from the sale of personal items or receipt of your income tax refund.

4. Improve Your Credit Score

When you get prequalified for a mortgage, the lender will likely pull your credit report. Request a copy of that report to see what your credit score is.

How much loan you will qualify for, as well as the price it will involve, are closely connected to your credit score. A higher score will enable you to qualify for a larger loan at a lower rate.

Take advantage of the time between prequalification and formal loan application to increase your credit score. Improving a score by 40 or 50 points can lower your rate and result in a lower monthly payment.

5. Decide What Kind of Home You Want

This is where the home-buying process becomes fun. Make a list of what you want your new home to have.

For example, do you want a one-story home or a two-story one? Three bedrooms or four? Two bathrooms or three? Large property (plenty of growing room) or small property (low maintenance)? Detached home or condominium? Fixer-upper or move-in ready?

Also, spend time considering the location. In fact, the “three rules of real estate” are location, location, and location. Though that “rule” is somewhat tongue-in-cheek, it’s also very valid. The location will determine the price you pay for the home, the school district you’ll be located in, proximity to shopping and recreational amenities, and even how long your commute to work will be.

Location should generally be the first consideration because it’s the one factor that cannot be changed once you buy the home. You can expand the home, upgrade its features, and add amenities, but you can’t change the location.

6. Get Pre-approved for a Mortgage

In Item #2 I recommend getting prequalified for financing. While prequalification and pre-approval may sound similar, they are actually very different.

With prequalification, you’re consulting with a mortgage lender to determine the amount you may borrow, based on your income and credit standing. The pre-qualification is mainly for your own information.

Pre-approval is the more substantial version of prequalification. Just as the name implies, you’ll actually be making an application for your mortgage. In the process, you provide all necessary income, employment, and savings documentation.

Where prequalification is primarily for you in the shopping process, pre-approval is mostly for real estate agents and property sellers. The lender will issue a pre-approval letter, which will ensure agents and property sellers of your ability to qualify for the financing. It’s often required by property sellers before they’ll even accept a contract offer.

With a pre-approval in hand, you’ll already have your mortgage in place. It’ll be just a matter of shopping for and finding the right property.

Choosing the Right Lender

It can be confusing to decide which mortgage lender to choose from the many hundreds that are available. If so, you may want to choose one of the four lenders below. These are some of the most popular mortgage lenders in the country, and for good reason.

• Rocket Mortgage is the online face of Quicken Loans, the largest retail mortgage lender in the country. They provide all types of loans to consumers across the country. Their online process makes for a quick and easy application, often with less time to close than other lenders.

• loanDepot offers lending across the country, including conventional, Jumbo, FHA, and VA loans. Similar to Rocket Mortgage, they offer an all-online application to speed the loan application process.

• Veterans United is the top source of VA loans in the country. They work primarily with veterans and even have a real estate network with veteran-friendly real estate agents and brokers.

• Credible is an excellent choice because it’s an online mortgage marketplace. By filling out a brief online application, you get rate quotes from several lenders. You can then choose which one offers the best program and pricing.

7. Find the Right Real Estate Agent for You

The real estate agent is the person who is going to act as your guide on your journey to find a home. Choosing that person shouldn’t be taken lightly.

You’ll want to be certain the agent you work with is not one who is only concerned with closing “deals.” Those are “numbers people” who only want to make as many sales as possible. But you’re not a “deal”; you’re a person or couple who are looking to buy the right home.

That will require the services of a real estate agent who has the right motivation. The agent should spend a good deal of time asking you questions upfront about the type of property and location you want. He or she should also get to know you a bit, understand your preferences, and build trust.

The best way to find the right real estate agent is to ask people you know who had a successful home buying experience with an agent. Ask family, friends, neighbors, and coworkers. If the name of an agent is recommended more than once, there’s a good chance you have found the right person.

8. Start Looking at Homes

At this point, you’ll have three critical parts of the home buying process in place: your financial qualifications, the type and location of the home you want, and a real estate agent you’re comfortable working with. That’s when it’s time to begin looking at homes.

You can do an online search of available properties through websites like Realtor.com and Zillow. Since properties on both sites are commonly listed through real estate agents, your agent should be able to help you visit those properties.

Be sure to look at several properties before making your choice. Even if the perfect home turns out to be the first one you look at, you owe it to yourself to look at several more. Sometimes the perfect home only becomes perfect once you’ve investigated the alternatives.

