Category Archives: Down Payment

First-Time Homebuyer Advice

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Best advice I would give to first-time homebuyers
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I was once asked: We’re in the process of hopefully purchasing our first home, and I’m a little lost on everything that is going on. What’s the best advice you would give to first-time homebuyers?

Undoubtedly, your primary step in the home buying journey should involve securing your financing. While I acknowledge that this advice may appear biased, considering my involvement in the mortgage business, it’s a reality that the majority of today’s home buyers rely on mortgages, making this part of the process more intricate than before.

Despite the potential complexity, obtaining a mortgage today is not as insurmountable as some may portray. Recognizing your credit situation is pivotal. Lenders don’t demand perfection, but it’s crucial to be aware of your standing. Check your credit report on platforms like Free Credit Report.Com or Creditkarma for free and promptly address any errors, past-due accounts, or public records.

Collection agencies often settle for amounts less than what is reported. However, exercise caution when settling collections older than two years, as it might impact your credit score. Establishing a relationship with a reliable loan officer early on is crucial. Seek someone responsive, trustworthy, and capable of offering clear guidance.

Initiate the preapproval process with your chosen loan officer by submitting essential documents such as pay stubs, W2s, and bank statements. The Automated Underwriting System (AUS) will swiftly provide initial findings. Aim for “Approve/Eligible” or “Accept” results and inquire about a “TBD Approval” for added strength in your offer to sellers.

I hope you find this information helpful. Best of luck on your home-buying journey!

PMI or Larger Down Payment?

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Determining whether it’s cheaper to pay for private mortgage insurance (PMI) or to put up a larger down payment on a house depends on your specific financial situation and goals. Here are some steps to help you make an informed decision:

Calculate the cost of PMI: If your down payment is less than 20% of the home’s purchase price, your lender may require you to pay PMI. PMI costs can vary based on the loan amount, credit score, and other factors. Your lender can provide specific details on the PMI costs associated with your loan.

Assess the cost savings with a larger down payment: Compare the total cost of PMI over the time you expect to pay it (until the loan-to-value ratio reaches 78%) with the potential savings of making a larger down payment. A larger down payment means a smaller loan amount, which can result in lower monthly mortgage payments and less interest paid over the life of the loan.

Consider alternative uses for your cash: If you have the money for a larger down payment, weigh the opportunity cost of using that money for a down payment versus other financial goals. For example, paying off high-interest credit card debt or investing the money might yield higher returns compared to the savings from a larger down payment.

Factor in future home value appreciation: If you expect the value of the home to appreciate significantly in the coming years, it may impact when PMI gets automatically canceled (at 78% loan-to-value ratio). If the home appreciates rapidly, you may reach that threshold sooner, reducing the overall cost of PMI.

Evaluate your overall financial situation: Consider your long-term financial goals, current income, job stability, and other financial commitments when deciding between a larger down payment and paying PMI.

Consult with a financial advisor or mortgage professional: Seeking advice from a financial advisor or mortgage expert can help you better understand the trade-offs and make a decision that aligns with your financial objectives.

Ultimately, the decision depends on your unique circumstances and financial priorities. Whether you choose a larger down payment or opt for PMI, buying a home should fit comfortably within your budget and contribute to your overall financial well-being.

Vacation Homes in High Demand!

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Vacation homes increasingly in demand because of remote work trends. It’s not something you’d expect during a pandemic and recession, but numbers don’t lie…

It’s not something you’d expect during a pandemic and recession, but numbers don’t lie. According to a PRNewswire report, sales of vacation homes are soaring. According to Redfin’s report, October saw demand for second homes skyrocket 100% from a year earlier—the fourth triple-digit increase in the last five months. That outpaces the demand for primary homes.

Home sales are on the rise across the board due to record-low mortgage rates but also because of a wave of relocations during the pandemic. Demand for second homes rises to the top among more affluent Americans who work remotely, no longer need to send their kids to school in person, and are limited by travel restrictions, according to Redfin’s lead economist Taylor Marr.

