Westbury, NY — January 3, 2023 — Meadowbrook Financial Mortgage Bankers has been recognized nationally as one of the Top Workplaces of 2024 by Scotsman Guide.

Scotsman Guide is a leading resource for mortgage loan originators nationwide. Esteemed as the industry benchmark for mortgage rankings, they select the companies that stand out amongst the rest. Top Workplaces showcases mortgage companies around the country and all that makes them unique. To make this exclusive list, the editors assessed Meadowbrook’s achievements in operations, DEI, philanthropy, benefits, and corporate culture. Companies who excelled in multiple categories were included on the list of 2024 Top Workplaces.

The past year was filled with various challenges for mortgage professionals. The team at Meadowbrook made a tremendous effort to provide its employees with the support, training, and resources needed to succeed in the volatile market.

“This is a huge accomplishment for Meadowbrook,” said E.J. Gilbride, Executive Vice President of Sales & Mortgage Loan Originator. “Being recognized nationally as a Top Workplace of 2024 is a testament to our unwavering commitment to fostering a supportive and thriving environment at Meadowbrook. This accolade reflects our dedication to our employees and our belief that a strong, collaborative culture is the cornerstone of our success.”

The employees are Meadowbrook’s greatest asset, which is why they celebrate new ideas, personal growth, and collaboration across all departments. This award is not only a testament to past successes, but also motivation to continue evolving within the mortgage industry.

“This achievement speaks to the dedication of every employee at Meadowbrook,” said Erica Wetherall, Executive Vice President – Chief Compliance Officer. “It motivates us to continue our pursuit of excellence in all facets of our operations while fostering an environment where every employee feels empowered and valued.”

By cultivating a strong company culture, employees are able to flourish in their roles. This recognition serves as confirmation that leading with passion and supporting each and every employee is at the forefront of Meadowbrook’s success.

For more information on Meadowbrook, please contact Nicole Andretta at nandretta@mfmbankers.com or (516) 893‑1836.

About Meadowbrook

Meadowbrook Financial Mortgage Bankers Corp. was founded in 2008 with a mission to make the homeownership process simple by providing best-in-class turnaround times, communication, and education throughout the mortgage financing process. Licensed in 26 states, the New York-based mortgage lender prioritizes integrity, transparency, and customer-centricity with each and every client. The team emphasizes the importance of financial education to build lasting relationships with clients and partners based on trust and mutual respect. As an equal opportunity mortgage lender, we take great pride in our efficient processes, extensive product suite, and award-winning company culture.

If you plan to buy a luxury home or are looking in an exclusive neighborhood, there’s a good chance you’ll need a jumbo loan. More often than not, people who buy expensive homes turn to jumbo loans because the funds they require tend to exceed conforming loan limits. So, just what is a jumbo loan, and should you consider getting one?

 

What Is a Jumbo Loan?

Every year, the Federal Housing Finance Agency (FHFA) sets maximum loan limit values for mortgages that Fannie Mae and Freddie Mac guarantee. In 2024, this conforming loan limit (CLL) for single-unit homes across most parts of the U.S. stands at $766,550. It was $726,200 in 2023. While this number serves as the national baseline, it may vary for high-cost areas. For example, the CLL for single-unit homes in Nassau, Kings, and Queens Counties in New York State for 2024 is $1,149,825.

A jumbo loan comes into play if the amount you wish to borrow to purchase a home exceeds the CLL set for the area in question. For example, if you want to buy a $2,000,000 home in NYC and cannot afford/or wish to make a down payment in the amount so as not to exceed the conforming loan limit, you’ll need a jumbo loan. It’s common to refer to a jumbo loan as a non-conforming loan because it exceeds the CLL set by FHFA.

 

How Jumbo Loans Work

Much like conventional loans, jumbo loans come with fixed and variable interest rates, and you get to choose from different loan terms as well. For example, you may opt for a 15- or 30-year jumbo loan depending on your requirements. You may use a jumbo loan to buy a luxury home, a two to four unit property, or a home in a very expensive area. In addition, you may use the proceeds from a jumbo loan to buy a home that will serve as your primary residence or an investment property.

Jumbo Loan vs. Conventional Loan

While there are several similarities between jumbo and conventional/conforming loans, there are some key differences that require your attention. For example, your jumbo loan might come with a higher interest rate than a comparable conforming loan.

