Why You Shouldn’t Buy The Cheapest Home

If you don’t have a lot of money and you’re in the market for a new house, you may be tempted to buy the cheapest home you find with the intention of fixing it up. However, just because a house is cheap doesn’t mean it’s a wise investment. Here are a few things to watch out for when considering the cheapest home:

Less Money, More Problems

The cheapest home is usually cheap for a reason. It’s always wise to hire a professional to inspect the home before you buy it, just in case the house has any serious issues. Ugly paint colors and outdated carpeting are easy, cosmetic fixes, but structural problems could turn your “new” home into a money pit. Why buy an $80,000 home with $20,000 in repairs, when you can buy a $100,000 home that is move-in ready and save yourself the trouble?

Not Livable? Not Approved

When you buy a home with a conventional mortgage, the appraiser will inspect the house to figure out its market value. When you buy a home with an FHA mortgage, the appraiser will inspect the house to find out its market value and to make sure it meets the Federal Housing and Urban Development (HUD) standards for health and safety. That means it has to be livable for everyone moving into the home.

Here are a few things they look for in the appraisal, according to HUD guidelines:

  • They want to make sure that the lot is graded so that any moisture would drain away from the house and not flood it.
  • Bedrooms must have some kind of access to the outside, so that everyone can escape in case of a fire. Bedroom windows are acceptable, as long as they’re large enough for a person to fit through them.
  • Lead-based paint is still present in many homes built before 1978, and it still poses a health risk. If there’s any damaged paint, including peeling or chipping, you’ll have to get it fixed in order for the loan to get approved.
  • Steps and stairways must have handrails.
  • The heating system must be sufficient enough for the home to be comfortable for its occupants and good for their health.
  • The roof must be in acceptable condition, without leaks and moisture, and should be easy enough to maintain in the future.
  • The foundation also must be able to withstand any normal amount of weight placed on it, and it should be in acceptable condition.

Generally, if you’re buying a cheaper home and you know it’s going to need some fixing, just make sure you’re not buying something that’s going to give you more headaches than it’s worth. If you’re going to spend that much money on repairs, you might as well buy a slightly more expensive home that you can move into comfortably.

For more information on the FHA loan or to find out whether the home you’re considering fits the livability guidelines, contact one of our mortgage officers at (800) 555-2098.

Request Information Now!

5 Mortgage Myths that are no Longer True

While it can be useful to listen to the advice from others who have gotten a mortgage, you might have heard some wrong information. Or, at the very least, dated information. Here are 5 rules that no longer are true for getting a mortgage:

1. You need a 20% down payment.

I recently spoke to my grandmother about her family’s first home purchase. She told me that they didn’t get a mortgage because, at the time they bought their home, mortgage rates were at a whopping 12%. My parents often warned me that you need to save at least 20% to make a down payment on a house. Fortunately, rates are not 12% anymore, and you don’t need a 20% down payment. Some loans don’t require a down payment at all.

Related: Conventional 1% Down Mortgage

2. Your credit score has to be perfect.

We’ve all made mistakes. Some of us have paid our credit cards late or forgot a medical bill. Those mistakes can wind up hurting your credit score. But the good news is, you don’t need a score of 750 to score a loan anymore! Riverbank Finance has helped borrowers with scores as low as 580 obtain loans.

3. You can’t have student debt.

It used to be assumed that you couldn’t get a loan until that festering student loan from college was paid off. Not true! Student loan debt is no longer a hindrance from acquiring the loan you need for your home. Guidelines are becoming easier to qualify for a mortgage with student loan debt. While our loan officers will need to know how much you owe and the type of loan you are seeking, having student debt isn’t a dead end.

4. Pay it off as fast as you can.

There are numerous “Get out of Debt” gurus who advocate paying off debts aggressively. To some of them, a success story is when a family scrimps and saves to pay off their mortgage within 5 years of buying their home. While paying off a mortgage is always the right thing to do, there are wrong ways to go about doing so: In order for this particular family to pay theirs off, they stopped paying into their 401k, their college savings for their kids, and saving in general. That was not the best plan, because they stopped preparing for their future.

If you want to pay off your mortgage quickly, you must also consider early prepayment penalties. Some loans have rules as to how much a borrower can pay back early. Pay too much, and that money may go to just eating a fee instead of eating away at your interest.