“With mortgage rates at all-time lows and offices shut down across the country, the dream of having a second home outside of the city is becoming a reality for many wealthy Americans,” Marr said. “Unfortunately, at the same time, millions of less-fortunate families are behind on their mortgage or rent payments due to financial hardship brought on by the coronavirus pandemic.”

Some of these second homes may eventually turn into primary homes, as it’s not uncommon for a buyer to close a deal on a second home before putting their current house on the market. It seems resort towns across the U.S. have attracted more homebuyers. Hotspots include Lake Tahoe, Cape Cod, Palm Springs, the Jersey Shore, and Bend, OR.

Marr adds,” Even when offices reopen, folks will be able to spend more time than ever before in their second homes because many employers will continue to offer flexible remote-work policies. With workers still commuting in one or two days a week, resort towns that are near major cities will likely continue to heat up.”

Source:PRNewswire, Redfin, TBWS

VA Loan Right for You?

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Why should you use VA loan:
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The VA loan is hands down the best mortgage loan there is. Here are some reasons why.

First, VA guarantees the loan for 100% of the appraised value of the property (technically, the loan is for the Notice Of Value amount, which in most cases is the same thing). This guarantee means that the lender is willing to make the loan. The loan amount for 100% financing goes as high as the maximum amount in each county.

Veteran buyers can get a loan for more than the county maximum; they just have to pay 25% of the amount above the county maximum. In pricey California, for example, a veteran could buy a home for $800,000 with a $40,963 down—roughly 5%. Which brings me to the next reason to get a VA loan:

There is no mortgage insurance. A buyer with a 700 credit score will pay about $400 per month for mortgage insurance if he puts 3% down on a conventional loan.

The rates are slightly lower in some cases. Also, underwriting standards are easier. Where conventional loans use dent-to-income ratios to qualify, VA loans use “residual income.” This looks at how much money they actually have available each month after meeting normal expenses from their take-home pay. Conventional loans are typically capped at a 45% debt ratio (or thereabouts). VA loans can many times be approved above 50% depending on the overall strength of the borrower.

When rates drop, refinancing is easy. VA loans offer a “streamline” refinance option, called an Interest Rate Reduction Refinance Loan (IRRRL). This allows the veteran borrower to reduce his or her rate with no appraisal, and very little underwriting of income. The primary criterion for approval is that the borrower has an acceptable payment history and that they are improving their position.

If a veteran wants to refinance and get cash out of his or her equity, there is no pricing adjustment for that process. A conventional loan will typically be about .25% higher in rate to get cash out.

For anyone who is a qualifying veteran, NOT getting a VA loan would be a costly mistake.

Hope this helps!

Taking Money Out of 401K- Smart?

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Someone once asked: As a first-time buyer, is it a good idea to take money out of my 401K to avoid mortgage insurance?
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It’s not a sin to pull money from your 401K, but whether you decide to put down more cash to avoid mortgage insurance is entirely up to you. Here’s some information to help you decide.

When lenders consider risk on a loan, the loan-to-value ratio is one of the factors they evaluate. A loan for more than 80% of the property’s value presents a greater risk in their view. To manage that risk, they require mortgage insurance which is usually paid monthly and added to the payment.

Depending on the total cost of your 401K loan vs. the cost of borrowing more money, and potentially paying mortgage insurance.

You should keep in mind that mortgage insurance on a Conventional can be temporary. Once you can prove to the lender that your loan is 80% of the property’s market value, they’ll allow you to drop it. Check with a licensed real estate professional to see what they think of the future market conditions.

One other thing to consider is that even though most 401K loans have a 15-year term, nothing is stopping you from paying it off faster. Nothing that is, except human nature. 🙂 The fees for the loan may be the deciding factor for you.

Bottom line, this is something to take up with your licensed lender and real estate professional. Be sure you have written details about the 401K loan with you when discussing it with them.

Hope this helps…good luck!