 

Creditworthiness

There is a direct effect of credit scores on mortgages, and this does not limit to the interest rate you get. The minimum credit score you need to qualify for a conforming loan depends on the type of mortgage you need. For USDA loans, you typically need a credit score of 640 or higher. With VA loans, you might qualify if your credit score is 620 or higher. If you plan to get an FHA loan, you may qualify with a score as low as 500.

When it comes to jumbo loans, most lenders require applicants to have credit scores of700 or higher, and rather few go as low as 660. This is mainly because lenders view jumbo loans as riskier than their conforming counterparts because Fannie Mae and Freddie Mac do not guarantee them.

 

Down Payment

The section of the jumbo vs. conventional loan comparison tilts in favor of the latter because you get considerably more leeway when making a down payment for a conforming loan. Just how much down payment you need to make for a conforming loan may vary from 0% to 20% depending on the type of mortgage you seek. For example, eligible borrowers may get VA and USDA loans without making any down payment, and FHA loans come with a 3.5% minimum down payment requirement.

Lenders who provide jumbo loans typically require that you make a down payment of 10% to 20%, although some might require that you pay as much as 30%. If you qualify to pay less than 20%, you might need to account for the extra expense that comes in the form of private mortgage insurance (PMI), which is also the case with most types of conforming mortgages.

Consider this – you wish to purchase a home for $2,000,000. Your lender requires that you pay at least 25% as down payment, which amounts to $500,000. Bear in mind that this does not include other expenses associated with the closing costs you’ll need to cover. 

Interest Rates

Traditionally, the higher risk that lenders face when they provide jumbo loans has resulted in their interest rates being slightly higher when compared to conforming loans, often by 1% to 2%. The increased risk comes because neither Fannie Mae nor Freddie Mac guarantees these loans.

 

Qualification Process

Jumbo loans tend to come with more stringent eligibility criteria than conforming loans because of the higher risk that lenders face. You may also expect increased scrutiny of your credit history and income during the underwriting process. This may include additional assessments and a second appraisal.

 

Closing Costs

Jumbo loans tend to come with a more extensive verification process when compared to conforming loans. As a result, it’s common for lenders to charge a higher percentage of a home’s selling price as closing costs. These may vary from 3% to 6% of a home’s value.

Other Jumbo Loan Requirements

One of the key requirements of getting a jumbo loan is for you to have strong credit. In addition, you also need to make a reasonable down payment that could be as high as 30% of a home’s selling price. Other requirements relate to:

• Cash flow. Lenders look at your debt-to-income (DTI) ratio to find out how much of your monthly income goes toward paying your debt. This, in turn, highlights how well you manage your cash flow and the risk you pose as a borrower. While getting a conforming mortgage with a DTI of up to 50% is possible, you typically need it to be 43% or lower to qualify for a jumbo loan. Some jumbo loan providers require DTI ratios of 36% or lower.
• Assets/cash reserves. Jumbo loan providers commonly require applicants to show that they have additional liquid assets or savings of up to 12 months of homeownership expenses. This is to safeguard their interests and minimize the possibility of missed payments.
• Loan-to-value ratio. Loan-to-value (LTV) ratio refers to the amount that a lender is willing to provide in the form of a percentage of a property’s value. For example, if a lender provides a $1,600,000 loan toward a property valued at $2,000,000, the LTV stands at 80%. The maximum LTV typically required for a jumbo loan is 90%.
• Appraisals. While a property appraisal is a norm with just about every type of mortgage, a jumbo loan provider might ask for a second appraisal to confirm the home’s market value. 

 

How to Get the Best Jumbo Loan Rates?

Your credit score has an impact on the interest rate that comes with your jumbo loan because it indicates the level of risk you pose as a borrower. If you’re hoping to get the lowest jumbo loan rates, try and improve your credit score to 760 or higher. Paying all your bills on time and bringing down your credit utilization ratio can help.

The down payment amount may also have an effect on your loan’s interest rate, wherein making a larger payment might bring with it a lower rate.

Pros and Cons of Jumbo Loans

Like most other types of mortgages, jumbo loans come with their share of advantages and disadvantages.

