Tax return season is upon us. As checks come in the mail, renters have the chance to put those extra earnings toward something more than clothes or food. But let’s face it: coming up with that daunting 20% down payment isn’t easy. In fact, saving for a down payment on a home is one of the biggest obstacles that renters face in the transition to homeownership. This year, consider taking your tax refund and putting it toward a down payment, like many other first-time home buyers do.

Any amount helps

If you’re a renter looking to become a homeowner, it’s critically important to have accurate expectations. That means understanding that your tax refund probably won’t be the entire 20% down payment you’d like to provide. It will likely be much lower than that, depending on your situation. In fact, the IRS states that the average tax refund in 2016 was $2,860.

Good news for many first-time buyers is that borrowers who qualify for an FHA loan will only have to provide 3.5% and those who qualify for a fixed-rate Conventional loan may only need to put down 5%, through Cardinal Financial. In February 2017, the median U.S. home price was $228,400, requiring a down payment of only about $8,000 for an FHA loan and $11,420 for a fixed-rate Conventional loan. These estimations just go to show that any amount you receive as a tax refund can be a substantial contribution to a down payment on a home, even if it doesn’t cover the entire cost.

Is it a smart move?

There is wisdom in using your tax return money in this way, but it truly depends on the borrower. While mortgage rates are still historically low, borrowers have the opportunity to use their tax refund and move onto bigger and better homes that might have monthly mortgage payments that are lower than what they’re currently paying in rent.

However, the decision to purchase a home shouldn’t be based on whether the market is good for buying. That may be a factor in your consideration, but before you buy a home, you should make sure that you’re ready to buy a home. It’s as simple as that.

If you are relying solely on your tax refund as down payment money, that could be a sign that you haven’t been able to save any money on your own. In actuality, the only reason why you’ve come upon this extra cash is because you overpaid in taxes last year. If you haven’t been able to save for a down payment, there’s a chance you also have revolving debt and lack an emergency fund. When you apply for a mortgage, you have to prove that you’ll be able to sustain many monthly payments into the future, and if your tax refund is your primary source of down payment money, you may not be able to swing that.

While these are important factors to keep in mind, don’t forget about random repairs. Once the house is yours, your mortgage may truly be cheaper than what you were paying in rent—which is great. However, there are many extra costs of homeownership that can pop up or be forgotten. For example, you may be saving $200 a month to own, but during your first year you may have to cough up $4,000 to replace your HVAC unit. There are some things you just can’t predict.

You decide

How will you use your tax refund this year? If you’re thinking about putting that money toward a down payment, call us and ask one of our Loan Originators if homeownership is possible for you right now.

The post Should I Use My Tax Refund as a Down Payment? appeared first on Cardinal Financial.

When are you ready to buy a house? 5 signs it’s time.

• You’re committed to the area
• The pros of renting don’t outweigh the cons
• You have enough saved for a down payment
• You have a steady income source
• You’re happy with your credit score

You’re committed to the area.

A mortgage can be a great investment, but it takes at least a few years for that investment to pay off. And the truth is, it could take just as long to know if your neighborhood is a long-term fit. If you’ve put down roots (or are planning to) in an area you love, now could be the right time for you to ditch those yearly apartment lease renewals and buy a house.

The pros of renting don’t outweigh the cons.

Renting can be the right fit for people who want flexibility, love the city life, or are still building their credit score. In spite of its advantages, cons like the lack of privacy, lack of control, and rent increases can become more and more frustrating over time. If your need for more space and stability is a priority over the freedom of renting, you might be ready to own a home.

Pro Tip: Want a more transitional move to homeownership? For some, the question may not be “When are you ready to buy a house?” but “When are you ready to start building home equity?” A condo loan could help you build home equity AND enjoy the apartment-style perks you love. Win-win.

You have enough saved for a down payment.

It may be a myth that you have to put 20% down on a house, but it is true that the size of your down payment affects how much you’ll pay over the life of your mortgage. With conventional loans, for example, you could avoid paying private mortgage insurance (PMI) if you put down 20% or more. Putting down more up front could also help you get better interest rates and a lower monthly mortgage payment, especially if your credit score isn’t where you want it to be.

Some loan types allow you to put down as little as 3% (or even skip the down payment altogether if you’re eligible for VA or USDA loans) but that’s typically only if your credit score is high enough. In general, experts tend to recommend putting down closer to 10-20%. So, if you’ve got that chunk of change saved up, you might be ready to buy a house.

You have a steady income source.

Since the pandemic, more people than ever are reevaluating their careers in what’s being called “The Great Resignation.” The freedom to do what you love is always a good thing, but a steady income source is still key if you plan to buy a home. Lenders take your employment and income into consideration when determining how much financing you qualify for. So, to get the best rates possible, you’ll need to prove you can pay for it in the long run.

The good news is the definition of what constitutes a “steady” job is evolving every day. Buying a home doesn’t have to mean compromising on your career goals—you could even buy a home while self-employed. The process might involve more paperwork, but homeownership is not limited to 9-to-5ers.

You’re happy with your credit score.

