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Mortgages

Assistance for Mortgages: Forbearance, Modifications, Short-Sales

Main Points:

Although many COVID-related mortgage assistance programs are ending, you may still qualify for mortgage relief.
Reach out to your mortgage loan servicer to inquire about options like forbearance or loan modification.
Research state government and federal agencies for mortgage assistance programs available in your area.

Introduction:

Facing difficulties in paying your mortgage and struggling to meet your financial obligations can be overwhelming. However, there are mortgage assistance options and relief programs that may alleviate your burden. This article aims to provide information on mortgage relief solutions available in 2022.

Understanding Mortgage Assistance:

If you have a mortgage but are experiencing challenges in making payments, you are not alone. Many borrowers find themselves unsure of where to seek help when facing financial hardships such as job loss, the death of a loved one, or significant medical expenses.

Fortunately, there are mortgage relief programs and other options that can ease financial anxiety without the immediate risk of losing your home.

"Mortgage relief and assistance programs are offered by various entities, including mortgage lenders, with the goal of keeping homeowners in their homes and ensuring they can continue making mortgage payments. Different programs offer ways to modify loans or temporarily pause mortgage payments to prevent foreclosure," says Martin Orefice, CEO of Rent To Own Labs.

According to Grant Higginson, a debt relief expert, these programs can help borrowers catch up on missed payments and reduce their monthly mortgage payments. It's crucial to research and explore all available options to ensure the chosen program aligns with your unique situation.

Who Can Benefit from Mortgage Assistance and Relief Programs:

Various circumstances and situations may necessitate financial hardship assistance.

"Good candidates are those who, with some lifestyle adjustments and financial guidance, can regain control of their lives. These individuals need to learn how to work with their current resources," says Adam Garcia, founder of The Stork Dork. "Financial hardship programs are designed for people who find themselves overwhelmed by debt they can't manage. These programs help individuals take control of their finances, reduce expenses, and tackle debt."

Higginson suggests the following scenarios as potential candidates for exploring mortgage assistance and relief:

1. Homeowners struggling with monthly mortgage payments: A mortgage relief program can help lower the monthly payment amount.

2. Homeowners at risk of defaulting on their loan: Assistance programs can help prevent foreclosure.

3. Homeowners with adjustable-rate mortgages facing potential interest rate increases: The right option can help lower the interest rate.

4. Homeowners with high fixed interest rate loans: Taking advantage of a suitable mortgage relief program or alternative loan can improve credit and lower the interest rate.

Mortgage Relief Options in 2022:

Unfortunately, there are currently no federal government mortgage stimulus programs or rescue packages available. However, there are alternative options to explore to avoid financial risks when you own a home with a mortgage. Consider the following mortgage assistance strategies:

1. Mortgage Refinance: Refinancing your mortgage loan is often the simplest way to lower monthly costs and increase affordability. It involves obtaining a new loan to replace the existing mortgage, usually to reduce the interest rate, save money over time, and potentially lower monthly payments or shorten the loan term.

2. Streamline Refinance: If you have an FHA loan, you may be eligible for a streamlined refinance that involves fewer documentation requirements and an expedited closing process. The Department of Veterans Affairs offers a similar program for borrowers with VA home loans. USDA home loan borrowers have options for streamlining refinances as well.

3. Forbearance: If you find yourself struggling with mortgage payments, you can request forbearance from your lender, which temporarily lowers or suspends mortgage payments for a specific period, typically 3 to 6 months. After the forbearance period ends, regular monthly payments resume, often with accrued interest. Qualifying for forbearance usually requires demonstrating financial hardship.

4. Loan Modification: Loan modification involves modifying the terms of your existing mortgage loan, such as reducing the interest rate, extending the loan term, or a combination of both. This option assists borrowers who have difficulty making timely payments or are at risk of defaulting. Eligibility typically requires being behind on mortgage payments and demonstrating an inability to afford the current payments.