5. Buy the most expensive house you can.

On the surface, buying the most expensive house you can afford seems like a good idea. A home is an investment, after all. Really, when sitting down with one of our loan officers, what you’ll find is they’ll ask questions to help fit what you can afford and what you need into a mortgage. You may not need a home with 6 bedrooms, 4 bathrooms, and 20 acres of land. Think of the upkeep you’ll need to budget for landscaping alone.

It’s important to be upfront about the kind of needs you have when seeking a loan. Schedule an appointment with one of our mortgage professionals at (800) 555-2098 for more information.

Request Information Now!

Are Adjustable Rate Mortgages Still Too Risky?

I know what you’re thinking: Why would I ever want to get an Adjustable Rate Mortgage? Isn’t it too risky? Sure, it could be. But there are actually some circumstances in which it might be the best option. Let’s look at the pros and cons of ARMs, and you can decide whether it’s too risky or just the right fit for you.

Benefits of ARM Loans

When you choose an ARM, your mortgage rates and payments start out lower at the beginning of your loan and have the potential to gradually increase over time.  Because of the lower payment at the outset, you could qualify for a larger or more expensive home than you originally thought possible.

If you are planning on selling your home in a few years, an ARM may be your best option because you can lock in your low payment at a fixed rate for three or five years. Having that low payment may save you thousands of dollars more than you would with a traditional fixed rate mortgage.

Let’s say your ARM monthly payment is $200 less than you’d pay had you gone with a traditional mortgage. If you decide to invest that $200 you’re saving, you could end up earning interest instead of paying interest on your monthly savings. 

Also, with an ARM, you never have to refinance your home. After the initial three or five years with the locked-in fixed rate, the interest rates could drop on their own without you having to pay closing costs and refinancing fees.

Downsides of ARM Loans

With an ARM, your mortgage rate typically fluctuates with the economy after the first three or five years, depending on what kind of ARM you choose. When the interest rate adjusts, so does your mortgage payment. Your payment may go up or down depending on the current rate environment at the time of your adjustment period. If rates go up, your mortgage payment may rise accordingly. For your protection, Adjustable Rate Mortgages have built in Caps which will limit the potential increases in the rates.

With one type of ARM, a negative amortization loan, the minimum monthly mortgage payments may not include the full interest amount so they can be more affordable for borrowers. So, the unpaid interest gets tacked onto your principal balance. In this case, you’ll end up paying more on your overall mortgage — even if you make all your payments in time.

Generally, ARMs can be confusing. Thankfully, the Consumer Finance Protection Bureau has created a great Adjustable Rate Mortgage Resouce Book that explains the ins and outs of how they operate.

If an ARM still sounds too risky for you, you can always opt for an FHA, VA, USDA rural development loan, or conventional 15 to 30-year mortgage.

As long as you understand how it works and plan your finances accordingly, an ARM could be a great fit for you. Schedule an appointment with one of our mortgage professionals at (800) 555-2098 for more information or to find out which kind of loan best fits your needs.

Request Information Now!

15 vs. 30-Year Loan: Which is right for me?

What’s the deal with 15 and 30-year mortgage loan rates? If you’ve ever shopped around for a new mortgage, you’ve seen lenders advertising rates for both. There are pros and cons to both, depending on what you want to do with the mortgage. But there’s also the unknown fact that “15 to 30” aren’t the only term options. Which is right for you? Well, it depends.

What stage are you in life? Are you just starting a family? Are your kids going off to college and suddenly you’re an empty-nester with too much space? The key to determining which loan will work best for you is finding out how much is in your budget and what fits your life phase. When sitting down with one of our loan consultants, it’s important to let them know what your life goals are so they can help match up a loan term that fits your lifestyle.

15-Year Loan

A 15-year loan has one advantage over a 30-year loan no matter what: less interest paid over time. Because of the nature of the loan, you’ll pay it off faster, so you wind up paying a lot less interest over time. The caveat is that the payments are going to be higher each month. A 15-year loan will tighten your wallet until it’s paid off, but it’ll be paid off in half the time.