There’s no denying how much your credit score affects your mortgage experience. A higher score (think 620 or above) will open up more loan options for you and help you qualify for better interest rates. Reaching that higher score is easier said than done, though, and there are still plenty of great financing options for lower credit scores.

Ultimately, your credit goals should be unique to your financial situation and the loan type you need (for some, like FHA loans, you could get approved with a score as low as 580). Credit can take a long time to build. So, if your score is in a place you’re happy with and it’s not likely to change significantly anytime soon—i.e. you know you’ll be making payments on time and you don’t have plans for any other big purchases—now could be a great time to start your home search.

So, are you ready to buy a house?

If these five signs reflect your situation, the answer to “When are you ready to buy a house?” could be “Now.” If you’re still on the fence, that’s absolutely fine. Being a homeowner can be a rewarding experience, but it’s also a big commitment that you shouldn’t rush into lightly. Our loan originators are here to help you make the right decision for you.

If you’re ready to put down roots (physically and fiscally) you might just be ready to buy a house.

The post When Are You Ready to Buy a House? 5 Signs to Look For appeared first on Cardinal Financial.

When you’re preparing for one of the biggest purchases of your life, it’s important to figure out where that money is going to come from. There are so many ways to save for a down payment, and we’ve got a few here that can help you get started right now. Ready to start that dream home fund? Read on.

Money matters

1. Document all of your expenses

Documenting your expenses can be tedious but this is one of the best places to start when you’re looking for ways to save for a down payment. Next to budgeting and assessing your finances, take note of every transaction for a clear picture of your spending habits. It’s easy to buy something small and say to yourself, “Oh, it’s only a few bucks…” but make ten of those little transactions and it adds up! Plus, there are plenty of fintech apps out there (like Mint, and EveryDollar) to help you easily budget and track expenses.

2. Try a cash-only “diet”

It’s a tough discipline, but for some people, a cash-only “diet” works! If you’re one of the many people today who don’t carry cash, using only your debit card is just as effective. Ditch your credit cards for a certain amount of time (try one to three months) and notice how quickly you feel the impact of each time you spend. This practice should teach you to be more disciplined with your spending and help you gain better control over your finances.

3. The lure of the Miscellaneous category

As you practice new ways to save for a down payment, you’ll probably want to spend a little on yourself. It’s best, at that point, to plan it into your budget and make sure that this mini splurge doesn’t infringe on your down payment goals. Treat yourself after you’ve been disciplined with your savings for a month or two and make sure your miscellaneous expenses are infrequent and reasonable.

4. Keep an adult piggy bank

We’re taking it way back to your childhood. The good old loose change jar might not save you thousands, but it’s a good way to save a little here and there. Anything helps. If you still carry cash and find yourself with annoying loose change in your pockets, don’t just dump it anywhere. Make a habit of dropping loose change into the jar and, slowly but surely, watch it grow into a sizable savings. Once the jar is full, go to your bank and deposit the cash into your down payment savings account.

5. Spring cleaning comes early

Try digging into spring cleaning early—or any time of year for that matter. This means you don’t have to wait for warmer weather after winter. Take inventory of your things and declutter your place right now. You might find some hidden gems that you can live without and sell for quick cash.

Lifestyle adjustments

6. Cut out coffee trips

Not my coffee! I get it, this is a hard one to swallow. But hear me out because I’m about to break it down. One grande skinny vanilla latte at Starbucks currently goes for $4.15. A trip to the drive thru every day for one week costs $29.05. Multiply that by 30 days and you’re spending a whopping $124.50 every month on your daily coffee run alone! Try brewing coffee or tea at home and taking it to go. Or, take the healthier route and opt for water for a while!

7. Cancel a subscription or two

One of the simplest ways to save for a down payment is to take stock of where you’re spending on a consistent monthly basis and decide which bill you could live without. Ask yourself, “Do I really need cable, and Hulu, and Netflix, and (fill in the blank)?” Most likely, the answer is no. We know Spotify Premium equals life—only until you realize you could cancel that subscription for a year and save $119.88! Let’s not forget about the trusty gym membership. Try living without it for a while and go running outside or work out at home.

8. Make new weekend routines

If your Friday night ritual is a night on the town, maybe you should stay in this month. And if you struggled with FOMO, offer to host your friends and have a movie night or a potluck and play games. There are plenty of alternatives to going out and spending money, you may just have to put your heads together and come up with other ideas. Trust me, your future, home-owning self will thank you.

9. Buy the off brand

In the hype of buying fun and organic foods, it might be tough to commit to buying off-brand foods. Even if you only save a few dollars per item, you better believe that adds up over time. Test it out and see how much money you save after a few store-brand-only trips. Then take that to the bank!

10. Meal prep game strong

Of all the ways to save for a down payment, this is one of the easiest. If you’re already making a routine trip to the grocery store, simply buy a bit more and make your own meals at home—just bulk cook, freeze, and thaw when you’re ready to eat. This might require you to move some money around in your budget and spend less on eating out and more on groceries. But since the cost of dining out is usually higher than preparing your own meals due to the tip alone, you’re still saving a considerable amount of cash over time.

