How To Get A Mortgage On A House You Already Own
Getting a mortgage on a house you already own lets you tap into the value of your home without selling.
The type of loan youll qualify for depends on your credit score, debttoincome ratio , loantovalue ratio , and other factors.
But assuming your personal finances are in good shape, you can likely choose from any of the following loan options:
Does Fha Require A Well Water Test
For FHA mortgage insurance, the following procedures are required before accepting a home with an individual well: Well water must be tested to the latest local and state drinking water regulations for private wells. This includes all the microbiological and chemical test parameters in the regulation.
Can FHA have well water?
But the FHAs guidelines for wells are quite detailed. For an FHA appraiser to pass your well, it must be at least 50 feet from the septic tank and at least 100 feet from the septic tank drainage field. In addition, the well must not be within 10 feet of the property line.
Does FHA require well tests?
So that the water delivered to the site is safe for consumption and does not require costly repairs or rehabilitation. For financing and refinancing through the VA, FHA, USDA, or RD, water tests are required if the property is served by a private well.
How Do I Get Pre
You may know the house you want, but unless you have experience buying one, you may not know whether you can afford it. That is where the mortgage pre-approval process comes in.
You visit a bank or mortgage lender, give them information about your income and expenses, they do the math and tell you how big a mortgage you are pre-approved for.
Your pre-approval is not binding. You dont have to take a loan from that lender and the lender doesnt have to give you a loan. It just means that you qualify to borrow the amount they arrived at to start the process.
That amount is crucial to a seller, who knows whether youre really qualified to make an offer on their home. It also tells you what neighborhood to look for your dream house.
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Consider The Length Of The Mortgage Loan
The first time you heard the phrase “30-year mortgage,” you probably choked a little bit, right? That’s a long-term commitment. But there are also 10- and 15-year loans some lenders even offer varying loan lengths with “write your own mortgage” programs in any length inside of 10 to 30 years, says John Pataky, an executive vice president at TIAA Bank.
If your budget allows for the bigger payment of a shorter-length loan, Pataky says you’re likely to see two benefits: a significant reduction in total interest expense over the life of the mortgage and a better mortgage rate.
Choose The Right Type Of Mortgage
This is where most articles dive into a bunch of mind-numbing mortgage terms. Just know that there are special types of loans for borrowers:
With a military connection.
Who would like to live in a rural or suburban area.
Who have a lower credit score.
Who are buying a house that’s a little or a lot more expensive than standard loan guidelines allow.
If you don’t exactly fit any of the descriptions above, you’re probably a good candidate for the conventional loans most lenders like best.
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Conforming Vs Nonconforming Mortgage Loans
The first category that all mortgages fall into is conforming and nonconforming loans. A conforming loan is one that meets the guidelines of government-sponsored entities Fannie Mae or Freddie Mac. Any loan that doesnt get the backing of Fannie Mae or Freddie Mac is considered nonconforming, including loans from government agencies.
The requirements for something to be a conforming loan break down into a few categories.
In order to have a conforming loan, a client needs a qualifying credit score of 620 or higher. Beyond the score itself, negative marks on your credit can also have an impact on whether you qualify.
For example, you may have a harder time qualifying or you may not qualify at all if you have multiple late mortgage or rent payments in the last year. Additionally, if youve had a more serious issue like a bankruptcy, you could have to wait up to 4 years in order to get a mortgage.
Government loans and other private lender offerings often allow you to qualify sooner than you might for a conforming loan if you have a lower credit score or dings on your credit.
Debt-To-Income Ratio: When evaluating how much house you can afford, mortgage lenders calculate your DTI ratio. This is a comparison of your gross monthly income with your monthly debts, including installment debts like a mortgage, car payment or student loan, and revolving debt like credit cards.
What Type Of Mortgage Should I Get For A Fixer
Buying a fixer-upper and improving it can build instant equity in a home. The Federal Housing Administration and the Housing and Urban Development have programs in place to loan buyers money to fix the home up without having to access an improvement loan and a mortgage loan through conventional means, a complicated and expensive process.
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Can I Really Get A Home Loan Online
Although most steps in the home buying experience are still face-to-face, there are many steps in the process that you can do from your home or office. Getting a home loan certainly is one of them. Before you fill out an online application, however, youd be wise to first review various online resources.
Start by looking at online information resources that can help you work through the maze of financing a new home. Many public and non-profit organizations are waiting to hear from you.
- The U.S. Department of Housing and Urban Affairs provides information about finding, financing, and keeping a home. Go to www.hud.gov.
- InCharge Debt Solutions counsels potential homebuyers, educates and prepares them for the purchasing process. Visit www.incharge.org and choose Housing Counseling from the list of services, or call toll-free 877-267-0595.