9. Making an Offer

Once you’ve found the right home for you, it’ll be time to make an offer. Fortunately, your real estate agent will handle the details of that offer. Even so, be sure the agent explains all provisions in the offer to you. Though it may be called an offer, it will become the contract of sale once it’s accepted by the seller.

An offer should have multiple provisions you should be aware of:

• Most obviously, the offer price.

• The anticipated closing date.

• A financing contingency that will enable you to withdraw the contract if you fail to obtain mortgage approval (which shouldn’t be a problem if you’ve been pre-approved).

• Whether or not the seller will be paying part of or all your closing costs.

• A home inspection provision (see below).

• A list of any non-realty items that will be included in the sale, such as a refrigerator, washer or dryer, or property amenities, like a gazebo or an above ground pool.

• Any repairs you want to have completed prior to closing.

These are standard provisions included in most real estate offers and contracts. But since you’re making the offer, you can include or exclude any provisions you like.

It’s very important to remember that an offer is just that, an offer. It’s your first indication of interest in the property. The property seller may accept your offer as is (unlikely), counteroffer (most likely), or reject the offer entirely. If the seller’s terms are unacceptable, you’ll also need to be prepared to move on to another property.

10. Schedule a Home Inspection

A home inspection can cost between $200 and $500, but it will be money well spent. You should not overlook this step, either. The home inspection protects your interests, even if it might threaten the sale.

A detailed home inspection will assess the structural integrity of the home, as well as the functionality of its components. If any items are found to be deficient, it will be an opportunity to have the seller make needed repairs. If the seller refuses, and you purchase the home anyway, you’ll pay the cost of those repairs after closing.

It’s common for contract offers to include a dollar threshold on repairs revealed by the home inspection. For example, the seller might want to limit repair costs to no more than, say, $2,000. If required repairs exceed that limit, the seller will have the option to void the contract.

However, if you want to purchase a home anyway, you can continue with the closing and pay the cost of the repairs yourself.

11. Hire a Closing Attorney

This largely depends on your state of residence. In some states, attorney representation for both buyer and seller is the norm. In others, a single closing attorney represents both parties for the closing. And in still others, title companies perform the closing function, and no attorneys are involved at all.

Even if you live in a state where a single closing attorney or title company is the norm, you can still choose to have an attorney. If nothing else, you can pay an attorney to review the final contract. This will give you an opportunity to learn if there are any provisions that may not be in your best interest.

12. Get Ready for Closing

This is mostly a matter of complying with any requirements from the mortgage lender. For example, the lender will require you to supply any documentation related to the conditions of the loan approval. They will also require you to obtain an acceptable homeowners insurance policy on the home you’re purchasing.

To make the closing process as stress-free as possible, be sure to comply with any lender requests quickly and completely. That will include having any remaining down payment funds ready for the closing date. Be sure to allow yourself time for this function, since you will typically be required to provide a cashier’s check to ensure the funds are available at closing.

13. Set Up Your Move

Determine whether you will do a self-move or if you will hire a professional moving company. This should be done as soon as your offer is accepted by the seller. At that point, it’ll be time to begin arranging the logistics of the move.

In addition to contacting a moving company, you’ll also need to begin notifying family, friends, and vendors of your change of address. That will include informing banks, brokers, retirement plan trustees, insurance companies, and lenders of your new address, as well as the date of the transition.

In each case, you’ll need to coordinate the change with the property seller and utility company. If the utility company is one you have never done business with in the past, they may require you to provide a security deposit to ensure payment.

14. Closing Day

If you faithfully completed all the steps above, the closing should be little more than a signing ceremony. All you’ll need to do is show up—with your cashier’s check—and sign a bunch of papers. Once you do, the property will be yours, and the closing agent will turn the keys over to you.

One step to be aware of on closing day is the walk-through inspection. That’s where you do a final walk-through of the property to make sure everything is as you expected it to be. It will be much easier to make this determination on closing day when the seller has removed all his or her possessions.

15. Try to Relax!

That’s easier said than done when you’re going through what is likely the biggest financial transaction of your life. But if you’ve been following through with all the steps in this checklist, it’ll just be a matter of letting the process go forward.

As much as possible, try to enjoy the entire process. It’s a unique experience, and one you’ll remember for the rest of your life.

The post The Home Buying Checklist: Your Guide for 2024 appeared first on Good Financial Cents®.

In this guide, we’re going to answer the question, What are mortgage closing costs? But we’re going to go beyond closing costs themselves and also include mortgage escrows. Those are allowances for taxes and insurance that must be paid at closing. 