Get thrifty with it

11. Take the bike lane

If you’re one of the countless people who made a New Year’s resolution to exercise more, there’s no better time to start your new fitness routine. Especially if you’re struggling to find the spare time in your busy schedule to hit the gym, make it part of your daily commute. Biking or walking to work is an excellent way to jump-start your day with a fitness-first approach. And, as you can imagine, it’s much cheaper than the gas and vehicle maintenance that comes with commuting.

But, if that’s a little too ambitious for you, or work is just too far, try carpooling with coworkers. It might be tough to give up that autonomy, but sharing a ride with someone who’s going to the same destination is not only environmentally conscious, it’s a great way to cut costs. For other transportation alternatives, try UberX Share* or calculate the cost of public transportation in your area. You could be saving a few bucks each ride—and all of that adds to your down payment fund!

*This service may be unavailable in your area due to Covid-19 protocols.

12. Get creative with your wardrobe

Shift your focus to your closet and see if there are any clothes you could stand to sell. Visit consignment stores and resale shops (like Plato’s Closet, for example) and exchange your gently used clothing for cash. You could also join one of the countless resale groups on Facebook and find one in your area. Or gather your friends and host a clothing swap to refresh your wardrobes for free!

There are also cheaper alternatives out there for buying gently used clothing that you might want to consider before you buy brand new. Try thrift shops and other secondhand stores—you might find some really great pieces for super cheap! All of these suggestions work for furniture resale too if you’re looking to sell some of your furniture or if you’ve been wanting to purchase something new for your current home.

13. Start cutting coupons

You know that grocery store mailer you throw out every week? Next time, read through it and see if you can take advantage of those coupons and deals. And don’t be afraid to ask your cashier at checkout if they have any deals going on or discounts you could use. Things like student discounts or sales campaigns are out there, you may just have to ask. You should also sign up for email notifications with websites like Groupon or Amazon. They’ll send relevant deals right to your inbox.

14. Compare utility prices

Are you sure you’re still getting the best deal? Some utility companies have discounts for switching to their services or seasonal promotions you may qualify for. One of the ways you could save money for a down payment right in your own home is by replacing your light bulbs for energy-saving bulbs. You can find them at any home and hardware store and test them out for a couple of months to see how much money you save on your electric bill.

15. Compare insurance companies

As with your utilities, make sure you’re getting the best deal on insurance. Review the insurance your paying for things like healthcare, dental, auto, renters, and more. Compare what you’re currently paying to what you could be paying if you switch to a different provider. Remember that the cheapest coverage doesn’t always mean the best coverage, so be sure that your priority is always your health and safety first.

16. Services you can do at home

Do you take your clothes to the cleaners? Try buying some supplies like stain remover pens or do some research on home remedies for stains. Do you like to get a fresh shape-up at the barber? Brush the dust off your old clippers and do it yourself for a while. Need a haircut? Ask your friends and family and see if there’s anyone you’d trust to trim it for you. That mani/pedi date you scheduled with your girls? Invite them over and have your own at-home spa day instead. All of these and more can be done yourself at little to no cost to you—and help you save money for a down payment!

17. DIY home cleaning products

If you’re running low on your all-purpose spray, think before you buy a new bottle and make your own instead. Most simple and non-toxic DIY cleaning products have some combination of water, vinegar, baking soda, and lemon—ingredients you probably already own. Turn to the internet (especially Pinterest) for safe cleaning product recipes you can make yourself, like sprays, laundry detergent, and garbage disposal pods.

18. Simplify your beauty routine

It seems like beauty blew up overnight, and everyone wants the latest and greatest products. But before you pay top dollar for the newest anti-wrinkle cream or glow serum, think about how you can repurpose ingredients you already have at home. Try making a coffee scrub or using coconut oil as a moisturizer. Of course, what you do should depend on what’s best for your skin type, but do some research and you might find that perfectly good beauty products exist in your own cupboards!

19. Handmade gifts are better

People say handmade is more heartfelt and we agree! Not only does a handmade gift or card instantly add sentimental value, it’s usually the cheaper route too. You could even make your own gift wrap or gift bag with paint, glitter, or ribbon you have at home. However you choose to make it yourself, you’ll be adding a personal touch and saving some cash for your down payment fund!

Other secrets to saving

20. Tell your world

Invite your friends and family into this venture and you might be surprised how many people are willing to help you or offer support. Telling others also helps you feel like you’re not alone in making lifestyle changes and gives them context when you say no to spending in front of them. You might even find someone who wants to be an accountability partner and go on this journey with you!

21. The Attitude of Gratitude

Saving for a down payment is also an inward process. Judging by this list, there are so many tangible ways to save for a down payment. But while you’re changing your life, you may also need to change your attitude—and that’s priceless. Living a frugal lifestyle, especially when you’re not used to it, can be exhausting and frustrating. 

Don’t expect to accomplish this feat without a steady, ongoing change to your attitude. When you do that, you’ll gave better expectations and you’ll be more likely to experience these changes in a positive way. And always keep in mind your end goal: A home you can call your own!

Did this blog post give you some good tips for saving money for a down payment? Tell us about it on social media!

The post 21 Ways to Save for a Down Payment appeared first on Cardinal Financial.

Then what’s getting in your way? Since you’re reading this blog, it’s likely the thought of a down payment that’s holding you back. Luckily, down payment requirements may not be as unattainable as you think.

