Here is a way to protect yourself from predatory lending,
potential identity theft and telemarketers
Important Notice to All Borrowers:
Did you know that when a mortgage inquiry is logged on your credit report, your personal information is then automatically added to lists that are being sold by Experian, Trans Union and Equifax to certain kinds of mortgage lenders?
Predatory lending is a serious issue, especially in times of economic downturn, when unscrupulous mortgage lending companies become more aggressive in luring in home-buyers with bait-and-switch tactics. Additionally, the more companies that have your personal credit data, the greater the risk that you will become the victim of identity theft.
Consumer Credit Opt-Out
The good news is there are preventative measures you can take to protect yourself from predatory lending, potential risk for identity theft and even hassling telemarketers:
You will need to provide enough personal identification for this service to verify it is correctly removing your personal record from the marketing lists. In addition to being removed from these new lists, you may also choose to be removed from the lists that are currently sold to credit card companies to generate pre-approved card solicitations. You can opt out for a period of five years or permanently.
Can You Refinance a Jumbo Loan?
With apologies to noted author Charles Dickens, "A Tale of Two Cities" might be the best way to describe the current state of housing. On the one hand, you have fixed rates. Unlike the 1970s, where higher interest rates were the norm, they're currently at record lows, averaging 3.75% for the week ending July 25, according to Freddie Mac.
On the other side are home equity and asking prices. With home loan applications moving at a feverish pace, combined with low inventory, home values continue to climb, having risen far beyond 12 months straight - but 88 months in a row, based on the most recent statistics available from the National Association of Realtors. In some metropolitan areas, median existing-home prices are above $500,000, prompting many people to apply for jumbo loans, which are non-conforming mortgages that exceed the limits set by Freddie Mac and Fannie Mae (i.e. $484,350). Although jumbo loans tend to have stricter approval requirements than conventional loans or USDA-RA loans - such as a higher down payment - they can be worthwhile because jumbo loans offer flexibility, with monthly adjustable-rate mortgage payments or fixed-rate mortgage payments.
With these two realities as a backdrop, it raises a key question: Are jumbo loans so flexible as to allow for refinancing? In other words, can you refinance a jumbo loan to take advantage of today's more affordable interest levels, which have dipped rather appreciably since 2018?
The short answer: Yes. But before we get into the finer details, it's helpful to get an understanding of just what refinancing means and why so many people are taking advantage of it.
Why should you refinance?
At its core, refinancing allows you to reduce what you spend in monthly payments. Generally speaking, when people apply for mortgages, it's typically for purchasing purposes, as detailed weekly by the Mortgage Bankers Association. But in recent months, applications are increasingly for refinancing motivations. Indeed, for the week ending July 26, more than half of all applications were filed to take advantage of refinance rates.
Even an incremental difference in lower interest can result in tens of thousands of dollars saved over the life of a loan, hence the reason why more mortgages are taken out for better loan terms and refinancing for a lower loan amount.
All that being said, since the underwriting standards for jumbo loans are more stringent than conventional loans, you may wonder whether the same standard applies to refinance a jumbo. Well, let's take a look:
Your credit report has a lot of information on it, but the data most relevant to refinancing approval is your FICO® score. The higher it is, the better you are about paying your bills on time. Generally speaking, your score should ideally be above 700, but it's possible to still qualify with a lower score. Just be mindful of the fact that the degree to which your rate is lowered may in part depend on the score spectrum.
Your debt-to-income ratio, which is represented as a percentage, shows how much of your monthly income is devoted to ongoing payments. It's determined by adding up what you spend on things like your car loan, credit cards and other installment loans and dividing the sum by what you earn in monthly salary before taxes. For example, if your DTI is 33%, that means one-third of your earnings per month goes toward debt. To get a Qualified Mortgage, the highest ratio allowable is 43%, according to the Consumer Financial Protection Bureau. The same rule holds for refinancing a jumbo loan - the maximum is 43%.
Here's another data point that is based on a percentage, only this one tells you how much you're borrowing versus the asset or loan you seek to obtain. Like the DTI, it involves addition and division, but instead of how much you earn, it's based on how much you borrow compared to spend. An LTV of 70%, for example, means that 70% of what you're borrowing is the equivalent worth of the house. The lower the LTV, the less risk involved for your lender because you have more skin in the game, which is usually in the form of a down payment. Generally speaking, refinancing a jumbo loan requires an LTV of no higher than 80%.