For that reason, they can seem indistinguishable from closing costs – in no small part because they’ll have much the same effect on the transaction.

What Are Mortgage Closing Costs?

Mortgage closing costs are any costs incurred in connection with obtaining a mortgage. The lender provides the loan, but since mortgages are ultimately a type of investment security that will be sold to third parties, there are numerous transaction fees involved in the process.

In addition, a mortgage is also a legal transaction that requires the filing of documents with the appropriate state, county, and local authorities. That process adds an additional layer of fees.

Typical closing costs you can expect to incur are listed below. However, this list is not comprehensive. There may be certain closing costs unique to individual states or markets that are not included on this list. As well, some of the costs listed below may not be charged in your local area.

Points

Mortgage points are a percentage of the loan amount paid upfront. There are three types of mortgage points. Each point is equal to 1% of the loan amount. They come in two flavors: origination fees and discount points.

Origination fees are the lender’s compensation for arranging the mortgage. The fee is typically 1%, but it can be eliminated by accepting a slightly higher interest rate. For example, by agreeing to a rate increase of 1/8% (0.125), the lender may waive the origination fee.

Discount points are what you will pay if you want to lower the interest rate on your mortgage. For example, if you want to lower your interest rate from 3% to 2.75%, the lender might charge 1.5% in discount points to make that happen.

This type of strategy is only recommended if you plan on being in the home for many years and will have a chance to recover the cost of the discount points through the lower rate and monthly payment.

A similar fee is what’s known as a rate lock fee. Many lenders will allow you to lock your loan rate at application free of charge if the lock term is no more than 30 days. But if you want a longer lock, like 45 days or longer, they may charge you a rate lock fee, which is also expressed as points.

For example, the lender may charge you 0.50% of the loan amount to lock your rate for 60 or 90 days. But generally speaking, that fee will be applied to the origination fee rather than being an additional closing cost.

However, if you fail to close on the loan, you may forfeit the rate lock fee. This is because the lender will have incurred a fee to reserve that rate for the time specified.

Upfront Mortgage Insurance Premiums

Both FHA and VA loans charge an upfront mortgage insurance premium (FHA loans also have a monthly premium). Conventional and jumbo mortgages have only monthly mortgage insurance premiums, that only apply if your down payment or the equity in your home is less than 20%.

On FHA loans, the upfront mortgage insurance premium is typically 1.75% of the loan amount. On a $200,000 mortgage, this will be the equivalent of $3,500.

The upfront mortgage insurance premium on VA loans is known as the VA funding fee. It is currently set at 2.3% of the loan amount for most borrowers, which means you’ll pay $4,600 on a $200,000 loan.

In the case of either an FHA or VA loan, the upfront mortgage insurance premium is not generally paid out-of-pocket by the borrower. More commonly, it’s added to the loan amount and financed over the life of the loan.

But in some cases, the property seller may pay the upfront mortgage insurance premium as an inducement for the borrower to purchase his or her property.

Application Fees

Most mortgage lenders will charge an application fee due at the time of application, not closing. However, in most cases, the application fee covers the appraisal and credit report fees. You can generally expect this to be in the range of $300 – $500.

Appraisal Fees

When a mortgage lender originates a loan, they must use the services of an independent, third-party appraiser to determine the objective value of the subject property. The lender will collect the fee for this service, but it will be paid to the appraiser and not retained by the lender.

An appraisal fee will typically run between $300 and $500, though it can be more in some markets and for specialized properties.

Credit Report Fee

To process your application, the mortgage lender will need to run a credit report. Since the reports are provided by an outside source, the lender will incur a fee for the service. That will generally be between $15 and $30. It will either be included in your application fee or paid at the closing.

Attorney or Title Agent Fee

Closings generally take place in the office of either an attorney or a title agent. This is due to the requirement for preparing and filing legal documents connected with the loan.

In some states, closings routinely take place in the office of a title agent. In others, it’s handled in an attorney’s office.

Generally speaking, title agents charge lower fees for closings. They may charge between $200 and $500, while attorneys may charge between $500 and $1,000.

Title Search

In order for a new mortgage to have a clear title, a search must be performed to determine if there are any outstanding liens against the property. These can be liens filed against the property owner (and the property) by contractors who performed services on the home but were not paid.

Sometimes the liens are so old they are forgotten by the current property owner. Title searches are used to uncover these liens and to make sure they’re paid before you close on the loan. The fee for this service will generally run between $200 and $400.