So, how much down payment for a house? It depends.

A down payment is the cash you pay toward a home purchase upfront. The rest of the purchase cost is financed through a mortgage loan. For example, a 5% down payment on a $300,000 house would be $15,000. The remaining $285,000 would be the mortgage amount in this scenario.

Scared You’ll Never Have 20% To Put Down? You Probably Don’t Need To.

Does the thought of saving tens of thousands of dollars make you feel like you’re running from a killer in a slasher film? Don’t worry. The most typical down payment requirement is between 3% and 3.5% of the home’s purchase price? Yup. That talk about needing 20% down is a bit of an exaggeration.

Of course, the larger your down payment, the less you’ll pay over time in interest. And, you’ll probably have to pay private mortgage insurance (PMI) if you put less than 20% down. But that doesn’t mean you’re out of the homeownership game. In fact, according to the Realtors® Confidence Index, 52% of all people who get mortgages make a down payment of less than 20%. And get this – a massive 72% of all first-time homebuyers paid less than 20% down.

Why are so many homebuyers making smaller down payments? Because owning a place can save some serious bucks as compared to renting. It can be true even when you factor in PMI and the larger amount of interest paid over the life of the loan. Check out our recent blog on the cost of homeownership to crunch those numbers.

Think your down payment is too small? You might want to think again. Reach out to a mortgage professional to see what kind of home budget you may be able to qualify for. Plus, if you are eligible for a VA or USDA loan, you could skip a down payment entirely.

Private mortgage insurance (PMI) is an extra fee paid by borrowers with less than 20% of a loan’s value to invest up-front. The additional cost covers the lender since a lower down payment can mean more lending risk. PMI will probably run you between 0.6% and 2% of the mortgage loan amount per year.

The Truth About Your Down Payment

We’ll tell it to you straight… the larger your down payment, the less you’ll pay over the life of the loan. So, if you have the means to put more money down, go for it! But, if most of your paycheck goes toward bills and other essential expenses, it could be nearly impossible to scrape together 20% of a home purchase price. Don’t let that get you down. Save what you can and see what mortgage amount that down payment might help you qualify for.

And don’t forget that different loan types have different down payment requirements:

• Conventional Loan: 3% minimum down payment
• FHA Loan: 3.5% minimum down payment
• USDA Loan: No down payment required
• VA Loan: No down payment required

It’s About More Than The Down Payment

Now that you know 3% of a home’s price might be enough of a down payment to get you into homeownership, it’s time to consider some other important factors.

Your credit score and debt-to-income ratio are just as important as how much cash you have to spend upfront. Here’s why:

Your credit score

Lenders see your FICO credit score as a way to estimate the risk that you won’t repay your loan. That’s because your credit score is based on your loan repayment history (and other financial factors). For the majority of mortgage types, a 620 FICO score can help you qualify.

If 620 seems out of reach for you, don’t throw in the towel just yet. We know that not everyone has the same opportunity to build solid credit before buying a house – and so does the Federal Housing Administration (FHA). That’s why FHA home loans provide more credit score flexibility. A credit score as low as 580 might be just the key for this type of home loan. Plus, you’ll only be required to put 3.5% down (a credit score between 500 and 579 might qualify you with 10% down). What’s the downside, you wonder? FHA loans always require mortgage insurance payments. That’s because the more relaxed financial requirements can mean more lender risk.

Your debt-to-income ratio

Your debt-to-income (DTI) ratio is a comparison of your monthly income and the monthly payments you owe. Your DTI indicates the percent of your income (before taxes) that you spend on regular debt payments. That includes car payments, credit card payments, student loans, and anything else owed regularly.

Most lenders look for a DTI around 40% or lower (including your future mortgage payment). That means you’ll spend 40% or less of your income on monthly debt payments. This is a general benchmark. But remember, it’s not a hard cut-off. You might be able to get a home loan with a higher DTI percentage, or you might want to stay way under it. Having a lower DTI percentage means you’ll have more money left over for everything else you buy – groceries, car maintenance, home repairs, and maybe even a trip to the movies.

Debt-to-income ratio is a measurement of how your monthly income compares to the monthly payments you owe. It tells the mortgage lender what percent of your income (before taxes) you spend on regular debt payments.

So, How Much Down Payment for a House?

You’ve probably figured out that your down payment depends on the type of home loan you get, your credit score, and your DTI. While making a larger down payment on a home means you’ll spend less in the end, putting down as little as 3% can save you money over the life of the loan. Plus, you’ll build home equity, which means more wealth for you.

Connect with a mortgage expert today to run your numbers.

The post How Much Down Payment For a House? 3 Things You Need to Know appeared first on Cardinal Financial.

If you’ve been renting your home for a while, you’ve probably found that saving up for a down payment on a home isn’t just a challenge—it can feel totally out-of-reach!

Average rental rates go up each year by 3-5%. So how are you supposed to squirrel away money for a home of your own when you’re already sending more and more of your paycheck to your landlord, on top of all of life’s other expenses?

We get it. And that’s why we’ve put together this list of seven money-saving tips to help you afford the house of your dreams.