Considerations Before Choosing a Mortgage Relief Program:

Before applying for or enrolling in any mortgage relief program, it is essential to conduct thorough research.

"Some programs may negatively impact your credit score or affect your ability to sell your home in the future," warns Orefice. "Ensure you fully understand all the details and terms of the program or loan before committing to any assistance plan."

Carefully review the fine print, including terms and conditions, associated with the program. Take the time to compare different programs and options to find the most suitable one for your situation. Additionally, be aware that any particular program may carry risks, such as the possibility of losing your home if you default on the loan or fail to abide by the terms.

Mortgages

Purchase or Refinance Your Home with a VA Home Loan

Main Points:

VA mortgages are a valuable benefit provided to veterans and active service members.
VA home loans offer advantages such as no down payment or mortgage insurance, flexible underwriting, and assumable loans.
While the VA does not set a maximum loan amount, most lenders have their own VA loan limits.

Introduction:

The U.S. Department of Veterans Affairs offers a range of benefits to military members and their families, including the popular VA loan program. VA loans are designed to assist service members, veterans, and eligible surviving spouses in becoming homeowners. Instead of directly providing loans, the VA partners with lenders to guarantee home loans. Understanding the requirements of VA loans can help determine if this mortgage option is suitable.

What Are VA Home Loans?

VA loans are mortgages backed by the government, with private lenders providing loans to eligible borrowers. The Department of Veterans Affairs guarantees these loans, reducing the financial risk for lenders. Consequently, VA loans offer advantages not found in other home loan types, such as no down payment requirement, low-interest rates, and limited closing costs. VA loans can be utilized to purchase a home, complete a cash-out refinance for an existing property, or refinance to a lower interest rate. Additionally, the VA provides a direct loan program for eligible Native American veterans to purchase or build homes on Federal Trust Land or lower interest rates on VA loans.

How Do VA Loans Work?

VA loans provide funding for eligible service members, veterans, and their families to purchase a home or refinance an existing loan. The VA does not directly lend to borrowers but collaborates with private lenders to support home loans, similar to how FHA loans backed by the Federal Housing Administration function. Borrowers apply for a mortgage with a lender offering VA home loans, and the VA loan benefit can be used multiple times during a borrower's lifetime. Payments are made to the lender like any other home loan, with the VA's backing coming into play if the borrower is unable to make mortgage payments, assisting the lender in recouping some of the financial loss.

Requirements for VA Loans:

Since VA loans are government-backed mortgages, specific requirements must be met to qualify. Eligibility is typically determined by factors such as length of service or service commitment, duty status, and character of service. Before meeting other VA loan requirements, a Certificate of Eligibility (COE) must be obtained. The COE verifies eligibility based on military status and length of service, which can be requested online along with providing proof of service. Service requirements vary depending on veteran, active-duty servicemember, National Guard member, or reserve member status, and the necessary paperwork also varies accordingly. Discharged veterans typically submit Form DD 214, while active duty service members can provide a statement of service signed by their commanding or unit officer. National Guard and Reserve members need to submit NGB Form 22 or proof of honorable discharge, respectively. In cases where the minimum service requirements are not met, approval for a COE can still be possible for reasons such as hardship, government convenience, early out, reduction in force, certain medical conditions, or a service-connected disability. After obtaining a COE, additional VA loan requirements must be fulfilled, including property requirements, credit and income requirements, down payment considerations, and closing costs.

How to Obtain a VA Loan:

For those interested in using VA loans to purchase a home or refinance an existing VA loan, specific steps need to be taken. The process typically involves choosing a VA-approved lender, obtaining a COE if not already done, and completing the loan application.

Additional steps include finding an eligible property, making an offer that is accepted by the seller, and going through the appraisal and inspection processes. These steps may involve negotiating the sale price or addressing any issues identified during the inspection. Once all matters are resolved, the closing can take place, and the keys to the new home can be received. To explore VA loan options, it is advisable to shop around and compare lenders to find the best rates.