Title Insurance

No matter how thorough a title search is, it’s always possible one or more liens could go undiscovered. To protect against the possibility, mortgage lenders require having a title insurance policy in place with each loan.

The purpose of a policy is to protect the property against unexpected liability from undetected liens.

This policy costs several hundred dollars, which is based on the loan amount and the state where the property is located. The lender is named as the beneficiary of the policy. It’s designed to protect the lender’s first lien position on the home.

Pest Inspection

Since the lender will be concerned with protecting the structural integrity of the property – which is their collateral – they’ll require a pest inspection to be performed by a certified expert. The cost can range between $50 and $100 but may be more in some locations.

Flood Certification

Similar to a pest inspection, the mortgage lender will want to know if the property is in an area designated as a federally recognized flood zone. If it is, the borrower will be required to obtain flood insurance. The cost of the certification is generally in the $20 and $30 range.

Home Inspection

A home inspection can be performed at the option of the buyer. It is not generally a lender requirement unless the appraiser identifies issues with the home that necessitate a closer inspection.

But even if the lender doesn’t require it, it’s in the buyer’s best interest to obtain one. Any major repairs that are not discovered before the closing will need to be made by the buyer. The home inspection offers buyers an opportunity to have those repairs completed by the seller before closing.

The cost of a home inspection can range between $200 and $500, depending on the property.

Property Survey

This fee will only be required by the lender if exact property lines are either unknown or in dispute. It may also be required if there are any encroachments, like the physical structure from a neighbor’s property extending into the subject property.

Depending on the size of the property, a survey can cost anywhere from $300 to $1,000 or more.

Real Estate Tax Search

This is similar to a title search, except it’s specifically used to determine hidden tax liens. If there are any, they can be paid by the seller prior to closing. The cost of the service is between $50 and $100.

Transfer Taxes

Some states, counties, and municipalities impose transfer taxes on both real estate and mortgages. They’ll establish a tax rate based on the loan amount or the property value.

For example, if the mortgage tax is $.25 per $1,000 of value, and the loan is $400,000, the tax will be $100.

If the real estate transfer tax is $.50 per thousand dollars of value, and the sale price is $500,000, the transfer tax will be $2,500.

In many markets, the mortgage tax will be paid by the buyer, while the real estate transfer tax will be paid by the property seller.

Miscellaneous Fees

In addition to the primary fees listed above, there are minor fees that are incurred during the mortgage process.

An example is recording fees. These are the fees that must be paid to the local municipality or county for legally recording the property deed and mortgage. Expect to pay between $50 and $100.

Courier fees are another example. If the attorney or title company needs to have packages courier to and from third parties, those fees will generally be paid by the borrower at closing.

What Is an Escrow Account?

There are other costs associated with a mortgage that will be paid by the borrower but aren’t considered closing costs. Those are the costs required to establish an escrow account for the loan.

An escrow account encompasses what is often referred to in the mortgage industry as prepaid expenses. They’re expenses related primarily to monthly payments for interest, property taxes, and insurance.

Some of these expenses must be paid in advance, while others require holding a certain amount in escrow in preparation for future payments.

The main examples of escrows are the following:

Prepaid Interest

Mortgage interest is collected in arrears. That means you’ll pay last month’s interest with this month’s payment.

Prepaid interest is the exception. It represents the interest that is due between the day the loan closes and the end of the month in which the closing takes place. For example, if your loan closes on the 21st of June, the lender will collect interest for the balance of the month or nine days’ worth.

Since it’s an odd amount rather than a full month’s interest, it will be collected at closing. This is a common reason why mortgage borrowers often want to close on the last business day of the month when prepaid interest will be needed for no more than a day or two.

Real Estate Taxes

Real estate taxes are collected through your monthly payment. However, most counties and municipalities require lenders to pay taxes quarterly or annually.

If taxes are due on a quarterly basis, the lender will collect enough to cover three months, so they’ll be able to make the payment on a timely basis.

Unlike mortgage interest, property taxes must be paid in advance. Since a new loan won’t have an accumulated escrow balance to pay the taxes, the lender will collect the required amount at closing.

Exactly how much will be collected will depend on the amount of property taxes, the number of months required with each periodic payment, and the next due date for the tax bill.

Homeowner’s Insurance

Like property taxes, homeowner’s insurance must be paid in advance.

Lenders typically require borrowers to provide a paid-up homeowner’s insurance policy for one year prior to closing. They may also collect one month’s worth of the premium, so they’ll have at least enough to cover the renewal of the policy one year later.