Home Purchase

1. Set an ambitious (but achievable) goal

The first step to saving is to know (spoiler alert!) how much you want to save for a home. Make sure you account for a down payment, closing costs, any additional fees, and mandatory inspections. Give yourself a solid timeframe and a realistic goal: Say, $6,000 in the next year. The natural next step is to…

2. Hold yourself accountable

Now that you have a goal in mind, it’s time to keep tabs on your progress. Use a dedicated savings account to store your house money, rather than letting everything get mixed up in the same checking account. If you want automatic savings, set up your account to draft $150 from your checking account to your new house account each month, and you’ll likely never notice. That’s $1,800 in savings over the course of a year!

Want to start saving for a home? Set a realistic goal you know you can hit, and keep tabs on your progress to make sure you’re on track to hit it!

3. Trim those subscriptions

Netflix, Amazon Prime, your gym membership: Chances are, you’re paying for subscriptions you don’t use often enough. There are many free or low-cost apps (Mint, Goodbudget, PocketGuard) out there that you can use to track subscriptions and memberships you pay for each month. If you feel like you’re not getting your money’s worth, it may be time to purge them from your budget.

8 Things Every First-Time Home Buyer Needs to Know

4. Cut out the extras

Want to know the real secret to savings? Cut out the expenses you don’t really need! Here are a few ways you can make small lifestyle choices and flex your budgeting muscles:

• Cook more meals, eat out less. Say goodbye to your delivery guy, and you’ll notice that you’re spending a lot less on tips and fees.
• Break up with your online shopping apps. You could consider going cash-only if that helps curb your late-night shopping habit.
• Cut the cable cord. Many homeowners and renters have found that they can access the same or similar content through Internet and streaming services!

5. Find a roommate

Want to know another popular way to save for a house while renting? If you’ve got an extra bedroom, you could be splitting your rent bill (as well as utilities, water, and various other bills) in half. Consider converting your home office or workout room into another full-time bedroom to make your monthly bill more manageable. If you’ve proven yourself to be a reliable tenant over the years, you could also try negotiating your lease with your landlord or see if they’re offering any deals. It never hurts to ask!

6. Opt for a “staycation”

Exploring a new city or jetting off abroad can be an unforgettable experience. Unfortunately, it’s likely to cost you a large chunk of your savings. If you want a getaway without breaking the bank, try a staycation in your hometown instead. You could get a night in a local hotel or Airbnb, pretend to be a tourist in your own city, or maybe treat yourself to a spa day (You don’t even have to leave home if you buy the right bubble bath!).

7. Try out a side-hustle

If you want to boost your income and supercharge your savings, you could always pick up a side gig. Think of part-time jobs you already enjoy. If you like meeting new people around town, you could join a ride service like Uber, or deliver food through a service like DoorDash.

If you’re all about arts and crafts, opening an Etsy shop would be a great way to make money and show off your creative side. You don’t have to get too formal here: Even small tutoring or pet-sitting gigs can add up to serious cash you can use for a home!

So, what are my next steps?

You’ve learned plenty of helpful tips on how to save for a house while renting… so what can you do with them? The first thing you should know is that you don’t need to save for years to come up with a 20% down payment. In fact, a low down payment could be the key to getting into your new home (maybe even right now)!

You can buy a house for as little as 3% down with a Conventional loan, or with no down payment at all with a USDA or VA loan. FHA loans are often popular among first-time home buyers, because of their flexible credit, income, and down payment requirements. You can typically buy a home with an FHA loan with as little as 3.5% down.

Simple steps, big savings

Does the idea of saving for a house while renting seem a little easier now? Most renters only need a little inspiration before they can start turning small savings into a sizable down payment!

Curious to know how much home you can afford? Our mortgage calculator can estimate your monthly payment based on home price, your down payment, loan term, and interest rate. And if you’d like to get moving sooner than later, you can always chat with one of our friendly Cardinal Financial loan originators.

Can you think of any other tips on how to save for a house while renting? We want to hear them on Facebook or Twitter!

The post How to Save for a House While Renting: 7 Simple Tips appeared first on Cardinal Financial.

But why would someone want to take on someone else’s mortgage? Well, the major benefit is that a buyer can take advantage of financing with a better interest rate if rates are higher than when the seller originally bought the home. An assumable mortgage can be a smart money move, but it’s not always the best option, particularly because not all mortgages are assumable.

Here are the basics both buyers and sellers need to know:
FHA Loans

What is an assumable mortgage?

An assumable mortgage allows a buyer to take over (or “assume”) the seller’s home loan. The buyer takes over the loan’s rate, repayment period, current principal balance, and any other terms, rather than getting a new mortgage.

The buyer will need approval from the lender who funded the original mortgage. Assuming the buyer is approved and the paperwork is processed completely, the buyer agrees to make all future payments on the loan, and the seller is released from any future liability.

An assumable mortgage allows a buyer to take over (or “assume”) the seller’s home loan, including the interest rate, repayment period, principal, and other loan terms.

What are the advantages?

For buyers

If the terms of the seller’s existing mortgage are more attractive than what’s currently available in the market, an assumable mortgage may be right for you.