First Time Homebuyer?

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14 First Time Homebuyer Mistakes to Avoid!

#1. Failing to Budget for a Home Loan

Home ownership is a cheaper alternative to renting in the long run. But in the beginning, it can be much pricier. This is especially true if you intend to get a loan to purchase your dream house.

If you do acquire a loan, remember that you will be making monthly mortgage payments for a number of years.

Therefore, it is important to budget for a home loan, beforehand. You need to determine whether your income can accommodate an extra expense or not.

If you are unable to afford making monthly payments on your home loan, it would be a mistake to try to own a house at this time.

#2. Ignoring Your Credit Score

If you thought that finishing school meant being done with competitive scoring, think again!

Apparently, your creditworthiness can be summarized in just 3 digits. Those three numerals will draw the line between owning a house and renting one.

Even if you have an impeccable sense of financial responsibility right now, your credit past can haunt you.

You could have a hard time getting a home loan if your past record shows problems with payments, or if there’s an error in your credit report.

If you go ahead and apply for a mortgage loan without checking your credit score, you could end up paying a lot more than you expected.

It’s best to perform a credit check beforehand.  This way, you will be allowed to get loans without being obligated to pay hefty amounts in interest.

#3. Disregarding Housing Marketing Trends

Just like other financial markets, the housing market fluctuates from time to time. Sometimes it favors the buyers, and sometimes it favors the sellers.

There are a number of factors that affect housing marketing trends. This includes the ratio between supply and demand, interest rates and the overall condition of the economy.

It’s also imperative that you consider how the housing market changes in your ideal location, as home prices vary from one location to another.

If you disregard housing marketing trends when hunting for a house for sale, you might end up signing for a deal that favors the seller.

#4. Lack of a Preapproved Home Loan

Some people are anxious to shop for a house and want to do it quickly, before they are financially able to afford it.

If you have already started talking to sellers before having a hard talk with home loan lenders, you are making a mistake. In fact, not many sellers will want to work with you if you promise them a certain amount and then can’t fulfill that promise.

To avoid any disappointments, it’s wise to have your home loan pre-approved first, then go ahead and look for a house to buy.

#5. Overlooking the Home Resale Value

Another huge mistake you can make when buying a house is not considering the fact that you may need to resell the house you intend to buy.

There are lots of unexpected changes that can occur, such as job transfers, financial problems, or falling in love with another bigger or prettier house.

When this happens, you might find the need to sell your house, obviously at a profit. You should never overlook the resale value of the home you intend to purchase.

What you need to do is to ask yourself several questions such as: Will it be easy to sell this house? Will buyers be interested in buying it? Will this house fetch me a good amount if I decide to buy another one? Is it situated in a preferred neighborhood?

#6. Trusting an Unprepared Agent, not getting a Good One

Involving an agent is highly recommended in the home buying process.

There are pros and cons to dealing with real estate agents. A real estate agent can take a huge burden off your shoulders when it comes to looking for the right house.

An unprepared agent can cost you money and set the deal back.

Also, if you talk to the seller’s agent, he will be representing the seller and he may not be truthful about the negative aspects of the house.

If you trust this kind of agent blindly, you may have regrets later on. Make sure your agent is prepared and well versed.

#7. Settling on a Verbal Agreement

Double crosses are bound to happen when agreements are made verbally. It would be difficult for you to prove in court that a promise was made or a handshake was made.

Therefore, it’s best that you and the seller get everything down in writing to avoid future miscommunications.

This way, you will have something to present in court should the seller fail to keep their word.

#8. Disregarding Hidden Costs

This is another common mistake that many first-time homebuyers often make.

If you neglect to prepare for hidden fees, you might be in for a big surprise. Closing costs are a good example of hidden fees, which usually include a number of fees that cover final housekeeping matters.

Before signing the homebuyer’s agreement, it would be wise on your part to determine what hidden fees are there.

#9. Ignoring Professional Home Inspection

You will be making a costly mistake if you rely on the seller to inform you about the house problems you should expect.