If your homeowner’s insurance premium will be $100 per month, the lender will escrow $1,300. This will be $1,200 for the annual cost of a policy, plus an additional month at $100.

However, if you pay the full year on the initial premium directly to the insurance company, the lender will only escrow for one month.

Mortgage Insurance – Monthly Premiums

FHA mortgages and (sometimes) conventional and jumbo loans require monthly premium payments on mortgage insurance.

If so, the lender will typically collect two or three months’ premiums in advance to ensure sufficient funds will be available to pay the premium, even if you were to miss a monthly house payment.

Escrow Types

How Closing Costs Affect the True Cost of Purchasing a Home

The total of closing costs and escrows can represent between 2% and 6% of the new loan amount. On a $400,000 loan, expect to pay between $4,000 and $24,000.

The wide range owes to large differences in property values, as well as geographic location. For example, closing costs and escrows will be much higher on an $800,000 property than they will be on a $300,000 home. As well, closing costs are generally higher in high-cost areas of the country.

Whatever the total closing costs and escrows will be, they can have a material effect on the true cost of purchasing a home.

If the purchase price of the house is $400,000, and closing costs and escrows are $12,000, the total cost of acquiring the home will be $412,000.

Where to Find a Mortgage

Quicken Loans and Rocket Mortgage are two sides of the same organization. Rocket Mortgage is the online interface of Quicken Loans.

While Quicken Loans is the largest retail mortgage lender in America, Rocket Mortgage is the better-known of the two, if only because it’s so widely advertised. But it’s impossible to discuss one without the other.

As an online mortgage lender, Rocket Mortgage offers speed and simplicity. You can complete the entire application process online – including uploading supporting documents – without leaving your home or office.

They offer both pre-approvals and full approvals. FHA and VA loans are provided, in addition to conventional and jumbo mortgages.

Credible is an online lending marketplace offering loan products from multiple lenders. That includes mortgages, in addition to student loans, personal loans, and credit cards. By completing a single, simple online loan application, you can get loan quotes from several companies.

You can then choose the lender that offers the best rate and terms for your purchase or refinance. It will give you an opportunity to shop between various lenders without the need to complete multiple applications.

Final Thoughts – Mortgage Closing Costs

Mortgage closing costs encompass a range of fees associated with obtaining a mortgage, from origination fees to appraisal and credit report charges. Points, representing a percentage of the loan amount, influence interest rates and payments.

Additional costs include application, attorney or title agent, appraisal, credit report, title search, title insurance, pest inspection, flood certification, home inspection, property survey, real estate tax search, and transfer taxes.

Escrow accounts cover prepaid interest, real estate taxes, homeowner’s insurance, and mortgage insurance premiums. These costs, often 2% to 6% of the loan amount, significantly impact the total expense of purchasing a home.

Online options like Rocket Mortgage and Credible offer streamlined mortgage processes for prospective buyers.

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To refinance or not to refinance is an evergreen debate, but there is a particular urgency right now. As I said, interest rates are at a historic low – but there is some indication that may not last. The market is at an all-time high, but inflation is rising. If inflation continues there is reason to believe the Fed will raise interest rates which, in turn, is almost guaranteed to raise mortgage rates. While no one knows for certain what will happen, a recent survey showed most economists believe rates will rise sooner rather than later.

Top Reasons Homeowners Don’t Refinance

There are many reasons homeowners choose not to refinance, some valid, others a little less rational. The top five reasons homeowners did not refinance were: they wouldn’t save enough, the closing costs were too high, they felt there was too much paperwork (we get it), they were planning to move or fully pay off their mortgage, and finally, their credit score was too low. 

This list resonates with our experience interviewing homeowners at Fortunately. People are not wrong; refinancing is a pain in the butt. The research, negotiations, and paperwork take up a material amount of time. You have to be very dedicated to pursuing the process – and no matter the savings on the other end, the process might not be “worth it” to you, especially if you refinanced sometime in the last 18 months and don’t want to go through it all again. 

For everyone else though, we suspect they haven’t fully considered why refinancing is a great idea, especially given not just the monthly expense but also the opportunity cost of those relatively higher monthly payments. Remember, every extra dollar you are paying in interest on your mortgage is a dollar you could be investing in the stock market.

Three-Step Refinancing Decision Matrix

So how do you know if refinancing is right for you? We wish there was a simple answer, but it warrants a little investigation. Thankfully, we came up with a straightforward decision matrix to help guide you.