Similar to approval for a jumbo loan, refinancing one typically entails a down payment of 20% or more, but in the form of equity you have in the property.
Another issue your lender will want to look into is whether you've defaulted on any loans or credit card payments. They'll want to ensure that you haven't experienced bankruptcy within the previous seven years, but again, the specific number of years may be different and taken into consideration in concert with other variables.
Traceable cash flow
Similar to approval for a purchase loan, a refinance loan entails a paper trail. Expect to be asked for at least two years' worth of tax returns, W-2 forms, bank statements from the previous month and pay stubs, usually from the two most recent periods.
Should you refinance?
Refinancing, much like actually applying for a house, is a highly personalized process that is loaded with different factors that ultimately dictate whether you'll be approved. However, just because you can refinance a jumbo loan doesn't necessarily mean that you should. Interest rates may be such that making the move is not in your financial interest. Further, you may have already paid off enough of the principal that refinancing at this point doesn't make sense.
If you still have questions about approval and the documents to gather, talk to your lender. They'll go through it all so you're clear on how - or whether - to proceed.
Update Your Home's "Curb Appeal" on a Budget
Simple Inexpensive ways to increase the value of your home:
Whether you are trying to get your home ready to sell, or just looking to increase your investment, there are many inexpensive ways to add value to your home in a weekend.
Add curb appeal:
- Paint your front door with a pop of color to make your home stand out and look welcoming. Replace your door knob if it is shaky or dated. The front door can set the tone for potential buyers.
- Make sure your yard is neat and free of weeds and add a few inexpensive plants that are native to your area.
- Pressure wash your home exterior, deck, sidewalks, and driveway, and wash the outside of your windows to immediately brighten the look of your home.
Updating the interior:
- Add a fresh coat of paint in a neutral color to your walls. It will instantly make your home appear brighter and newer.
- Declutter your home. This can make your space appear larger and open, giving potential buyers the perception that there is enough storage in the home for their belongings.
- To spruce up your bathroom and kitchen without breaking the bank, start with replacing dated hardware. Change out old knobs on your drawers and cabinets, update faucets and shower heads, and replace old lighting.
You don’t need to spend $50,000 on a kitchen renovation to show your investment some love. There are plenty of smaller, less involved projects that will make your home look more updated and enticing to potential buyers.
Things to Consider
The Benefits to Buying in Autumn
Most homebuyers think that the best time to purchase a home is in the Spring when lawns are green, trees have leaves, and flower beds are in bloom. Did you know that house hunting in the Fall comes with is own great set of benefits? Buyers will avoid the competition that comes with busy real estate seasons and could even have opportunities to save money if they shop in Autumn!
There is Less Competition:
One of the biggest reasons to buy a home in the Fall is because it is considered off season for real estate so there is less competition between buyers. According to RealtyTrace, over the past 15 years, October buyers paid on average 2.6% lower than estimated market value. With less buyers putting offers on homes in the Fall, it leaves more room for negotiation on price.
If you close on your new home before the end of the year, you may be able to get a tax deduction next April. In addition, many sellers want to close by December 31st so they can take advantage of a tax break, which means that they may be more willing to cut a deal.
End of the Year Sales:
Fall is a great time to buy appliances and furnishings for your new home because of Black Friday and end of year sales.
The Focus is on You:
Since business is slower in the Fall months, Real Estate Agents, Loan Officers, Home Inspectors, etc. have more time on their hands to dedicate to helping you find and purchase your perfect home.
Don’t let the lack of green outside, shorter days, and gloomy weather stop you from finding your dream home. You will avoid competition and have some money saving opportunities while house hunting in Autumn.
Jumbo vs Conventional Loans: Which Should You Choose?
Throughout your homeownership journey, you'll need to make lots of decisions - none bigger than the property you ultimately wind up selecting, of course. But another major choice is the loan you take out.
Much like houses themselves, there are lots of loan products to pick from. Two of the more common options are conventional loans and jumbo loans. While they have a number of similarities, there are even more differences between them. And while you have probably heard of each, you may not know exactly how they work or what they are. And in the debate over jumbo vs conventional loan products, you may also be wondering which one is right for you.