Mortgages

USDA Loans: A Guide to Qualifying and Applying

Key Takeaways:

USDA loans are government-backed mortgages intended for purchasing homes in rural areas.
These loans offer zero-down financing for individuals with low-to-moderate incomes.
USDA loans can be used to buy or refinance eligible properties if you meet the criteria.

If you're interested in purchasing an affordable home in a non-urban location, USDA loans can provide the financing you need. With no down payment required and relatively low-interest rates, these loans are designed to support growth and prosperity in rural and small-town areas. Here's a breakdown of how USDA loans work, the pros and cons, income limits, candidate qualifications, alternative loan options, and the application process.

How Do USDA Loans Work?

USDA loans, also known as Rural Development Loans or Section 502 loans, are part of the government's Rural Development program aimed at improving the quality of life in rural and small-town areas. These loans provide low-interest financing without a down payment requirement, making it possible for individuals who may not qualify for traditional loans to purchase a primary residence.

Pros and Cons of USDA Loans:

Advantages of USDA loans include zero down payment, competitive interest rates, no cash reserves required, flexible credit guidelines, and no loan limits. However, there are geographic restrictions as the property must be located in a designated rural area. The home you purchase must be used as a primary residence, be a single-family home, meet size requirements, and pass a USDA property appraisal.

Income Limits for USDA Loans:

To qualify for USDA financing, your household income must be equal to or less than 115% of the median income in your area. You must also have a stable income source, a minimum credit score of 640, a good credit history, and a debt-to-income ratio below 41%. Additionally, you need to be a U.S. citizen, permanent resident, or foreign national.

Mortgage Insurance for USDA Loans:

USDA loans require mortgage insurance, which includes an upfront guarantee fee and an annual fee. The upfront fee, typically 1% of the loan amount, can be rolled into the loan. The annual fee, around 0.35% of the loan amount, functions as the monthly mortgage insurance premium. Both fees are mandatory, regardless of the down payment.

Who Should Consider USDA Loans?

USDA loans are ideal for low- and middle-income families looking to live in rural areas who meet the loan requirements but lack the funds for a down payment. However, they are not suitable for those seeking multifamily properties, vacation homes, rental properties, or using the home for income-producing activities.

Alternative Loan Options:

If a USDA loan doesn't suit your needs, there are other financing options available. Conventional loans require a minimum down payment of 3% and can be used to purchase properties anywhere in the U.S. FHA loans have lower credit score requirements and a minimum down payment of 3.5%, but they don't require purchasing in a designated rural area. VA loans are for veterans, active-duty military members, and surviving spouses, offering zero down payment and no mortgage insurance.

How to Apply for USDA Loans:

To apply for a USDA loan, you need to work with a USDA-approved lender, typically local banks, credit unions, or mortgage brokers. The application process involves completing a preapproval application, finding a USDA-eligible property, signing a purchase agreement, waiting for loan processing and underwriting, and finally closing on the loan. Applications can be submitted online or in person at the lender's location.

Remember to consult with a USDA-approved lender or mortgage professional for personalized advice and guidance throughout the loan application process.

Mortgages

Purchasing or Refinancing a Home with FHA Loans

Key Takeaways:

FHA home loans are backed by the US government and provided by banks, mortgage companies, and credit unions.
These loans are beneficial for borrowers with down payment, credit, or income challenges.
FHA loans require mortgage insurance, which can make them more expensive compared to other loan options.

FHA home loans, insured by the Federal Housing Administration (FHA), are mortgage loans provided by participating lenders rather than directly by the FHA. These loans have been available since 1934 and are overseen by the Department of Housing and Urban Development. While popular among first-time homebuyers, they are not exclusive to them.

Advantages of FHA Loans:

Lower down payment requirements.
Reduced closing costs.
Easier credit qualification criteria.
Designed to simplify the path to homeownership.