Pros

• Borrow a large amount. A jumbo loan gives you the means to borrow considerably more money than the conforming loan limit set by the Federal Housing Finance Agency.
• Flexible terms. Depending on what works better for you, you may choose from fixed- and adjustable-rate jumbo loans. Most lenders also let you opt for 15- or 30-year loan terms.
• Competitive rates. While lenders tend to view jumbo loans as riskier than conforming loans, the difference in interest rates can be negligible. Besides, if you have strong credit and your finances are in order, you might end up qualifying for a highly competitive rate.

Cons

• Need a good credit score. While you might qualify for a conforming loan with fair/average credit, qualifying for a jumbo loan requires that you have good or exceptional creditworthiness, with a credit score of 700 or higher.
• Need cash reserves. Most jumbo loan providers require that you have at least 12 months of cash reserves to take care of your mortgage payments and other housing-related costs. This is to minimize the risk they face owing to possible defaults.
• Increased scrutiny. Given the risk factor, the underwriting process of a jumbo loan is typically more meticulous than that of a conforming loan. You may expect your lender to scrutinize your financial profile with a fine-tooth comb, requiring that you submit extensive documentation to verify your income, savings, assets, and overall financial condition.
• Tax implications. According to the Internal Revenue Service (IRS), you may deduct interest on your mortgage only on the first $750,000. Any amount of interest you pay over this limit does not qualify for tax deduction. In addition, the Tax Cuts and Jobs Act (TCJA)has capped the state and local tax (SALT) deduction that lets you deduct certain taxes like property tax at $10,000. Both these factors work as drawbacks from the tax savings point of view, and it’s best that you consult a tax expert for details.

 

Should You Get a Jumbo Loan?

If you fall under the “high earners, not rich yet” (HENRY) section of individuals who earn $100,000 to $500,000 annually and have good credit along with adequate cash reserves, you may consider getting a jumbo loan.

 

Conclusion

If you’re interested in buying a large or expensive home that does not meet conforming loan limits, you may consider getting a jumbo loan. Fortunately, qualifying for a jumbo loan is not as complicated as one might imagine. If you have your finances in order, adequate savings, and a good credit score, you might be eligible to get a jumbo loan for funding the purchase of your dream home. If you want to get the process underway, consider discussing your requirement with a reliable mortgage provider who can guide you through the process.

Mortgage payments continue to remain the biggest monthly expense for many, and not everyone can manage a home loan effectively. No matter whether you wish to purchase a home to live in or for investment purposes, you need to prepare yourself ahead of time. Fortunately, if you know how to manage mortgage payments effectively, you can make the most of your money and pay off your mortgage in a time-bound manner.
 

Make Timely Payments

Data released by Statista indicates that the United States experienced a spike in its mortgage delinquency rate during the second quarter of 2020, touching 8.22%. It stood at 9.3% during the subprime mortgage crisis that ravaged the nation from 2007 to 2010. Fortunately, by the first quarter of 2023, this number dropped to 3.5%.

Keep in mind that late payments lead to delinquencies, which can result in foreclosure.According to ATTOM, 185,580 properties in the U.S. faced foreclosure filings in just the first half of 2023, a substantial increase from 164,581 in 2022.

While making mortgage payments on time is crucial, many end up making late payments or miss making payments due to a variety of reasons. A simple way to avoid this problem is to set up automated payments, where transfers take place from your bank account before each due date. If you’re wary of setting up automatic payments, you can set up reminders on your phone to ensure you don’t miss your due date. If your paycheck comes after your mortgage bill due date, you may ask your lender to change it to a date that is more in line with your pay schedule.
 

Create and Stick to a Budget

The cost of owning a home is often more than your mortgage and utility payments, but following a proactive approach can help you manage your finances effectively. First-time homeowners need to remember that they will be responsible for fixing the problems that used to be their landlord’s headaches in the past. This can also be the case if you upgrade to a larger home because maintenance costs tend to increase with the size of a property. In any case, you need to account for all unforeseeable costs.

It comes as no surprise that one of the top tips to manage a mortgage is to come up with a budget and ensure sticking to it long term. A good way to move forward is to follow the 28/36 rule. In this case, you should spend no more than 28% of your monthly income toward housing, which includes mortgage payments, taxes, and insurance. In addition, you should spend no more than 36% of your monthly income in repaying all your debt, the mortgage included.