Once you familiarize yourself with the process and terminology, youll be better prepared to look at the private lenders websites. Online lenders will tell you if they participate in government-backed lending programs. You can usually get interest rate quotes and loan pre-qualifications very quickly.
Why Did I Get Turned Down And What Do I Do Next
Having your loan application rejected might be disappointing, but its not the end of the world. Before you think of giving up on your goal of homeownership, talk to your loan officer to find out why your request was turned down. Most applications are denied for the following reasons:
- Bad credit scoreYou can challenge any errors and possibly explain other negative information on your credit report.
- Too much debtYou may have to pay off some of your debts, or look for a less expensive home before your loan can be approved.
- Insufficient incomeIf your current rent is almost the same as your proposed mortgage payment, ask your loan officer to reconsider. Also, different lenders use different formulas to calculate how much they think you can afford. Another lender may be more accepting.
- Insufficient down paymentYou may be eligible for a government backed low- or no-down payment loan. Or, you may be able to use cash gifts from relatives to pay all or part of your closing costs.
- Low appraisal priceIf your written purchase offer includes a contingency covering a low appraisal, you may be able to negotiate a lower selling price the lender will finance.
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Bringing It All To A Close
Youve made it to the final step in the home-buying process. All the planning, preparation and waiting are finally over. But before you get the keys to your new home, you have one more thing to do.
At your closing, you will meet with your closing agent to sign all your mortgage documents. Take your time, make sure you understand what youre signing and dont be afraid to ask questions. And voilà, once youve dotted all the Is and crossed all the Ts, youll officially be a homeowner!
The closing process doesnt have to be nerve-wracking if you know what to expect. We can help you prepare for this exciting step, so your big day is a success.
We understand how overwhelming the home-buying and mortgage process can be. You can count on us to help you through it. Buying a home can be one of the most exhilarating and stressful moments of your life. But finding a home you can call your own makes it all worthwhile.
How Your Mortgage Choices Can Affect Your Future
Mortgage lenders charge a penalty fee when you break your contract. This means, if you sell your home, you could owe the lender thousands of dollars in penalty fees.
You could also pay penalty fees if you pay off your mortgage early. Unless you plan on owning your home until you pay it in full, you may need flexibility on your mortgage.
Options related to mortgage flexibility include if your mortgage:
- is open or closed
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Getting Prescreened Mortgage Offers In The Mail
Why am I getting mailers and emails from other mortgage companies?
Your application for a mortgage may trigger competing offers . Heres how to stop getting prescreened offers.
But you may want to use them to compare loan terms and shop around.
Can I trust the offers I get in the mail?
Review offers carefully to make sure you know who youre dealing with even if these mailers might look like theyre from your mortgage company or a government agency. Not all mailers are prescreened offers. Some dishonest businesses use pictures of the Statue of Liberty or other government symbols or names to make you think their offer is from a government agency or program. If youre concerned about a mailer youve gotten, contact the government agency mentioned in the letter. Check USA.gov to find the legitimate contact information for federal government agencies and state government agencies.
Does a lender have to give me anything after I apply for a loan with them?
Under federal law, lenders and mortgage brokers must give you:
- this home loan toolkit booklet from the CFPB within three days of applying for a mortgage loan. The idea is to help protect you from unfair practices by lenders, brokers, and other service providers during the home-buying and loan process.
- a Loan Estimate three business days after the lender gets your loan application. This form has important information about the loan:
- the estimated interest rate
Understanding Different Types Of Mortgage Loans
There are several types of loans, each available to help borrowers in different ways, based on their financial goals and qualifications. Mortgage loans differ in many ways, including:
- The minimum credit score required.
- The minimum down payment required.
- The length of the loan term.
- The mortgage rates charged.
- Whether the loan conforms to government-backed guidelines.
The homes property classification whether its a primary home, secondary residence or investment property can affect the type of loan you choose to get. For example, primary residences may have lower interest rates and down payment requirements and fewer restrictions than second homes and investment properties. To help you have more financial flexibility with these higher-risk properties, you may opt for a loan that offers the lowest down payment requirement or longer term, if possible.
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Open And Closed Mortgages
There are a few differences between open and closed mortgages. The main difference is the flexibility you have in making extra payments or paying off your mortgage completely.
The interest rate is usually higher than on a closed mortgage with a comparable term length. It allows more flexibility if you plan on putting extra money toward your mortgage.
An open mortgage may be a good choice for you if you:
- plan to pay off your mortgage soon
- plan to sell your home in the near future
- think you may have extra money to put toward your mortgage from time to time
The interest rate is usually lower than on an open mortgage with a comparable term length.
Closed term mortgages usually limit the amount of extra money you can put toward your mortgage each year. Your lender calls this a prepayment privilege and it is included in your mortgage contract. Not all closed mortgages allow prepayment privileges. They vary from lender to lender.