	FHA Loans	Conventional Loans
Minimum Credit Score	580 for loans with a 3.5% down payment; 500 for loans with a 10% down payment	Typically 620, though some lenders may set credit score requirements higher
Minimum down payment	3.5% for borrowers with a credit score of 580 or higher; 10% for borrowers with scores ranging from 500 to 579	Can be as low as 3%
Mortgage Insurance	Required for all FHA loans	Required for borrowers who put less than 20% down
Loan terms	Typically up to 30 years	Typically 15 to 30 years
Loan limits	$420,680 to $970,800	$647,200 to $970,800
DTI ratio	31% for mortgage debt; 43% for total debt	36% for mortgage debt, with a maximum upper limit of 50%

How Do FHA Loans Work?

FHA loans function similarly to other mortgage loans, providing borrowers with funds to purchase a home. However, instead of granting loans directly, the FHA insures loans offered by lenders participating in the FHA program. This insurance protects the lender in case the borrower defaults on the loan, minimizing their financial losses.

For existing FHA loan holders, refinancing is an option to consider for obtaining better interest rates or repayment terms.

FHA Loan Requirements:

FHA home loans have specific requirements that borrowers must meet, as outlined in the FHA Single Family Housing Policy Handbook. Here are some essential requirements to note:

The home must be appraised by an FHA-approved appraiser.
The loan can only be used to purchase a primary residence.
Borrowers must move into the home within 60 days of closing.
Homes must meet FHA inspection standards, requiring an inspection.
The home price must fall within FHA loan limits.

FHA loans also have down payment, credit score, and mortgage insurance requirements.

FHA Down Payment Requirements:

The down payment is an upfront payment made towards the home purchase. FHA loans offer attractive down payment options. If you have a credit score of at least 580, you can be approved with a down payment of 3.5%. A credit score reflects how responsibly you handle credit, and it is calculated using information from your credit reports.

If your credit score is below 580, a larger down payment of 10% is required to qualify for an FHA loan. Improving your credit before applying for an FHA loan is a wise strategy due to the significant savings on the down payment.

FHA Loan Credit Score Requirements:

FHA loans can be approved with a credit score as low as 580, and even with a score of 500 if a 10% down payment is made. Lenders assess your credit score and consider factors such as payment history, number of open credit accounts, credit utilization, types of credit used, overall credit age, and recent credit applications.

Debt-to-Income Ratio (DTI) is an important consideration for FHA lenders, representing the percentage of your monthly income spent on debt repayment. A lower DTI ratio improves your chances of approval. The FHA sets optimal DTI ratios for borrowers, including 31% for mortgage payments and 43% for total debt repayment.

Mortgage Insurance for FHA Loans:

FHA loans require mortgage insurance, which is an additional cost paid by borrowers. There are two types of mortgage insurance premiums (MIPs) collected by the FHA:

1. Upfront premiums: This is a one-time payment made at closing, amounting to 1.75% of the loan amount.

2. Annual premiums: These premiums range from 0.45% to 1.05% and are divided by 12, paid monthly along with your mortgage payment.

Generally, borrowers are required to pay the annual MIP for the life of the loan. There are two exceptions: paying MIP for 11 years with a 10% down payment or refinancing into a conventional loan once 20% equity in the home is accumulated. Refinancing, however, incurs closing costs and does not guarantee a lower interest rate.

FHA Loan Limits:

FHA loan limits vary based on the borrower's location and are regularly updated to account for inflation. In 2022, the nationwide "floor" for FHA loans is $420,680, while the upper limit for high-cost areas is $970,800.

The Department of Housing and Urban Development offers an online tool to search for FHA loan limits by county, state, and metropolitan statistical area (MSA).