First: How Soon Do You Want to Pay Off Your Mortgage?

The first order of consideration in refinancing is when you would like to be finished with your mortgage. People generally assume that refinancing extends the timeline – which can be true, but not always. For example, if you have 18 years left on a 30-year term, you might be able to refinance to a 15-year mortgage, pay less per month, and pay off your mortgage earlier.

Also, we want to challenge the assumption that adding time to your mortgage is bad! Restarting the clock doesn’t mean you give up equity or are a failure. In fact, keeping a low-interest balance on your mortgage for as long as possible can be a wise thing to do, as outlined in this article. So throw out the “shoulds” and instead crunch the numbers.

Second: What Is the Break-Even Cost of Refinancing?

No matter how great a deal you get, there will always be a cost and time commitment to refinancing. If you refinanced recently, rates would need to drop a meaningful amount before it becomes worth it to refinance again. And, if you plan on moving soon, maybe hold off, because you aren’t likely to pay off your closing costs. If you’re planning to move in the mid-term, consider refinancing into a 5-year ARM and lock in a lower interest rate. Again, deciding whether or not to refinance, if you can, is all about getting into the actual numbers and there are a number of tools that can help.

Third: What Else Can You Do With the Money You Save?

As we mentioned above, “crunching the numbers” doesn’t just mean calculating how much money you save every month if you refinance – it also means evaluating what else you do with that money. In other words, what is the opportunity cost of putting that amount into your mortgage? For example, could you get a better rate of return if you invested the money you saved in the stock market? Or, would having some extra monthly cash flow allow you to pay off other, higher-interest debt?

You can always choose to pay down your mortgage later. But, if you get stuck in a situation where, for one reason or another, you can’t make your monthly mortgage payments, it’s hard to get the money you’ve already put into your home back out.

Don’t Forget: Loan Modifications and Shopping Around

Every situation is different and refinancing might not be right for you. However, that doesn’t mean the opportunity to capitalize on historically low interest rates is lost. Depending on how long ago you got your mortgage, your financial situation, and which institution you worked with, you may be eligible for a loan modification. Call your loan officer and they will be able to tell you if this is an option. Loan modifications can have all the benefits of refinancing with significantly less paperwork than a full-fledged refinance.

Finally, no matter what, make sure you shop around. We encourage you to consider different types of mortgages and different institutions. Don’t be afraid to compare options and negotiate for better terms. Gathering a few offers from different lenders will take less time than you think and might save you more money than you thought possible.

The post Mortgage Rates Are Rising – Should You Refinance Before It’s Too Late? appeared first on Good Financial Cents®.

You may be able to get a first-time homebuyer program that provides the loan to purchase the home, the down payment, or even a combination of both. More than anything, it’s a matter of knowing what the programs are and where to find them.

And don’t worry if you’re not technically a first-time homebuyer. First-time homebuyer programs have a very generous definition of what qualifies as a first-time homebuyer. If you haven’t owned a home in the last few years, it’s likely you’ll qualify for most programs.

What Are First-Time Homebuyer Programs?

First-time homebuyer programs recognize the greater challenges first-time homebuyers have, compared with those who either currently own a home and are trading up or have at least owned a home in the past.

Though some first-time homebuyer programs are offered as first mortgages, many more provide down payment assistance. That assistance recognizes the special difficulty first-time homebuyers have in coming up with the down payment to make that first home purchase.

Though a down payment is an issue in most markets, it could be especially problematic in high-cost areas. Just coming up with a down payment of 5% on a $500,000 home in a high-cost market means a first-time buyer would need to save $25,000.

Given that many first-time homebuyers are in the low- to moderate-income range, saving that much money can take several years. While the buyer is saving the money needed, property values may continue to escalate, further increasing the amount of the down payment needed. That can lock the buyer into a Catch-22 situation of always being behind the amount of cash needed to make the down payment.

First-time home buyer programs are available to help buyers overcome that dilemma.

Common First-Time Homebuyer Program Requirements

If you’re interested in a first-time home buyer program, you should know that there are requirements you’ll need to meet.

First, a common requirement is that you cannot have owned a home within the previous three years. Under this definition, you won’t be excluded from a first-time homebuyer program even if you have owned a home in the past. As long as the ownership did not take place within three years before purchasing a new home, you can still qualify.

Another very common restriction is income limitation. First-time homebuyer programs will generally limit your household income to a certain percentage of the median household income for the county where the home is being purchased. The program might put a ceiling of 150% of the median income for the county. If the median household income in the county is $80,000, the maximum income to qualify will be $120,000.

