by First Integrity Team Supreme Lending | Sep 30, 2024
Buying a home is a major milestone, and while most prospective buyers are focused on saving for the down payment, there are additional homebuying costs to consider. From closing costs to ongoing home maintenance expenses, it’s important to understand the costs beyond the down payment. Let’s dive into those homebuying costs so you can be well prepared.
Down Payment: The First Major Cost
The down payment is often the largest upfront cost when buying a home. The down payment requirements depend on the type of loan to determine what you may qualify for.
- Conventional loans typically require at least 5% for eligible borrowers. For first-time homebuyers, the minimum requirement can be as low as 3%.
- FHA loans require as little as 3.5% down, making them a popular choice for borrowers looking for more flexible guidelines.
- VA and USDA loans offer no down payment requirement for eligible military veterans, active military, or buyers in defined rural areas.
Plus, there are several down payment assistance programs available to help more people achieve their dream of homeownership. While the down payment is a key part of purchasing a home, it’s not the only cost to keep in mind.
Closing Costs: Hidden Homebuying Fees
Beyond the down payment, closing costs are another significant upfront expense buyers must account for. These are fees and expenses necessary to finalize your home purchase and close the loan. Closing costs typically range from 2% to 6% of the home’s purchase price. Here’s a breakdown of common closing costs:
- Loan origination fee is charged by your lender for processing your mortgage.
- Appraisal fee covers the cost of having your home professionally appraised to determine its market value.
- Home inspection fee is paid to inspect the home for any necessary repairs or safety hazards.
- Title insurance and search fees ensure the property’s title is clear of any disputes or liens.
- Escrow fee is charged by the third party handling the closing process.
- Property taxes and homeowners insurance are typically prepaid for a portion of the costs at closing so they’re included in your mortgage escrow account.
Ongoing Costs of Homeownership
After closing on your mortgage, owning a home comes with ongoing expenses that many new buyers often overlook. These homebuying costs are essential to consider when planning for the long-term.
- Utilities include monthly bills such as electricity, gas, water, and internet. These are widely dependent on the size and location of your home.
- Landscaping and yard maintenance, whether you hire a service or handle it by yourself, keeping up with lawn care, tree trimming, and other outdoor maintenance can add up.
- Homeowners Association (HOA) fees are required when your property is in a community with an HOA. These fees may be monthly or annual and cover community maintenance and amenities.
- Property taxes are ongoing local government taxes based on the assessed value of your home. Property taxes may increase over time, so review your tax bills carefully.
- Homeowners and mortgage insurance are often required. Homeowners insurance helps protect the home in the event of potential damages, while mortgage insurance protects the lender in the event of a loan default.
- Ongoing maintenance and repairs will occur over time, from replacing appliances to fixing the roof or plumbing. It’s smart to set aside funds for common home upkeep expenses to avoid hidden costs surprising you.
What’s Next?
We hope these additional homebuying costs are not so hidden anymore! The journey to homeownership comes with several financial considerations beyond the down payment. By understanding these homebuying costs, you can be prepared to buy with confidence.
If you’re ready to explore your mortgage options, contact Supreme Lending today. We’re here to help guide you through the loan process and beyond.
by First Integrity Team Supreme Lending | Aug 14, 2024
There are several things to consider when deciding to refinance* your mortgage. It’s essential that you’re well-informed and ready to make an educated home financing decision to reach your goals. Once you’ve established how soon you can refinance, here are seven other important considerations.
1. Home Equity: The Foundation of Refinancing
One of the first things to evaluate when deciding to refinance your mortgage is how much equity you have built in your home. Equity is the portion of the property that you truly “own”—the value of your home minus your mortgage debt. Typically, lenders require that you have at least 20% equity in your home to qualify for a refinance. If you haven’t built up sufficient equity, you may not be eligible or you may receive less favorable terms. Your home equity is especially important when considering cash-out refi loans.
2. Credit Score: Your Financial Passport
Your credit score is crucial when it comes to your mortgage and loan program requirements. Your credit reflects your financial history. It also helps lenders determine a borrower’s potential risk. A higher credit score may help you unlock a more favorable mortgage. Before applying for a refinance loan, understand where you stand with your credit. Also, ensure that you’re up to date on making other debt payments.
3. Debt-to-Income (DTI) Ratio: Balancing Your Financial Obligations
Lenders will also review your Debt-to-Income (DTI), which is the ratio percentage of your monthly income that goes toward paying debts. A lower DTI ratio can demonstrate to lenders that you’re capable of managing your current debts and have the ability to repay your mortgage. Generally, a DTI of 43% or less is preferred but some loan programs and lenders can be more flexible and accept higher ratios.
4. Closing Costs: The Price of Change
Refinancing isn’t free. Don’t forget about the closing costs and associated fees that come when you refinance your mortgage. These can include application fees, originating fees, appraisals, and more. These expenses can add up to anywhere from 2% to 6% of the loan amount. It’s vital to review these costs to determine if refinancing makes sense for you. A breakdown of refinance closing fees will be included in your mortgage closing disclosure.