Before you make any payment towards the purchase of the house, it’s imperative that you first hire a professional home inspector to ascertain that the house is in good condition.

#10. Following your “Love-at-First-Sight” Gut

Not everyone or everything that you fall in love with at first sight ends up being your one true love. A house may appear to be everything you ever dreamed of, but it might not live up to your expectations.

Before following a dream house blindly, be sure to check it out thoroughly. Make sure it has all the right qualities that make it a perfect home for you and your loved ones.

#11. Being Indecisive

As unwise as it is to rush into making a purchase, it is equally dumb to take too long without making up your mind. If you take too long to make a decision, another home buyer will take advantage of your indecisiveness and buy your dream house.

Since market trends change from time to time, you could also find out that the house you took too long to buy has a new (and higher) price tag attached to it.

#12. Relying on Online Services Only

Now that many services are obtainable at the click of the mouse, most people have become too dependent on them. It’s true that loans can be obtained online and houses can be bought online as well. But failure to establish personal touch with lenders or home sellers could present a huge and costly misunderstanding in future.

#13. Forgetting the Costs Associated with Owning a Home

Just like a car, a home requires money to maintain. The pain of parting with your hard-earned cash will not end on the day you finish your last mortgage payment.

You have to brace yourself for other costs for maintaining a safe, secure, and environmentally friendly home. You have to also be ready to meet certain costs such as association fees, insurance, taxes, utilities, maintenance and major/minor repairs.

#14. Entering into Multiple Agreements

While it’s a smart thing to compare different houses before buying, you might end up biting off a lot more than you can chew.

This is especially true if you meet up with sellers and make offers or promises that you don’t intend to honor.

Before entering into any agreement with a seller or an agent, it’s imperative you ensure that you are ready to honor your end of the deal.

If you can avoid the above mentioned mistakes that are commonly made by first-time buyers, you will be more like a pro homebuyer instead of a rookie.

Avoiding these mistakes can help you make the right choices when it comes to finding a home you and your family can take pride in. Keeping in mind the resale value will also help you avoid problems moving on in the future. 

Be a pro!

Rainbow Mortgage Inc March Madness

This is Mortgage Madness!

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It’s March Madness on and off the court! Rainbow Mortgage Inc. is currently offering so many different unique home loan programs that it’s pure mortgage madness!

1% Down

The buzzer is ticking down and it’ll soon be game over for our 1% down home loan program! This program is perfect for first time home buyers or those who are strapped for cash but have great credit. You, the home buyer puts 1% down, the lender gives you an additional 2%, which gives you 3% equity in your home!

FREE Appraisals

What’s better than seeing your team make it through to the Final Four- getting a FREE appraisal on your home! If you’re looking to purchase a home in either Hennepin or Ramsey County, it qualifies for a free appraisal! No matter what your income is, or if this is your first or 5th home, you’ll save over $500! (other counties may also be eligible, call for details).

High Balance Loans

When it’s tournament time, these teams go big or go home, with our high balance home loans you’re able to go big and go home! Rainbow Mortgage Inc. is offering low-rate conventional loans for homes up to $850,000 with a loan amount as high as of $679, 650. This is big news since these conventional loans allow for lower rates, easier guidelines, and fewer documents than a jumbo loan.

Pre-Qualified

With the fast-moving housing market, it may feel like you’re watching the Selection Show while waiting to hear back if your offer has been accepted. Before the intensity builds, get a letter of pre-qualification. This not only proves to the sellers that you’re a serious contender for the big dance, it gives you an idea of what you can afford. Our pre-qualification process is simple, give us a call today to get it started!

Are you ready for mortgage madness?

Working with Rainbow Mortgage Inc. is always a slam dunk! We’ve been in business for over 19 years and have created systems to produce faster closing loans that require less paperwork. Now is the perfect opportunity to take advantage of our March Mortgage Madness. Call us today, and our team of mortgage experts will start planning your full court press.