As an example, the screenshot below shows the income limits for participation under the California Housing Finance Agency (CalHFA) MyHome Assistance Program:

Still another limitation is property type. In most cases, you’ll be limited to purchasing a single-family home, which typically will include condominiums and planned unit developments. Manufactured housing may be permitted, but only when it is built on a permanent foundation. In addition, the property must be owner-occupied by the purchaser as a primary residence.

Finally, there’s usually a homebuyer education requirement. Because the programs are designed for first-time homebuyers, the education requirement is imposed to make sure that would-be homeowners fully understand the financial implications of the transaction they are about to enter. Typically, homebuyer education will be provided by government agencies or nonprofit organizations. You must earn a certificate of completion in the course to be eligible for the first-time homebuyer program.

How Many Types of First-Time Homebuyer Programs Are There?

As mentioned at the beginning of this article, first-time homebuyer programs are available for purchase money mortgages, down payment assistance, or even a combination of both.

First-Time Homebuyer Mortgage Programs

These are typically low-down-payment loan programs. However, they’re not necessarily designed specifically for first-time homebuyers.

For example, VA loans are designed specifically for veterans and generally provide 100% financing. That eliminates the down payment requirement, which is the primary purpose of first-time homebuyer down payment assistance programs. VA loans also tend to be more consumer-friendly for veterans. For example, VA loans tend to be more lenient with credit than conventional mortgages.

FHA mortgages are similar, except they do require a down payment of 3.5% of the purchase price. However, down payment assistance programs are often provided in conjunction with FHA mortgages, resulting in zero-down payments. This is especially true with down payment assistance programs provided by local governments. Meanwhile, FHA is more flexible in evaluating your credit than conventional mortgages are.

Not to be outdone, conventional mortgages also offer advantageous first-time homebuyer loan programs.

For example, the Federal National Mortgage Association (FNMA), commonly known as “Fannie Mae”, offers its HomePath program. The program provides homebuyers with exclusive access to repossessed properties before they are made available to investors.

That will give homebuyers an opportunity to purchase these properties at a lower price than might be the case in an open bidding situation. In addition, buyers are able to purchase these homes with a down payment of just 3% of the purchase price.

In addition, Fannie Mae offers the ability for homebuyers to purchase homes with up to 105% of the value of the property by using a subordinate lien in conjunction with the first mortgage. The lien must be an eligible Community Seconds loan.

In yet another benefit of the program, Fannie Mae reduces the cost of the private mortgage insurance required for the first mortgage. However, it does require a minimum credit score of 680, which may require some first-time homebuyers to consider an FHA loan instead.

Down Payment Assistance Programs

One of the biggest obstacles to homeownership for first-time homebuyers is coming up in the down payment. But if you qualify as a first-time homebuyer, there are often down payment assistance programs that will cover your down payment. Some will also provide additional funds to cover closing costs if those will not be paid by the property seller.

Down payment assistance programs are commonly offered by local government agencies, including states, counties, and even cities. Others are provided by nonprofit agencies.

Down payment assistance programs can come in the form of either a loan or a grant. In many cases, a down payment assistance loan will be forgiven if you meet certain requirements.

Down Payment Assistance Loans

An example of down payment assistance is, once again, the California Housing Finance Agency (CalHFA) MyHome Assistance Program. The program offers a deferred payment junior loan of the lesser of 3.5% of the purchase price or appraised value with a down payment and/or closing costs, or $15,000, whichever is lower.

However, there is no cap on the loan amount if the homebuyer is an employee of either a school or fire department or those purchasing new construction homes or manufactured homes.

First-time homebuyers cannot apply directly with the Housing Authority for the loan. Instead, CalHFA makes the loans available through approved lenders. Interest rates will vary based on your financial circumstances, as well as lender fees and other factors. The program does require homebuyer education.

Because it is a deferred loan, it is considered a “silent second”. That means payments on the loan are deferred, so you don’t have to make any until the home is sold, refinanced, or the loan is paid in full.

Most states offer some type of down payment assistance loan program, though the specific details will vary from state to state. Check with your lender or do a web search using “(YOUR STATE) down payment assistance programs”.

Down Payment Assistance Grants

Some down payment assistance programs start out as loans but eventually convert into grants. These are commonly referred to as forgivable loans.

For example, you may receive second loan proceeds from a government agency, but the loan may be forgiven if you remain in the home for at least five years. Such loans often carry 0% interest rates, which ultimately makes them grants or loan/grant hybrids.