How much is the difference between the two terms? If you use our mortgage calculator and put in a mortgage worth $150,000, the interest at the end of the term for 15 years is about $61,000 (at 4.875% interest.) That same loan, when the term is changed to 30 years, more than doubles to about $135,000 dollars in interest over the life of the loan.

30-Year Loan

So, why would anyone want a longer term loan? For starters, the payments for 15 years, using the same scenario, is about $1,200 month. That same loan, at 30 years, only requires about $700 dollars a month.

A 30-year term is great for the home of your dreams. If you have no desire to leave that home, or downsizing and retirement are decades away, a 30-year loan is probably the best option. Although you pay more money overall, it gives you more flexibility during the time of the loan.

One common misconception about these loan terms is that 15 or 30 are the only options. Through Riverbank Finance, you can secure a loan for 15 to 30 years or somewhere in between. That’s right! So, for example, if you’re retiring in 25 years, you could set a 25-year term so your home is paid off right in time for retirement. For Riverbank Finance, it’s all about customizing your mortgage to fit the lifestyle you desire.

For more information, or to speak with a loan officer, call Riverbank Finance at (800) 555-2098 to schedule an appointment.

Request Information Now!

Can you have more than one VA Loan?

If you have a Veterans Affairs (VA) Loan on your first home and are thinking about buying a second property, you can get more than one VA Loan without having to sell or refinance your current home. This is called VA Loan second-tier entitlement. The higher tier entitlement kicks in for purchases over $144,000 per VA guidelines.

The federal government has provided veterans and military personnel with the VA Loan so they can come back to the United States and purchase a home with no down payment. That’s much better than having to come up with a 20% down payment for a conventional loan on a second home, so you should take advantage. If you are considering getting two VA Loans, here’s how it works:

VA Loans Second Tier Entitlement

Michigan has a county loan limit of $453,100 for VA Loans. The VA provides borrowers with a 25% guaranty on their loan, which, in Michigan’s case, would be a maximum of $113,275. If you already have a VA Loan on your first house, the guaranty provided to you would be subtracted from the maximum amount.

VA Entitlement Calculation Example

Let’s say you bought a $200,000 primary home with a VA Loan and you want to buy a second home in Michigan with a VA Loan. Let’s figure out the math on this.

$424,100 X 25% = $113,275 maximum guaranty

$200,000 X 25% = $50,000 guaranty and down payment required

$113,275 – $50,000 = $63,275 maximum guaranty allowed on second home

$63,275 x 4 = $253,100 maximum price of second house

Maximum VA Loan Amount Calculation

Basically, if you bought a $200,000 home in the state of Michigan using a VA Loan, the VA would have guaranteed $50,000 toward your down payment. If you want to buy a second home in Michigan with a VA Loan, you can buy one that is a maximum of $253,100 with no down payment. If your second home costs more than that, you will have to add some money for the down payment.

Let’s say the second home you’re considering is $300,000. The 25% entitlement on that house would be $75,000, putting you $11,725 above the $63,275 maximum guaranty. That means you would have to add a down payment of $11,725 to be able to purchase the second home for $300,000 with a VA Loan.

Related: Try our VA Mortgage Calculator to estimate mortgage payments for your VA Mortgage.

Benefits to getting two VA Loans

If you are relocating or just want to buy a new home, a second VA loan may be the best solution. Here are the benefits of getting your second VA Loan versus Conventional financing:

  • Do not need to sell your current home that has a VA Loan
  • Do not need to refinance your VA Loan into a Conventional Mortgage to qualify
  • You may be able to rent your current home and offset the mortgage with rental income
  • You will save on home sales fees
  • You will save on mortgage refinance costs
  • You may still qualify for Zero Down Financing

Buying a Second Home with a VA Loan

VA Loans are typically more lenient than other types of loans. If your first home was foreclosed, you can still get a VA Loan on your second home. Riverbank Finance can help you find out how much of the VA’s 25% entitlement you still have left to use.

If you are planning on buying a second home using VA financing to use as your primary residence we would be glad to assist you. You may be eligible for a second VA loan for your purchase and not be required to sell your current home. For more information, call Riverbank Finance at 800-555-2098 to set up an appointment with one of our loan officers.

Request Information Now!