Say the seller bought their home back when interest rates were around three percent. If rates have risen to six or seven percent since then, a buyer could assume the seller’s mortgage and potentially save thousands of dollars in interest payments and closing costs.

For sellers

It may sweeten the pot for buyers if your home comes with an assumable mortgage, especially if rates are much higher than when you bought the home. You might also have more negotiating power on price because of the deal the buyer would get from the assumption.

What are the disadvantages?

For buyers

Since an assumable mortgage only applies to the balance remaining on the original loan, you’ll need to either pay upfront or take out a second home loan for the amount of equity the seller has built up in the home.

You’ll also need to qualify for the loan under the original loan’s lender. If that lender doesn’t approve you, you won’t be able to take over the mortgage.

For sellers

Sellers could encounter liability issues if they’re not cleared from responsibility for the loan.

Make sure your lender can release you from liability before you allow someone to take over your mortgage. If you remain tied to the mortgage and the buyer defaults on the assumed loan, you don’t want to be on the hook for the payments or suffer a hit to your credit!

Are all mortgages assumable?

Typically, home loans that are guaranteed or insured by the federal government are assumable, including:

• FHA loans, which are insured by the Federal Housing Administration
• USDA loans, which are guaranteed by the Department of Agriculture
• VA loans, which are guaranteed by the Department of Veterans Affairs

Most Conventional loans aren’t assumable because they contain “due-on-sale” clauses that require that the loan’s balance be paid off when the property moves from seller to buyer.

How does the process work?

The lender who funded the original mortgage must approve the new buyer before it will sign off on the assumption. The lender checks the buyer’s credit score, credit history, and income as if they were the one applying for the original loan.

If the buyer is approved and the lender approves the transfer, the new buyer can close on the home and start preparing to move in.

What about costs?

There are fewer closing costs involved when a buyer assumes a mortgage. The FHA, VA, and USDA impose limits on assumption-related fees to help keep these home loans affordable.

The FHA and VA won’t require an appraisal on an assumable mortgage, but the VA does recommend an appraisal be completed during the deal. The USDA will want to verify that the property meets certain requirements before signing off on the assumable mortgage.

Still, the buyer may need to come up with a substantial down payment, especially if the seller has built up a lot of equity in the home.

VA Loans

What should I know about VA assumable mortgages?

Anyone can assume a VA loan, even those who aren’t a service member or served in the military.
However, the seller should know that with a VA loan, the government guarantees it will repay part of the balance if the borrower defaults. The VA calls this the borrower’s “entitlement.” Depending on the loan amount, the original borrower’s entitlement may remain in the home with the assumed mortgage, even after the sale.

If this happens, the seller may not have enough entitlement remaining to qualify for another VA loan to buy another home. Selling to a veteran or a fellow service member may be a better option: This way, the buyer can swap their entitlement for the seller’s.

What would disqualify me from an assumption?

If the buyer doesn’t have strong enough credit for the assumable loan, the lender won’t sign off on the deal. The buyer must prove that they can make the monthly payments. The seller must also show that they have been keeping up with their payments in order to transfer the property.

Can I assume a mortgage from a family member?

Not all assumptions are the result of home sales. In the cases of divorce or death, the spouse who remains in the home, or the heir, will need to prove they can make the monthly payments and meet the lender’s eligibility requirements before they can assume the mortgage.

Is it right for me?

An assumable mortgage may seem like an attractive option when interest rates are high because it could help you lock in a lower rate and drastically lower the cost of your home. However, this unconventional option is not for everyone.

Learn more about current interest rates and what home loan is best for your unique scenario by speaking one-on-one with a loan originator.

What were some of your key takeaways on this topic? Keep the conversation going on Facebook or Twitter!

The post Assumable Mortgage: What Buyers and Sellers Should Know appeared first on Cardinal Financial.

It’s a newer trend that’s popping up in the mortgage industry. But is mortgage crowdfunding a good idea or a slippery slope? On the one hand, it could open up homeownership possibilities for more people. On the other hand, it may be indicative of a larger problem. More on that later. First, let’s talk about crowdfunding.

What is crowdfunding?

You may have heard of crowdfunding in the general sense. This involves someone starting a webpage (usually using a service like GoFundMe or Kickstarter) where their friends and family can go to donate money. Crowdfunding platforms have been used to raise money for everything from starting a business or funding an overseas trip to lightening the burden of funeral expenses or paying for medical bills.

Generally, crowdfunding is a great way to raise money and get people involved. Because it’s done online, there’s no need to make phone calls or directly ask people to donate. And since asking for monetary donations in any capacity can be awkward, the online format conveniently takes away the need for face-to-face interaction. Donors can submit a one-time gift where all they need to do is enter credit card or checking account information. If you’ve ever bought anything online, crowdfunding is a simple process you’d be familiar with.

The down payment challenge

Saving for a down payment has always been a challenge for home buyers. It’s why there are all kinds of grants, housing lotteries, low down payment options, down payment assistance programs, and rules for allowing gift funds. All of these programs and incentives help to ease the financial burden of coming up with a cash down payment.

