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Why a Renovation Mortgage Could be Perfect for Your Purchase

Why a Renovation Mortgage Could be Perfect for Your Purchase

Numbers you should remember: $110k, $50k and $220k

In this 2017, inventory challenged market, a renovation mortgage is becoming more and more of an option for you to turn an ordinary house into the home of your dreams.

What is a Renovation Mortgage?

Simply (as possible) put, a renovation mortgage is a transaction where you finance in the improvements. However, in order for the lender to take on the risk, the funds are held in escrow and disbursed in progress payments as the work is completed, phase by phase.

The name of the products are either a 203k (FHA) or Homestyle (Conventional)


So, how does a Renovation Mortgage work?

In the case of a purchase, you can buy a beaten down home, usually a foreclosure or a home that is dated or otherwise in some state of disrepair.

Purchase Price $110,000

You can get a bid from a contractor for say $50,000 to improve the home to your specifications.

This means you’re financing $160,000.

After the home is complete, the home then becomes worth say $220,000.

Why might this be the perfect option for you in today’s housing market?

In every corner of the real estate market, all we are hearing is “inventory shortage, inventory shortage”! This option can help you turn the house that no one wants, into the home you love!


Buying a Home for less per Month than your Rent by the Numbers

This statement always raises an eyebrow…or 10, when I say in this market, with just a moderate down payment, you can buy a home for less than what you pay in rent.

Buy a home for less than rent

This is how it comes out by the numbers:

Let’s take a $175,000 house in this market, assuming a 5% down payment.

Principal and Interest  @4.25 817.88
Taxes @1.25% 182.29
Insurance  100.00
Mortgage Insurance    81.74
Total     $1,181.88


Lets compare that to a reasonable rent payment in this market of $1,250. This is how we come to prove the statement that you can buy a home for less than your rent.

Even further, after the tax benefits of mortgage interest, and the doors which this immensely valuable deduction opens, the net effect means an amazing savings to the home buyer over renting.

For more information, check out HomesteadU

The Fifteen Most Commonly Asked Questions by First Time Home Buyers – Part 3

First Time Home Buyers

In “The Fifteen Most Commonly Asked Questions by First-Time Homebuyers Part II,” we discussed down payments, loan qualification, working with Homestead mortgage and mortgage costs. In this article we’ll discuss what first time home buyers should take with them when they are ready to apply for a mortgage, how to determine which mortgage is best for you, how much to offer when you find the home you want, what to do if your offer is rejected and what to expect at closing.

Applying for a Mortgage

When first time homebuyers are ready to apply for a mortgage they can save a good amount of time if they bring everything they need with them to Homestead. Be sure you have your social security numbers for you and your spouse with you. You’ll also want to bring copies of your statements for your savings and checking accounts for the past six months; evidence of financial assets like stocks and bonds; recent paycheck stubs that will detail your earnings; a list of all your credit card accounts with the monthly amounts owed on each, the account numbers for car loans and any other loans along with the balance, your income tax statements from the last two years and the name and address of a person who can verify your employment.

With so many different types of mortgages out there it’s difficult to know which one is best for you. This is why it’s ideal to learn as much as you can before you start the process. Many first time homebuyers use a fixed-rate mortgage, a mortgage where the interest rate remains the same for the term of the loan. This is typically 30 years. The benefit to having a fixed-rate mortgage is always knowing exactly how much your monthly payment will be which allows you to budget accordingly. There are also Adjustable Rate Mortgages (ARM), a loan with an interest rate and monthly payments that can go up or down as often as once or twice a year because the adjustment is tied to a financial index, usually the U.S. Treasury Securities index. ARMs have allowed many first time homebuyers to get into a more expensive home because the initial interest rate is lower. A third type of mortgage many first time homebuyers often take advantage of is an FHA mortgage, a mortgage that’s insured by the FHA. Thanks to this insurance, many first time homebuyers have qualified for loans who might not have otherwise.

How Much Do I Offer on the Home.  

First Time Home buying couple

First time homebuyers frequently ask how much they should offer when they find the home they want. Consider if the seller’s asking price is in line with similar homes in the area. You should also determine if the home is in good condition or if you’ll have to spend a lot of money to make it the way you want. Another factor that should be considered is how long the house has been on the market. Usually, the longer a home is on the market, the more motivated a seller is to accept a lower offer. Be sure you can afford a mortgage required to purchase the house. Finally, you and your spouse will want to discuss how badly you want the house. Your offer is more likely to be accepted the closer your offer is to the asking price.