5. Break-Even Point: Calculating the Payoff
Understanding your break-even point is essential when you refinance your mortgage. This is the point at which your possible savings from a new loan exceed the costs of refinancing. To calculate this, divide the total cost of refinancing by the potential monthly savings from the new monthly mortgage payment. The result is the number of months it may take to recoup the costs. If you plan to stay in your home past the break-even point, refinancing may be very beneficial.
6. Interest Rates: When Is the Right Time?
Interest rates are also a driving factor when deciding to refinance your mortgage. A general rule of thumb is that refinancing is worth considering if you can reduce your interest rate by at least 0.5% or more. However, every borrower’s situation is different, so it’s important to analyze how a new rate will impact your unique financial picture and monthly mortgage payments. There are other reasons to refinance beyond the interest rate.
7. Private Mortgage Insurance: Can You Remove It?
If you put less than 20% down payment on your initial mortgage, you’re typically required to pay for private mortgage insurance (PMI). This protects lenders in case of a default on the loan. It’s an additional cost to your monthly payments. However, if you have more than 20% equity built in your home, refinancing may help remove the cost of PMI and reduce your payments.
At Supreme Lending, we understand that deciding to refinance your mortgage is a significant step, and you deserve significant service. By carefully weighing these seven considerations, you’ll be in a strong position to make a decision that aligns with your desired outcomes. When you’re ready to discuss your mortgage and refinancing options, our team is here to guide you every step of the way.
*By refinancing an existing loan, total finance charges may be higher over the life of the loan.
by SupremeLending | Apr 9, 2024
When considering buying a home and what your mortgage payment will look like, it’s important to be familiar with private mortgage insurance (PMI). All parties in the mortgage and homebuying process must be protected from certain risks, and this includes not only buyers and sellers, but also mortgage lenders. That’s where PMI comes in.
What exactly is private mortgage insurance, when is it required, what types are there, and when can it be removed? Here’s a breakdown of PMI and how it may impact your mortgage.
Private Mortgage Insurance Basics
PMI is an insurance that homebuyers are typically required to have when they pay less than 20 percent down payment for a home with a Conventional loan. The purpose of PMI is to protect the lender in case the borrower defaults on the loan and fails to make payments. This mitigates risk for the loan provider. If a property goes into foreclosure, PMI can reimburse the lender for a portion of their losses.
The cost for PMI is typically rolled into the monthly mortgage payment and funneled to the insurance provider—in the event the lender needs to make a claim.
It’s important to note that PMI is not homeowners insurance, which protects against things like fire damage or theft. PMI is required by lenders, and it only covers the lender in case of default. It’s not used to protect homebuyers’ interests. However, having PMI may allow borrowers to buy a home sooner than later, without having to save up for a larger down payment.
Types of PMI
While private mortgage insurance plans have the same goals, there are a few different ways to structure the PMI payments applied to a mortgage depending on specific circumstances or preferences. These options include:
- Buyer-Paid PMI: By far the most common type of PMI, buyer-paid private mortgage insurance involves the homebuyer or borrower paying a monthly insurance premium, which is added on to the monthly loan payment and paid to the insurance provider, though the charge can sometimes be rolled into the mortgage itself if applicable.
- Lender-Paid PMI: A much less common option is when the lender pays the monthly premiums, however as a result, the borrower would pay a higher interest rate to make up for the lender’s investment.
- Single-Premium PMI: This type of private mortgage insurance consists of the borrower paying for the full PMI policy upfront in a single lump sum, often at closing. Once this is paid, it eliminates monthly PMI payments.
- Split-Premium PMI: Borrowers may also have the option to combine the PMI payment options listed above by paying an upfront lump sum at closing that doesn’t cover the entire insurance policy, so a lower monthly premium is still required in addition to the mortgage payment.
Benefits of PMI
When lenders have the appropriate protections in place to provide loans, like requiring PMI in certain cases, they can offer mortgages to more families and individuals than if they were faced with taking on more risk.
Similar to how car insurance can protect both the owner of the car and the lender in case of an accident, private mortgage insurance is just another way to ensure that things go smoothly for all parties involved in a home loan. It gives more people the opportunity to buy homes with lower down payment options, while also making sure that lenders have protection against borrowers defaulting on their loans.
When PMI Is Required and How to Get Rid of It?
As noted above, the most common PMI requirement is when a homebuyer puts down less than 20 percent for a Conventional loan. However, this isn’t a set-in-stone rule. There can be loan programs with lower down payment requirements that may not require PMI. Always discuss with your loan officer to go over your qualified options.
Additionally, in most cases, PMI can be removed at some point during the life of the loan. Generally, once the borrower reaches 22 percent equity built in the home through things like paying down the mortgage or appreciation of the home’s value, PMI can be removed. This is done by request so if you think you may have reached this point, it’s important to contact your lender and ask about removal of the insurance. In other situations, PMI may automatically be removed once the homeowner reaches a certain agreed upon equity threshold.
For more on private mortgage insurance or to learn about other home loan programs, contact the team at Supreme Lending today.