But if that’s the history, the present landscape doesn’t help much. The current housing market is not the most favorable for buyers, especially first-timers. Home prices are high, rates are inching upward, and there’s not much inventory. As the market contracts, it doesn’t look so good for home buyers who may have already had a hard time trying to scrape up the funds to make a down payment.

Then there’s student debt. The Millennial generation is coming up as the largest home buying generation in history, surpassing Baby Boomers. At the same time, no generation has more student debt than Millennials. And debt is a deciding factor when you’re being considered for a mortgage. Mortgage lenders calculate a person’s debt-to-income ratio, and if that ratio doesn’t meet their lending requirements, that person can be denied a mortgage.

Don’t Let Student Debt Keep You from Homeownership

Start the conversation

See, the lender’s goal is to lend money to financially responsible people who can prove they’ll pay it back in full and on time. You can still get a mortgage if you have debt, it just depends on a lot of other factors and there are no guarantees.

You can still get a mortgage if you have debt.

That’s why it’s important to just get on the phone with a mortgage lender and have that initial conversation. They’ll be able to tell you if you’re in a position to borrow. And if you’re not (say, because your debt-to-income ratio is too high) they’ll be able to give you tips for improving that ratio, like restructuring your finances to help pay off some of the debt or taking a second job in order to bring in more income. Of course, if this or similar advice is given to you by a loan originator, you should consult your financial advisor before making any changes.

So if homeownership is a lifelong goal, you’re struggling to come up with a down payment, and maybe you’ve even got some debt holding you back, mortgage crowdfunding doesn’t sound like such a bad idea. If you have friends and family who are willing to help you out, why not go for it?

Fannie Mae Relaxes Debt Requirements

The underlying issue

Mortgage crowdfunding could be indicative of a larger problem. For one, it seems like a telling sign that the borrower doesn’t have the funds to afford a house. And if that’s the case, we can safely ask: is this person ready for the financial responsibility of homeownership?

Mortgage lenders tend to be more wary of approving loans with down payment assistance of any kind for this reason. It’s kind of like how they determine the credit risk a potential borrower presents based on their FICO score or job history. This is why lenders started requiring mortgage insurance on mortgages with down payments lower than 20%. Mortgage insurance protects the lender in the event that the borrower defaults.

Mortgage crowdfunding could also indicate that the borrower has little to no savings, and that’s a dangerous way for anyone to enter homeownership. A home buyer with no savings is one major home repair away from defaulting on their mortgage payment.

Mortgage crowdfunding could be indicative of a larger problem.

Mortgage crowdfunding could also start a trend of irresponsible home buyers. Let me explain. Look at what’s in the name: homeownership. Generally speaking, when you own something, when you’ve invested in something with your own hard-earned money, you’re more likely to take care of it. If your money’s in it, it’s likely that you’ll make payments on it, rather than slip into default because you got a free ride on other people’s cash.

The bottom line

Homeownership is a beautiful thing. How awesome would it be if every American family was able to achieve that goal? We should be thinking of new ways to unlock homeownership for more people. But given the evidence that stands against mortgage crowdfunding, it doesn’t seem like a smart solution.

It’s the same reason why there are rules for gift funds. You can be gifted money that you use toward a home purchase, but every lender has guidelines in place for this so that it’s not abused.

What it all boils down to is the financial ability and responsibility of the borrower. If they’re using mortgage crowdfunding to increase the personal funds they’re already bringing to the table, that might be a smart way to make a bigger down payment, lower their monthly costs, or improve their loan terms. But if they’re crowdfunding because they don’t have any or enough money to afford the costs of homeownership, then it’s fair to say that mortgage crowdfunding is not only unsustainable, it’s not smart.

Need a little help?

If you’re short on down payment funds, there are better ways to make homeownership happen. At Cardinal Financial, we carefully review your financial status and determine whether you’re in a position to take on a mortgage payment. If it looks favorable, we’ll craft the perfect loan to fit your unique situation.

We have several loan products that accept low down payments: 3.5% for FHA loans, 3% for Conventional, 0% for USDA, and 0% for VA loans. We’ve even got down payment assistance programs in certain states. So, if you like what you just read, we think you might like our mortgage rates too. Fill out our free quote form and one of our loan originators will call you shortly to talk about your options.

Learn something new today? Tell us on social media or share this with a friend!

The post Mortgage Crowdfunding: Good Idea or Slippery Slope? appeared first on Cardinal Financial.

Buying a home is a milestone event in anyone’s life. With it comes added responsibility, a sense of settling down, and in many cases, a family. Like any major event, the home buying process can come with some apprehension, especially amongst a Millennial generation that fears “getting old” like the plague. But buying a home should be an event you look forward to, not dread its arrival.

Yes, becoming a homeowner can symbolize a change in lifestyle for many, and it’s important to know if you’re ready for a home or not before you jump in. But many of the scary stories you hear about why you shouldn’t buy a home are unfounded myths. While you may not be ready to take the next steps toward homeownership just yet, we’re here to dispel these myths that may be holding you back for the wrong reasons and give you a better idea of whether you’re ready to take the leap.

Buying a home should be an event you look forward to, not dread its arrival.