Homeowners who are unsure about how to manage a mortgage may start by calculating their net income and tracking their spending. By monitoring your fixed and variable expenses, you will have a better understanding of the costs you can cut back on. Set up spending limits for different categories of expenses. Remember that you might need to make some adjustments to stay on track. You also need to keep reviewing your budget regularly to account for any changes in your financial situation.

Part of working on and sticking to a budget requires that you keep a close eye on your furniture expenses. As tempting as it might appear, steer clear of making expensive purchases that can increase your overall debt and hamper your ability to manage your mortgage effectively.
 

Pay More Toward the Mortgage

It is common practice for homeowners to make 12 mortgage payments per year. By choosing to make bi-weekly payments, you end up making 26 payments over a year. This allows you to make an additional payment each year, lowering the principal amount faster with less interest. Many feel this is the most brilliant way to pay off your mortgage quicker than usual and save in the process.

Another way to pay more toward your mortgage is to round up. For example, if your monthly payment is $1,718, consider paying $1,800 or $2,000 each month. Alternatively, you may increase the amount you pay each month by a few dollars. For instance, you could go from $900 to $910 to $920 and so on. In both scenarios, you stand to save a tidy sum as interest and pay your mortgage off sooner.

Keep Track of Insurance and Property Taxes

Many people don’t realize the cost of homeowners’ insurance and property taxes tend to increase every year. It is particularly important to keep track of insurance costs if you’re paying them through your mortgage because while you might sign up for what seems like a good deal early on might turn into anything but as the years roll by. In some instances, insurance premiums can increase by 10% to 20% in a year. If you find your insurance costs increasing significantly, it might be in your best interest to shop around and look for other alternatives.

When it comes to property taxes, there’s a good chance your municipality will keep increasing them every year. If you think that the taxes you’re paying are not in line with your home’s existing value, you may consider filing a tax grievance petition. In this case, your property’s existing value should be lower than that calculated by the assessor.

The overvaluation of some properties in urban areas results in high taxes. Bear in mind that this assessment is not the same as an approval, and it takes place only from a taxation perspective. If you feel the assessment is incorrect, you may request a reassessment. If the reassessment works in your favor, you benefit by paying lower taxes.

Recast Your Mortgage

If refinancing your mortgage is not an option because your current rate is lower than existing rates, you may look at what recasting has to offer. To recast a mortgage, you need to make a large lump-sum payment to your lender who then re-amortizes your loan. While this helps bring the balance down, there are no changes in the terms of the loan. The result is that you start paying much lower monthly payments and owe less in the form of interest.

Conclusion

Conclusion Now that you’ve gone through the tips to pay off a mortgage early, determine which option might work well for you based on your specific situation. For example, if can afford to, you may make extra payments toward your mortgage to save on interest charges and pay it off sooner. In addition, you need to ensure that you make all your payments on time.

If you plan to get a new mortgage, make sure you discuss your specific situation with a reputable mortgage provider, as this gives you the means to make a well-informed decision.

Until not so long ago, getting a mortgage was typically a tedious task, often taking months for the entire process to complete. Even after filling out lengthy applications and submitting a slew of documents, applicants would be in the dark about whether or not they might get the funds they need until the end. The entire process took considerable time and effort on the part of the borrower and lender alike. However, the widespread use of technology in the mortgage industry has made matters simpler for all.

 

Evolution of Technology in the Mortgage Industry

One of the biggest technological changes that came about before the turn of the last century was the use of loan origination systems (LOS) during the 1980s. They played a vital role in automating the application and approval process, thereby improving speed and efficiency. The evolution of these systems is clear, with newer versions making way for seamless collaboration between mortgage providers, borrowers, and real estate professionals.

 

The Early Days

The main shift toward embracing what technology had to offer came about during the 1990s, when the use of computers for loan origination and record-keeping aided the typically laborious manual underwriting process. With the internet gaining popularity rapidly, more and more mortgage providers started giving borrowers the ability to apply for loans online. Some even began offering online approvals. The other benefits during the initial tech-driven years included:

• Online connectivity between the borrower and the lender
• Automated tools for accepting and classifying applications
• Streamlined underwriting and appraisals
• Lower transactional costs for lenders and borrowers

While the role of technology in the mortgage industry was largely positive, there were some hiccups too. For instance, implementing modern technologies required investing in infrastructure and resources, which not all mortgage providers found possible. This created a divide between those who adopted technological advances and those who did not. In addition, not all lenders wanted to get on board because of concerns surrounding security. A seemingly high learning curve also served as a drawback during the early years.