 

New Income Guidelines for USDA Loans

Although it may not be as well known as the FHA, one of the most popular ways to get a zero down-payment mortgage is the USDA Guaranteed Loan. This loan is specific to rural areas. So if you are looking for a home with wide-open spaces in the country, you may want to consider this loan. The income requirements for the USDA Guaranteed Loan have changed this year, making it easier to qualify than ever.

Even if your desired locale doesn’t look all that “rural,” your location could still qualify. Roughly 70% of America could be categorized as “rural.” 

Use our USDA Mortgage Calculator to estimate home loan payments.

2017 USDA Loan Requirements

First and foremost, the home in question must be in a region that qualifies as rural, according to Rural Development. While the map does give a general guideline for what regions qualify, it isn’t set in stone. So be sure to check with Rural Development yourself.

The second major qualification is to make sure you are under the income limit. For example, in Grand Rapids, MI, a family of four, with two parents and two kids, needs to have a maximum income of $78,200 annually to qualify. Other parts of West Michigan may have different income levels, so be sure to check the USDA income calculator and with our mortgage specialists  to find out whether you qualify.

Lastly, the USDA Guaranteed Loan has other standard requirements including, the borrowers cannot own other real estate, minimum credit score, maximum debt to income ratios etc.

USDA Loan Benefits

Unlike the FHA Loan, you won’t have to pay private mortgage insurance (PMI) with the USDA Guaranteed Loan. That is a major benefit to this loan program. You will, however, have to pay a premium fee to help guarantee the loan. The good news is, the rate for the fee is significantly lower than the cost of PMI through an FHA Loan.

Additionally, The USDA Guaranteed Loan is much more lenient than other loans, making it the perfect option for first-time homebuyers, low-income earners, and those with lower credit scores. The USDA Guaranteed Loan requires no down payment for first-time homebuyers. It is also much more flexible than traditional loans with regards to credit, foreclosures, and bankruptcies.

Typically, a bankruptcy requires a 7-year period before a borrower can apply for a new loan and 4 years for a foreclosure. With a USDA Guaranteed Loan, a borrower only needs to wait 2 years after a foreclosure and 3 years after filing for bankruptcy before they can get approved for a home loan. Borrowers can qualify for a USDA Loan with a FICO score as low as 600.

Call Riverbank Finance at 1-800-555-2098 to schedule an appointment with a mortgage loan officer to find out whether the USDA Guaranteed Loan is the right fit for your financial needs.

Request Information Now!

Invest in Property with a Minimum Down Payment

Two weeks ago, we discussed how first-time home buyers and those with little money could buy a house with a small down payment. For those of you who have a large savings account and excellent credit, here are some options for investing in property, whether it’s a new home or a second home, with a minimum down payment.

Conventional Mortgage Down Payments

Conventional mortgages are best for those with perfect or near-perfect credit. If you have at least 20% down payment, you can avoid paying for PMI (private mortgage insurance). The federal government does not guarantee or insure this kind of loan, and it’s limited to loans up to $453,100. Those buying multi-unit homes can qualify for larger loans, though. The minimum down payment required for a conventional mortgage is 3%, although Riverbank Finance allows you to put down as little as 1% (see Conventional 1% Down Mortgage).

Jumbo Loan Down Payment

A loan of more than $453,100 is called a Jumbo Loan, according to Fannie Mae’s guidelines. Most banks do not have jumbo mortgages, but Riverbank Finance specializes in it. There are many options for jumbo loans, including a 40-year fixed rate, 30-year fixed rate, 15-year fixed rate, 3/1 Jumbo ARM, 5/1 Jumbo ARM, 7/1 Jumbo ARM, and an interest-only Jumbo Loan. You will need at least 10% down payment to qualify for most jumbo loans, although 20% is encouraged. However, if you’re buying a home in a high-cost area, such as Hawaii, California, Alaska, or Guam, you may not need a jumbo loan at all.

Vacation Home Down Payment

If you want to invest in a vacation property for personal use, Riverbank Finance allows for a minimum 10% down payment, although you can waive PMI with a 20% down payment. The requirements are a bit stricter here: You can’t have any recent foreclosures or bankruptcies, you must provide documented banking or retirement assets, your DTI (debt-to-income ratio) is limited to 45%, and the property you’re considering needs to be in acceptable condition.