I Need a Big Budget

Many Millennials are shying away from buying homes because they simply don’t think they have enough money for it. The astronomical budgets of the couples on home buying and remodeling TV shows have shook Millennials to their very core. Seriously. Most people who are getting ready to buy their first home don’t have the $500,000+ budgets that these TV couples have access to, and that’s fine. The U.S. Census Bureau reported median home prices around $290,000–$320,000 between 2016 and 2018. This means that half of the homes in the U.S. fall below this price point. There are plenty of homes that fit your price range, you’ve just got to look for them.

I Can’t Pay Off a Mortgage and Student Loans At the Same Time

According to research done by American Student Assistance, 83% of Millennial renters with student loan debt said their loans are keeping them from homeownership. Student debt can certainly be a hindrance in the mortgage process, but shouldn’t keep you from your goal of homeownership if you proceed through the proper channels.

For instance, if you’re part of a Federal reduced-payment plan, make sure your lender calculates your DTI ratio based on your actual, reduced payment. Just last year Fannie Mae introduced rule changes to make securing a mortgage easier for people with student debt—and several states offer grants to help qualified college graduates buy homes and pay off their loans. If these options aren’t for you, you do have the option to refinance and extend your student loan term. Your payments will be lower, which will reduce your DTI ratio, but it’s important to consult a professional to figure out whether extending your loan is in your best financial interests.

83% of Millennial renters with student loan debt said their loans are keeping them from homeownership.

I Need a 20% Down Payment

A 20% down payment is needed to avoid mortgage insurance, but it’s not always the best option for everyone’s financial situation. In fact, many experts are starting to challenge the long-standing notion that a 20% down payment is the ideal way to go about buying a home. It may sound counterintuitive, but some homeowners have found that taking on a bit more debt or temporarily paying mortgage insurance is the only way they could realistically afford a home. With home prices steadily increasing and wage levels remaining stagnant, saving up for that 20% down payment is a bit like chasing a moving target that you may not be able to catch up to. If you have the money available, go for it, but if you don’t it’s not the end of the world. There are low down payment loan options available to you that can make homeownership a reality sooner than you think.

Saving up for that 20% down payment is a bit like chasing a moving target that you may not be able to catch up to.

Are you a Millennial homeowner? What were your reservations about buying your first home? Do you have any advice to share? Share it with us on social media!

The post 3 Myths That Are Keeping Millennials from Homeownership appeared first on Cardinal Financial.

A 2016 study conducted by the Student Loan Report shows that student loan debt is a major obstacle impacting the ability for college graduates to make important financial and life decisions. One of the most startling findings of this report is that 63% of those surveyed reported that student loan debt was affecting their decision or ability to buy a home.

Even more disappointing is the fact that most of today’s college graduates are Millennials—the nation’s largest generation. Which means that these numbers don’t just affect those with student debt—they affect the greater national economy.

While student loan debt is a common reason for the decline of homeownership among Millennials, it’s still possible to obtain and sustain a mortgage payment, even while you have student loan debt. Think about it: If you’re paying rent, you’re already balancing two monthly payments—one for school and one for housing. We’ve come up with a few strategies that may help people with student loan debt qualify for a mortgage.

• If you haven’t already, now is the time to establish attainable financial goals to help you avoid excess spending and increase your savings toward a home. Remember that, in order for these goals to make a difference, they will be challenging and will probably cause you to make lifestyle changes.
• Ask your employer to consider helping you repay your student loans. There may be a program you didn’t know about. In recent years, more and more companies are catching on and are starting to offer loan repayment or higher education benefits. This may look different for every workplace, and yours may not offer such a program yet, but it’s worth asking.
• Early in your home search, try to aggressively pay off as much of your student loan debt as possible. Make a calendar and stick to high monthly payments that will require you to sacrifice in other areas of your budget. The less debt you have when you contact a mortgage lender, the easier it will be for you to qualify for a mortgage.
• The last thing you want is more debt. Pay off your credit card debt, if any, as fast as you can and try to avoid accumulating more. Limit yourself to one or two credit cards and make a commitment to only charge what you will be able to pay off each month. If you must carry a balance on a credit card, transfer the balances to the card with the lowest rates. In addition to credit cards, don’t apply for other loan money, like financing a new car or piece of furniture.
• Work to pay off all of your bills—especially utility bills—by the due date each month. This discipline is essential to raising your credit score and obtaining the best possible interest rates on, not only mortgages, but other types of loans too.
• When you come across extra money, like bonuses, cash gifts, income tax returns, overtime pay, $20 in your couch cushion, etc., put all of that cash immediately into your down payment savings account. It will be tempting to take yourself shopping! But if your priority is truly homeownership first, make it a point to deposit the full amount in a safe place.
• Finally, carve out some time to write up a budget to be sure you can actually handle a mortgage payment in addition to your student loan debt. If you have trouble with the numbers on your own, enlist a budget-savvy friend or family member to help you set realistic goals.

Truth is, student loan debt should not keep you from purchasing a home. Ultimately, as a mortgage lender, we simply want to see that, even with your student loan debt, you will still be able to make consistent payments on your home loan. With the right financial management and by using strategies like these, you too could be a homeowner regardless of your student debt.

The post Don’t Let Student Debt Keep You from Homeownership appeared first on Cardinal Financial.