If your offer is rejected, it’s not the end of the world. You are in the driver’s seat and have a choice. You can either walk away or negotiate. Negotiations can go back and forth several times before many deals are made. In some cases sellers are willing to cover some or all of the closing costs in exchange for a higher offer on the home. The important thing is to not lose sight of what you really want and can afford.

But if your offer is accepted, congratulations! In a few weeks your loan will be ready to close. At closing you’ll sit with your broker, the closing agent and sometimes the seller’s agent and seller. The closing agent will guide you through a stack of papers you and the seller will sign. The closing agent is there to answer your questions and will provide a basic explanation of each page. It’s a good idea to know what you’re signing especially since you’re committing to paying a lot of money for a lot of years. Your Homestead loan specialist will provide you with an estimate of closing costs and what you’ll need at closing.

The Fifteen Most Commonly Asked Questions by First-Time Homebuyers – Part 2

In “The Fifteen Most Commonly Asked Questions by First-Time Homebuyers Part I,” we discussed the tax benefits of home ownership, HUD homes, buying a home with bad credit, home ownership for single parents and working with a real estate broker. In “The Fifteen Most Commonly Asked Questions by First-Time Homebuyers Part II,” we’ll discuss down payments, loan qualification, working with Homestead mortgage and mortgage costs. Continue reading “The Fifteen Most Commonly Asked Questions by First-Time Homebuyers – Part 2”

The Fifteen Most Commonly Asked Questions by First Time Homebuyers – Part 1

First Time HomebuyersWhen mortgage rates increased last month, millions of Americans questioned if they had missed their window of opportunity for home ownership. Now is still an affordable time to buy a home. If you’re still contemplating home ownership, here are fifteen of the most commonly asked questions by first time home buyers. The answers may surprise you.

Many folks contemplating home ownership wonder why they should buy a house instead of rent one. When it comes to owning your own home it’s important to think of your home as an investment. When homeowners pay their monthly mortgage payment they are building equity in their home. Homeowners can deduct the cost of their mortgage loan interest from their federal income taxes. And the same holds true for most state taxes. Deducting interest saves you lots of money over the long term with the interest you pay making up most of your monthly payment for the majority of the years of your mortgage. Property taxes can also be deducted. Over the years your home’s value will have appreciated which benefits you when it comes time to sell. When you rent the check you write each month is gone forever and you haven’t built any equity nor can you deduct mortgage loan interest on your federal or state taxes.

Many first-time homebuyers ask about HUD homes and if they are a good investment. When a homeowner can’t no longer make their mortgage payments on a HUD insured mortgage, the lender forecloses and HUD (Housing and Urban Development), an agency of the U.S. federal government, pays the lender what is owed on the loan. HUD owns the home and then sells it at market value as quickly as possible. In many cases, a HUD home can be a good deal.

First-time homebuyers with bad credit and not a lot of money for a down-payment are often afraid to ask if homeownership is even a possibility. First-time homebuyers in this situation should contact Homestead loan officers who can work with you to help you sort through your options.

Single parents also have concerns about first-time home ownership and inquire about grants or programs available for single parents. It helps to become familiar with the home buying process and to work with a well-respected real estate broker. Getting pre-qualified for a mortgage will allow you to know your price range which is extremely important since single parents don’t have the benefit of two incomes when it comes to qualifying for a loan. A Homestead loan officer can direct you to local homebuying programs. In some cases single parents have worked with their mayor’s office or the county executive’s office for supplemental financing to help qualify them for their home mortgage.

First-time homebuyers also ask if they should use a real estate broker and how they can find one. There are so many financial particulars involved with home buying and a good real estate


professional can make things much easier by guiding you through the process. An experienced real estate broker who is well-acquainted with an area you are interested in can provide information about the school district, safety of the neighborhood, the number of children in the area, traffic volume, etc. They can narrow down your home search by keying in your preferences to the multiple listing service, with immediate access to homes that match your criteria as soon as they are put on the market. This saves you time driving around. When you’re ready to make an offer on a home a real estate broker will lead you through the contract paperwork step by step and answer your questions.