This explainer should help you find the answer:
Should I use a jumbo loan or conventional loan?
Before you can decide which one is the better fit for you, it pays to know what they're all about. For starters, as the name implies, conventional loans are the most popular mortgage product of them all, largely because they offer the greatest variety of options to borrowers. This includes selecting the length of time you choose to pay off the loan - 30 years being the most common - the down payment amount, and the interest type. A fixed-rate loan means the interest rate stays the same for the life of the loan while an adjustable-rate changes over time, influenced by market dynamics and the terms of the mortgage provider. Interest rates on ARMs may be slightly higher or lower than market value, which makes them ideal for those who are comfortable with variability.
Conventional loans are also conforming loans, yet another term you've probably heard mentioned before. It essentially means that they conform to - or abide by - the terms and conditions established by Fannie Mae and Freddie Mac, which are government-sponsored entities that ultimately buy loans, and then package and sell them as mortgage-backed securities to investors.
That's a thumbnail sketch of what conventional loans are, but they have a number of advantages addressed further a bit later.
As for jumbo loans, as the term "jumbo" suggests, they're for houses that typically sell for significantly more than the national median. Similar to conventional loans, jumbo loans come with options, as borrowers get to decide the term length - usually in five-year increments - and whether they'll pay interest on a fixed- or adjustable-rate basis. However, unlike conventional loans, these are non-conforming, meaning they don't abide by Fannie and Freddie guidelines and therefore are not backed by the GSEs.
One of those guidelines established by GSEs is how much money would-be buyers can borrow to pay for a home purchase, which is also known as the conforming limit. The maximum can vary depending on the state and county you live in, but generally speaking, the maximum is $484,350. In other words, if you're looking to buy a residence, but the selling price is $500,000 or more, a conventional loan wouldn't be your best option.
That's where a jumbo loan may be a better alternative because it allows you to borrow money above the limits established by Fannie and Freddie. Of course, there's a little bit more to it than price point when choosing between jumbo vs conventional loan products, and these aspects can also help you decide which is the better option.
What are the advantages of jumbo vs conventional loan options?
As noted by The Mortgage Reports, perhaps the biggest upside of conventional loans is that they're among the least restrictive in terms of qualification standards. The down payment is a classic example. Many people rightly assume 20% is a common amount put forward as a lump sum down payment. But that can be a difficult ask for first-time buyers who may be just graduating from college or are raising a family. Fortunately, the down payment can be for much less than this, as low as 3% in some cases.
Requirements for credit scores - which help lenders assess your ability to pay off bills - also tend to be looser. The minimum for conventional loans is a FICO® score of around 620, which is below the overall applicant average of roughly 720, according to estimates compiled by The Mortgage Reports.
Jumbo loans also have their highlights. None is more prominent than the high loan amount you may be eligible to borrow, above $1 million depending on your qualifications, which is determined in the application process. However, because these products involve more money - thus more risk for the lender - the approval standards aren't as lenient compared to conventional loans. For example, while jumbo loans allow you to select how much you want to
spend as a down payment, the minimum is usually 20%, which means you may not need to purchase private mortgage insurance as a result. Your FICO® score will also need to be slightly higher than with a conventional loan.
The same goes for your debt to income ratio, or DTI. This calculation is something lenders use to determine how much of your earnings go toward regularly occurring expenses, and is calculated by adding up your monthly debt payments and dividing that sum by how much you make over the same period before taxes are applied. The ideal is a low debt to income ratio - 43% or less, according to the Consumer Financial Protection Bureau. A DTI of 43% is usually the maximum to still be considered eligible for a jumbo loan.
Is a jumbo loan better than a conventional loan?
There's a common saying in the housing industry: All real estate is local.
In other words, what's considered the norm or the rule all depends on where you are, both in geographic location and financial circumstances. With this in mind, there's no such thing a jumbo vs conventional loan being better than the other. If you're in a comfortable situation financially and live in a city where the cost of living is high, a jumbo loan may be ideal. However, if you're just starting out, a conventional loan may be up your alley.
By talking it out with your mortgage loan officer, you'll discover together which mortgage is the best fit for you.