FHA Loans vs. Conventional Loans:

Conventional loans are mortgages not backed by the federal government, whereas FHA loans are. The choice between FHA and conventional loans depends on individual borrowing needs and financial situations. Here's an overview of the two loan types:

FHA Loans:

Minimum credit score: 580 (3.5% down payment) or 500 (10% down payment).
Minimum down payment: 3.5% (580+ credit score) or 10% (500-579 credit score).
Mortgage insurance: Required for all FHA loans.
Loan terms: Typically up to 30 years.
Loan limits: $420,680 to $970,800.
DTI ratio: 31% for mortgage debt and 43% for total debt.

Conventional Loans:

Minimum credit score: Typically 620 or higher (varies by lender).
Minimum down payment: This can be as low as 3%.
Mortgage insurance: Required for borrowers putting less than 20% down.
Loan terms: Typically 15 to 30 years.
Loan limits: $647,200 to $970,800.
DTI ratio: 36% for mortgage debt (maximum upper limit of 50%).

Choosing between FHA and conventional loans should involve comparing rates from different lenders to find the best mortgage deal, considering borrowing amount, credit scores, and available down payment.

Mortgages

Refinancing Mortgages and Loans

Key Takeaways:

Refinancing involves replacing an existing loan with a new loan that offers better terms.
Common types of refinancing include mortgage refinancing, car loan refinancing, and student loan refinancing.

Types of Refinancing:

There are four common types of refinancing:

1. Rate and term refinance: Replacing a loan with another loan of the same amount, often to achieve a lower payment or interest rate.

2. Cash-out refinance: Replacing a loan with a larger loan and receiving the difference in cash. This is often used to cover expenses such as education or home improvements.

3. Cash-in refinance: Replacing a loan with a smaller loan by bringing in cash to reduce the loan balance. This is done to eliminate mortgage insurance or lower the loan-to-value ratio.

4. Debt consolidation refinance: Using one loan to pay off multiple accounts, typically used to consolidate high-interest debt into a single loan with a lower interest rate.

Refinancing a Mortgage:

Mortgage refinancing is a common type of refinancing, as mortgages are usually significant loans with long repayment periods. Even a slight decrease in interest rate can result in substantial savings over the life of the loan. Ways to save money through mortgage refinancing include:

Refinancing to pay less interest: Taking advantage of lower interest rates or improved credit scores to secure a loan with better terms.
Refinancing for a lower mortgage payment: Lowering the monthly payment through a lower interest rate, extending the repayment period, or dropping mortgage insurance.
Refinancing to pay off a second mortgage: Consolidating multiple mortgages into a single loan, potentially reducing interest and monthly payments.
Streamline mortgage refinancing: Simplifying the refinancing process by eliminating certain requirements such as appraisal or credit checks, commonly available for government-backed mortgages.

When Does Refinancing Make Sense?

Refinancing is a sensible choice when it achieves your desired goals. To determine if refinancing will save you money, calculate the refinance breakeven period. This period represents the time it takes for the monthly savings to cover the refinancing costs. If you plan to keep the new loan beyond the breakeven period, refinancing will result in savings.

It's important to note that extending the repayment period can increase the overall costs, even with a lower interest rate. Consider the long-term impact and assess if the refinancing aligns with your financial objectives.

Pros and Cons of Refinancing:

Before proceeding with refinancing, it's crucial to consider the advantages and disadvantages.

Refinancing Pros:

Potential reduction in interest expenses with a better rate.
Possibility of lowering monthly expenses.
Access to cash at a reasonable cost.
Option to switch from a variable interest rate to a fixed rate for better cost control.

Refinancing Cons:

Incurs expenses, even with "no-cost" refinancing options that come with higher interest rates.
Extends the time to pay off the debt, potentially increasing overall interest costs.
May require application and documentation of income and assets resulting in additional effort.

Main Points:

Although many COVID-related mortgage assistance programs are ending, you may still qualify for mortgage relief.

Reach out to your mortgage loan servicer to inquire about options like forbearance or loan modification.