Investment properties Down Payments

If you want to buy investment properties to rent to other people, you will need to have at least 20% down payment with Riverbank Finance. Your total DTI cannot exceed 45%. Freddie Mac requires you to have at least two years of landlord experience, documented in your tax returns, to consider any projected rent as your income. However, Fannie Mae does not. You must buy the property as an individual, not an LLC, and you cannot receive any amount of the down payment as a gift. You will also need at least six months’ worth of house payments reserved in savings to qualify.

For more information or to speak with a loan officer about any of these mortgage options, call Riverbank Finance at (800) 555-2098.

Request Information Now!

Loans for Veterans

Three years after the Civil War ended, Memorial Day was established to honor our veterans on the last Monday of May every year. But that’s not the only thing the US Government has done for veterans. Started in 1944, the VA Loan program makes the burden of getting a mortgage easier for qualifying veterans and surviving spouses.

No Down Payment Mortgage

One hurdle home buyers often face in getting approved for a mortgage is the seemingly insurmountable down payment. However, if you’ve served our country in the armed services, you don’t need a down payment! Traditional mortgages can require up to 20% for a down payment. That is a potentially huge weight off a buyer’s shoulders!

It Gets Better for Veterans

VA Loans have other added advantages over conventional financing. The loans are backed by the US government. That benefit is especially helpful for veterans with bad credit. A buyer can have a credit score as low as 580 and still get approved.

Another benefit of the loan being government-backed is that it doesn’t require private mortgage insurance (unlike FHA loans). Any other kind of loan, with less than a 20% down payment, must have Private Mortgage Insurance. PMI protects the lender in case of a default, but in a VA Loan, the government acts as the insurance.

Use our VA Mortgage Calculator to estimate monthly payments.

Sign Up, Soldier!

So how do you get a VA mortgage? The first step is to get a Certificate of Eligibility from Veterans Affairs (We can do this for you with a quick phone call), to show that you are eligible for the program. Once the certification is received by a loan officer and processed (most are instant however manual COE’s can take 5-10 business days), the loan goes for pre-approval. You could qualify for up to a $453,100 loan. Your dream home might be more within reach than you think.

Riverbank Finance offers both 15 and 30-year VA Loans. We can review the benefits of both VA loan terms to find the right fit for your family. Apply for a VA Loan online or in person at our office. Our offices are also handicap accessible making it easy for disabled vets.

VA Refinance Loans

If you already own a home and qualify for a VA Loan, you also can benefit from refinancing through VA Loans. Like other VA Loans, this program was set up with easier qualifications and benefits than a traditional loan. For refinancing, this means that you can cash out up to 100% of the value of your home. So if you haven’t taken advantage of VA Loans in the past and have a remodeling project you’ve been putting off, now is the time. These are benefits you earned for serving our country. Use them!

We, here at Riverbank, are thankful for our armed service members. We feel honored every time a veteran seeks a loan through our services and strive to make the process as easy as possible.

Request Information Now!

Buy A House with a Small Down Payment

If you are a first-time homebuyer, getting a mortgage may seem overwhelming — especially with all the different options available. Maybe you don’t have a lot of money for a down payment or your credit isn’t great. The good news is, you can still qualify for a home loan. Here are 4 low or no down payment options that can help you, as a first-time homebuyer, get into the house of your dreams.

FHA Loan

With an FHA loan, all you need is a 3.5% minimum down payment to buy your first home. Because the Federal Housing Administration backs the FHA loan, the qualifications are a bit more lenient. People who have no established credit or small savings for a down payment, and even a credit score as low as 580 can qualify. The FHA loan is also available to immigrants who have a Visa or Green Card, as well as those who have gaps in their employment.

It’s also easier to qualify for an FHA loan if you’ve filed for bankruptcy. With a conventional loan, you have to wait four years after filing Chapter 7 to apply for a mortgage. With the FHA loan, you only have to wait two years. If you filed for Chapter 13, you only have to wait one year. You can also get an FHA loan three years after being foreclosed on your previous property.

VA Loan

The government created the VA loan to provide home ownership to veterans and military personnel. Like the FHA loan, the government backs the VA loan for extra security, so qualifying is easier. To qualify, you must get a certificate of eligibility from the Veterans Administration. Having bad credit may not hinder you from getting approved. VA loans require no down payment or Private Mortgage Insurance (PMI). Veterans can choose either a 30-year fixed VA loan or a 15-year fixed VA loan for up to $424,100. They may also get a cash-out refinance of up to 100% of their home.