In “The Fifteen Most Commonly Asked Questions by First-Time Homebuyers Part II,” we’ll discuss down payments, loan qualification, working with Homestead mortgage and mortgage costs.

Buying Tips for a First Time Homeowner

Buying your first home is a big investment. Make a mistake and it can cost you hundreds and in extreme cases thousands of dollars. This is why every homeowner should be equipped with a few rules of the road before they begin house hunting. Here are some buying tips for first time homebuyers. Continue reading “Buying Tips for a First Time Homeowner”

Tips for Buying Your First Home

With depressed real estate markets across the country and an often confusing process, purchasing a home is a much scarier prospect than it used to be for first-time home buyers. Knowing the steps to take to get you to your goal is essential. Here is a road map to help you prepare to buy your first home.

When it comes to buying a home it seems like you have to put the tail before the dog. In other words you should figure out how much house you can afford and a lender who will loan you money at an attractive rate with good terms before you go house hunting. Some people are lucky enough to have generous parents or grandparents give them the cash they need for a down payment while others find a seller willing to help them with closing costs. Continue reading “Tips for Buying Your First Home”

What is Private Mortgage Insurance and why am I paying it?

Clinically put, Private Mortgage Insurance, or PMI or MI, is insurance that will help to protect a lender from loss in the case of a default by the borrower. MI is almost always required on loans with less than twenty percent equity. That means, if you are purchasing a home with less than twenty percent down or refinancing to more than eighty percent of your home’s value, you will be required to pay mortgage insurance. While it is a payment that the borrower pays to insure another party, it does have its benefits.

How is mortgage insurance charged?

There are a couple of ways MI is charged. There is Monthly MI, which is computed based on various factors such as credit score, LTV(Loan to Value), and term, then there is MIP(Mortgage Insurance Premium) which is charged up front, and most of the time added to the loan amount. Some programs charge one or the other, while some, (Gulp) charge both. In some cases, there is an add on to the interest rate which pays the premium, called Lender Paid MI. (LPMI)

Why should I pay MI?

Simply put, if you don’t have 20% to put down on a mortgage when you purchase or refinance, then be happy you get to pay MI. For example, in Kansas City and St. Louis, the average home sales price is right at $145,000. I don’t know about you, but I didn’t have 20% down ($29,000) sitting around in my checking when I purchased my first home.

Having MI to purchase a home allows most buyers to get into a home with as little as 2.5% down in some cases. So without the benefit of MI, purchasing a new home would be very difficult.

However, here are some tips to be as efficient as you can with the premiums you pay.

How to pay as little MI as possible

  1. Save as much money as you can. The larger the down payment, the lower the MI, and/or MIP.
  2. Keep your credit score as high as possible. Remember, the minimum score to get a home loan these days is 640. The higher the score, the lower the MI.

How to get out of paying MI if you are already paying

  1. Most MI contracts cancel when you pay the loan amount down to 78% of the original value of the home at purchase or value on the last refi. However, that takes almost 10 years if you put down 5%.
  2. The 2nd way to get out of paying MI, is by refinancing your home assuming you have built up 20% equity through a combination of principle payments and appreciation. However if you are content with your existing loan, you should call your lender to see on what conditions they will cancel your MI.

To summarize, while MI is a premium you pay to insure someone else’s interest, it helps people buy homes and refinance homes with less that 20% equity and with some good planning and discipline, there are ways to keep the premiums to a minimum.

How Can I Get a Mortgage if I’m Self Employed

For many small business owners, the economy has been tough. With tightening mortgage regulations, qualifying for a mortgage has been tougher, causing many applicants to ask, “How can I qualify for a mortgage if I’m self employed”.

Here are 5 tips for a smooth mortgage application for a self employed person.

1.      Understand the income you make:

Ever heard of the saying, “Give me the bottom line”? The saying has roots in the financial industry.  Sure you may have grossed $150,000 last year(Top Line), however, writing off $140,000, leaves you with a Bottom Line of….you guessed it $10,000. So lenders are forced to qualify a borrower making $10,000 per year which won’t buy you much of a home in this day and age.

Gone are the days of writing your income on a loan application with no supporting documentation. Today all qualifying income must be documented. Continue reading “How Can I Get a Mortgage if I’m Self Employed”