An example of this type of loan is the Chenoa Fund. It’s a federally chartered, public purpose-driven government agency that exists to provide affordable and sustainable homeownership to creditworthy borrowers who lack the funds to make a down payment. And fortunately, it’s available nationwide.

The fund will provide down payment assistance to cover a down payment of 3.5% (FHA) or 5% (conventional) of the purchase price of the property. The program has no income restrictions, but your income cannot exceed 115% of the median income level in your area to be eligible for loan forgiveness.

The program does have credit requirements and is not restricted to first-time homebuyers alone.

The screenshot below provides a summary of the program benefits and requirements:

Where to Start Your Search for First-Time Homebuyer Programs

Quicken Loans/Rocket Mortgage

Rocket Mortgage is the origination arm of Quicken Loans, which is the largest retail, residential mortgage originator in the country. You’ll apply for your loan through Rocket Mortgage – generally on the mobile app – but the loan will ultimately be funded by Quicken Loans.

Rocket Mortgage operates entirely online and provides conventional, FHA, and VA mortgages. Because the entire process is online, they can process loans faster than much of the competition. This is because they can often obtain verification of employment and savings directly from employers and financial institutions. That will eliminate much of the documentation typically associated with the mortgage application process.

Veterans United

As the name implies, Veterans United specializes in VA mortgages. In fact, they’re the largest VA mortgage lender in the country. It’s not hard to see why. The company regularly consults with former senior enlisted members of each branch of the US military. This helps to make the lending process as comfortable and accommodating as possible for veterans and active-duty members of the military.

They also have the advantage of having their own network of real estate agents, under Veterans United Realty. Since VA loans are a special type of mortgage, there are certain requirements a real estate agent will need to be aware of. Because the network is comprised of agents experienced in VA mortgages, they’re better able to serve the needs of veterans, current military members, and their families.

Credible

Credible is an online loan aggregator. They provide student loans, student loan refinances, personal loans, and credit cards. But they also specialize in home loans, including first mortgages.

Because it is a loan aggregator, you’ll complete a brief online application and receive loan quotes from multiple mortgage lenders. You can then choose the lender offering the program and pricing that will work best for you. In this way, Credible is an excellent choice if you’re looking to shop for the best lender for your home purchase.

loanDepot

loanDepot is a nationwide mortgage lender providing conventional, Jumbo, FHA, and VA loans. Much like Rocket Mortgage, it operates as an online lender. You’ll complete the loan application online and upload any documentation directly onto the website.

Because it is an online process, it can be handled either from your home or your place of employment.

What Are the Benefits of First-Time Homebuyer Programs?

• Covers your down payment and sometimes closing costs, enabling you to purchase a home with no money out-of-pocket.
• Recognized programs that can work with conventional, FHA, and VA first mortgages.
• Though many do have minimum credit score requirements, you don’t need perfect credit to qualify.
• Programs generally target those who fall in the low- to moderate-income category.
• Many down payment loan assistance programs offer loan forgiveness, eliminating the need to make repayments.

Are There Any Drawbacks to First-Time Homebuyer Programs?

• With many first-time homebuyer programs, you will be required to meet certain income standards. They are not typically available to the general home-buying public.
• Programs are available only for owner-occupied primary residences, not vacation homes or investment properties.
• Because you won’t be making a down payment, you’ll have no equity in the property you’re purchasing. If the property value declines significantly, you could be in a negative equity position for many years.
• The 0% equity situation can also lock you into staying in the home for many years. If a home turns out to be the wrong choice, you’ll still be locked in.
• If you don’t stay in the home long enough to qualify for loan forgiveness, you’ll be required to pay off the down payment assistance loan balance upon the sale of the property.
• Refinancing the home or converting it to an investment property could also trigger a repayment requirement.
• Some down payment assistance loan programs do require monthly payments, including interest.

Final Thoughts: First-Time Homebuyer Programs

First-time homebuyer programs play a vital role in facilitating homeownership amidst rising house prices. These programs offer crucial assistance in the form of down payment funds, ensuring accessibility to the housing market. Despite varying requirements, such as income limitations and homeownership history, these initiatives provide options for low- to moderate-income individuals. 

Whether through mortgage loans, down payment assistance, or a combination of both, these programs offer pathways to owning a home. However, potential downsides include limited equity, residency constraints, and potential repayment obligations. Careful consideration of program terms and personal circumstances is essential for a successful homeownership journey.

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