Research state government and federal agencies for mortgage assistance programs available in your area.

Table of Contents:

1. Understanding Mortgage Assistance

2. Who Can Benefit from Mortgage Assistance and Relief Programs

3. Mortgage Relief Options in 2022

4. Considerations Before Choosing a Mortgage Relief Program

Introduction:

Higginson suggests the following scenarios as potential candidates for exploring mortgage assistance and relief:

1. Homeowners struggling with monthly mortgage payments: A mortgage relief program can help lower the monthly payment amount.

2. Homeowners at risk of defaulting on their loan: Assistance programs can help prevent foreclosure.

3. Homeowners with adjustable-rate mortgages facing potential interest rate increases: The right option can help lower the interest rate.

4. Homeowners with high fixed interest rate loans: Taking advantage of a suitable mortgage relief program or alternative loan can improve credit and lower the interest rate.

Main Points:

VA mortgages are a valuable benefit provided to veterans and active service members.

VA home loans offer advantages such as no down payment or mortgage insurance, flexible underwriting, and assumable loans.

While the VA does not set a maximum loan amount, most lenders have their own VA loan limits.

Table of Contents:

1. What Are VA Home Loans?

2. How Do VA Loans Function?

3. Requirements for VA Loans

4. How to Obtain a VA Loan

Introduction:

Key Takeaways:

USDA loans are government-backed mortgages intended for purchasing homes in rural areas.

These loans offer zero-down financing for individuals with low-to-moderate incomes.

USDA loans can be used to buy or refinance eligible properties if you meet the criteria.

How Do USDA Loans Work?

Pros and Cons of USDA Loans:

Income Limits for USDA Loans:

Mortgage Insurance for USDA Loans:

Who Should Consider USDA Loans?

Alternative Loan Options:

How to Apply for USDA Loans:

Key Takeaways:

FHA home loans are backed by the US government and provided by banks, mortgage companies, and credit unions.

These loans are beneficial for borrowers with down payment, credit, or income challenges.

FHA loans require mortgage insurance, which can make them more expensive compared to other loan options.

Advantages of FHA Loans:

Lower down payment requirements.

Reduced closing costs.

Easier credit qualification criteria.

Designed to simplify the path to homeownership.

How Do FHA Loans Work?

FHA Loan Requirements:

The home must be appraised by an FHA-approved appraiser.

The loan can only be used to purchase a primary residence.

Borrowers must move into the home within 60 days of closing.

Homes must meet FHA inspection standards, requiring an inspection.

The home price must fall within FHA loan limits.

FHA Down Payment Requirements:

FHA Loan Credit Score Requirements:

Mortgage Insurance for FHA Loans:

FHA Loan Limits:

FHA Loans vs. Conventional Loans:

FHA Loans:

Minimum credit score: 580 (3.5% down payment) or 500 (10% down payment).

Minimum down payment: 3.5% (580+ credit score) or 10% (500-579 credit score).

Mortgage insurance: Required for all FHA loans.

Loan terms: Typically up to 30 years.

Loan limits: $420,680 to $970,800.

DTI ratio: 31% for mortgage debt and 43% for total debt.

Conventional Loans:

Minimum credit score: Typically 620 or higher (varies by lender).

Minimum down payment: This can be as low as 3%.

Mortgage insurance: Required for borrowers putting less than 20% down.

Loan terms: Typically 15 to 30 years.

Loan limits: $647,200 to $970,800.

DTI ratio: 36% for mortgage debt (maximum upper limit of 50%).

Key Takeaways:

Refinancing involves replacing an existing loan with a new loan that offers better terms.

Common types of refinancing include mortgage refinancing, car loan refinancing, and student loan refinancing.

Table of Contents:

1. Types of Refinancing

2. Refinancing a Mortgage

3. When Does Refinancing Make Sense?

4. Pros and Cons of Refinancing

Lower interest rate