USDA Rural Development Loan

For those wishing to buy a home in a rural area, the USDA Rural Development Loan requires zero down payment, making it great for first-time home buyers. The government also backs this loan for added security, so there’s low or no PMI attached to it. You only have to pay a 1% guarantee fee upfront and 0.5% each year after that. That’s less than the 1.75% up front and 0.85% each year with the FHA loan. If you’ve recently filed for bankruptcy or were foreclosed, you won’t have to wait too long to qualify for a USDA loan.

Conventional 1% Down Mortgage

Important Update! Last date for loan submissions is 5/31/2018. Program is being discontinued.

Riverbank Finance offers homebuyers a way to put only 1% down on a home and still get a conventional mortgage. In this case, the home buyer puts 1% down and the lender (Riverbank Finance) contributes 2%, giving home buyer 3% equity when closing on the home. Freddie Mac created this option to make homes more affordable for new buyers. It allows people to buy a new home for, essentially, the cost of one month’s rent and avoid PMI altogether or drop PMI in the future. Your 1% down payment may be a gift from someone, you must have at least a 700 FICO score, and your debt-to-income (DTI) ratio is limited to 43%.  

For more information or to speak with a loan officer about any of these mortgage options, call Riverbank Finance at (800) 555-2098.

Request Information Now!

Fannie Mae Relaxes Guidelines for Student Loan Debt

For homebuyers who have been denied for a mortgage due to student loan payments, relief may be in sight. As of April 25th 2017, Fannie Mae is relaxing rules on the amount of student loan debt a mortgage seeker can hold for Conventional mortgages.

Previously, Fannie Mae guidelines required lenders to count at least 1% of their student loan debt as a payment in order to qualify for a home loan. According to Fannie Mae, seven in every 10 graduates of public and non-profit colleges have student loan debt. The result is that 44 million Americans have student loans they are paying off. According to Fannie Mae’s press release, the average amount of student loan debt for one graduate is $34,000. Based on the previous calculations this would prevent many college graduates from becoming homeowners.

Fannie Mae changed the rules so that lenders can look at repayment plans that are INCOME-BASED instead of the 1% rule.

RELATED ARTICLE: Buying a Home with Student Loan Debt

Income Based Repayment Plans for Student Loans

Going back to that average of $34,000, a graduate paying off their student loans the old way would have to pay $340 per month, or 1% of the loan, to be approved for a mortgage. Depending on the kind of job they have and their other expense needs, that may not be reasonable. So now, lenders can see that they are paying what they can AFFORD based on their income, which can be LOWER than the 1% without hurting their odds of approval.

This is good news for college graduates who still have student loans and are looking to get approved for a mortgage. If you’d like to start that process right now complete our online mortgage application.

Good News for College Loan Debt Consolidation:

In addition to this news, home owners who are seeking to reduce their overall debt can refinance their home loan at a lower rate, cash it out, and pay off their student loans with the cash that’s available. According to Fannie Mae, the changes mean:

  • Lenders can offer homeowners, who have at least 20 percent equity in their homes, a cash-out refinance to pay off one or more student loans.
  • Borrowers will have an opportunity to convert higher interest rate student debt to a lower interest rate and potentially reduce monthly debt payments.
  • When at least one student loan is paid off directly to the student loan servicer and delivered to Fannie Mae, they will waive the loan-level price adjustment making mortgage rates lower than standard cash-out refinancing.

Buying a Home with Student Loans and a Low Down payment

These new changes compliment other Home Loan programs for first time home buyers with down payment options such as the Conventional 1% Down Mortgage.  Because this low down payment home loan is a Fannie Mae product, buyers can now used income based repayment plans for their student loans to qualify for financing.

This popular mortgage program is a great fit for recent college graduates that have not had an opportunity to save for a large down payment to become a home owner. Many millennials are choosing to take advantage of these programs to own rather than rent which builds equity and offers tax advantages over renting.

Contact us at (800) 555-2098 to schedule a consultation with one of our loan officers, or apply below to request information for a home loan

Request Information Now!