A closed mortgage may be a good choice for you if:
- you plan to keep your home for the rest of your loans term
- the prepayment privileges provide enough flexibility for the prepayments you expect to make
What Is A Mortgage Preapproval
When youre shopping for a mortgage, you can compare options offered by different lenders.
Mortgage lenders have a process which may allow you to:
- know the maximum amount of a mortgage you could qualify for
- estimate your mortgage payments
- lock in an interest rate for 60 to 130 days, depending on the lender
The mortgage preapproval process may be divided in various steps. It may also be called mortgage prequalification or mortgage preauthorization. Different lenders have different definitions and criteria for each step they offer.
During this process, the lender looks at your finances to find out the maximum amount they may lend you and at what interest rate. They ask for your personal information, various documents and they likely run a credit check.
This process does not guarantee your approval for a mortgage.
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Home Equity Lines Of Credit
A HELOC is a secured form of credit. The lender uses your home as a guarantee that youll pay back the money you borrow. Most major financial institutions offer a HELOC combined with a mortgage under their own brand name. Its also sometimes called a readvanceable mortgage.
HELOCs are revolving credit. You can borrow money, pay it back, and borrow it again, up to a maximum credit limit. It combines a HELOC and a fixed-term mortgage.
You usually have no fixed repayment amounts for a home equity line of credit. Your lender generally only requires you to pay interest on the money you use.
Adjustable Rate Versus Fixed Rate Mortgages
Fixed-rate loans look like a good bet these days and the spread compared with adjustable rate loans has dropped below 2 percentage points, making the fixed rate loan a better value. Adjustable rate mortgages still deserve consideration. They are easier to qualify for, have lower starting interest rates and often have lower loan fees. If you plan to move within five years, an ARM will probably be cheaper than a fixed rate loan. A compromise could be a so-called hybrid ARM which offers fixed payments for three to seven years and then adjusts to current interest rates.
Adjustable Rate Mortgages
If the rate is adjustable, you should ask the following questions:
- How often can the interest rate change?
- How much can the rate increase or decrease at each adjustment period?
- How much can the rate increase or decrease during the life of the loan?
- What is the index for the mortgage and where is it published?
- How has the index changed in the past? The lender must give you examples of rate changes when you apply for an adjustable rate mortgage.
- Can I change the ARM to a fixed rate loan during the life of the loan? If I can, when would I be permitted to?
- How much would it cost me to change from an adjustable rate mortgage to a fixed rate mortgage?
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How Often Do Mortgage Rates Change
The price of mortgage-backed bonds, which are securities bought and sold on Wall Street, determine mortgage rates. Mortgage rates can change anytime the mortgage-backed bond market is open.
Mortgage rates change at least once daily at the market open. Rates change again when markets are volatile.
Several times in the last few years, mortgage rates changed five times in one day, which is challenging to navigate.
When mortgage rates change, open offers for mortgage rates expire. A lender won’t give you yesterday’s rates the same way a stockbroker won’t provide you with yesterday’s stock price.
So, when you get a mortgage rate offer you’re comfortable with, lock it.
Tip: Interest rates change every weekday, Monday through Friday.
Other Mortgage Requirements Changes Worth Knowing In 2022
There were some important changes that could affect your mortgage application in 2022.
New condo and co-op rules. After the collapse of a poorly maintained condo complex in 2021, Fannie Mae added additional requirements that bars any loans for condominium or cooperative units with significant deferred maintenance. The new requirements may result in additional hoops to jump through for condo or co-op buyers.
Self-employed borrower documents. Besides standard tax return requirements, self-employed borrowers will need to provide three months worth of business account statements, plus a profit and loss statement as additional proof of year-to-date earnings.
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What Types Of Home Mortgages Are Available
The home-mortgage process can be complex and filled with pitfalls for uninformed consumers. The lender and the type of loan you choose will affect your upfront costs as well as your monthly payments. Before you choose a home, take time to explore the different types of financing so you can choose one that will best fits your needs. You can begin by looking at the differences between a fixed-rate and an adjustable-rate mortgage.
A fixed-rate mortgage will have the same principal and interest payment amounts throughout the life of the loan. Most fixed-rate mortgages can be repaid in 30 years or less. An adjustable-rate mortgage, or ARM, will have interest rates and payments that change from time-to-time over the life of the loan. Depending on the type of ARM, your interest rate may increase gradually every couple of years until it reaches a preset ceiling. Or, your rate may stay level for a short time and then have a large final payment known as a balloon payment at the end. When you apply for an ARM, youll be told how, when and why the rates may change.
There are advantages and disadvantages to fixed-rate mortgages and ARMs. Take a look at the chart on the following page to compare the two.