The COVID-19 Effect

During and after the COVID-19 pandemic, several mortgage providers changed their approach when it came to serving their borrowers, and the role of technology in the mortgage industry became even more prominent. According to survey-based data presented by Infosys:

• Around 99% of lenders feel that technology can play a vital role in improving the mortgage application process.
• 74% think it can simplify the process.
• 67% feel it can reduce data entry work.
• 70% believe it can reduce time to close.

The data Infosys collated also indicates that:

• The leading mortgage providers process loan applications 63% faster than their competition, reducing the average loan processing time by four to six days.
• Most borrowers want to use the internet to learn about their options, submit their documents, and get pre-approval.
• One in four mortgage providers has already made technology-based investments.
• Around 70% of Gen Z and 60% of millennials want to complete the entire process using a mobile app.
• More than 80% of borrowers prefer signing documents electronically instead of visiting physical locations.

Now, just about every player in the mortgage industry has realized the impact of technology. After all, an increasing number of people turn online to seek information about mortgages, compare their options, and submit applications. Thanks to technology, borrowers can even find lenders who complete the entire process, from pre-approval to closing, online.

The Need to Go Online

There’s been a considerable shift in the dynamic between borrowers and lenders over the last few years, especially after the mushrooming of online mortgage platforms. Now, just about every mortgage provider has an online presence. According to the 2023 Borrower Insights Survey by ICE Mortgage Technology:

• More than 50% of Gen X and older borrowers like the fact that the online process eliminates the need for in-person interactions.
• More than 30% of Gen Z and millennial borrowers share this sentiment.
• Over 25% of existing homebuyers would like a mix of digital and traditional tools when they apply for mortgages again.
• 45% of millennials want mortgage providers to offer the flexibility of online and in-person interactions.
• Homebuyers who’ve had five or more mortgages are likelier to interact with lenders using online tools, with traditional methods playing a supporting role.

Given the shift toward offering technology-based solutions, many people are turning online to look for new loans and refinance existing mortgages, and comparing interest rates and loan terms has never been easier.

 

How Do You Get a Mortgage Online?

Most lenders let you apply for a mortgage online, and getting pre-approval over the internet is fairly straightforward. All you need to do is select a lender and submit an application that requires a few personal and income-related details. Some lenders work only in the online space, letting you complete the entire process of getting a mortgage online. However, scams occur in the online mortgage sphere from time to time, so it’s best to remain cautious.

 

Pros of Getting an Online Mortgage

If you choose a good online mortgage provider, you may look forward to multiple benefits.

• You can apply for different types of mortgages like conventional loans, VA loans, and USDA loans.
• Quicker processing of your mortgage.
• Possibility of getting lower interest rates and fees.
• Ability to upload required documents securely.
• Ability to sign documents digitally.

Cons of Getting an Online Mortgage

While getting an online mortgage might come with several benefits, you need to watch out for a few possible pitfalls too.

• Contacting your mortgage provider over the phone might not be easy.
• There’s no guarantee of the rate you’ll get until the final approval.
• Getting approved might be challenging if you have an unsteady income.
• You might not be able to qualify with average credit.

 

The Role of FinTech Companies

Scores of potential homebuyers are taking advantage of the recent rise of FinTech companies in the mortgage industry, and there’s no denying that this is mutually advantageous for banks and FinTech companies alike. Owing to the growth of non-bank tech-driven companies in this field, traditional players have already started upping their ante by embracing technology. This is helping them reach out to larger audiences, provide higher levels of service, and form suitable alliances with FinTech players.

The role of technology in mortgage lending is bound to lead to more advantages even for traditional lenders as long as they are willing to adapt quickly. The benefits they may look forward to include:

• Making existing processes more effective and transparent.
• Using tools to provide enhanced customer experiences.
• Improving communication with customers.
• Using application program interfaces (APIs) that allow integration with third-party add-ons.
• Creating front-end digital partnerships that facilitate onboarding, customer authentication, and loan origination.
• Staying up-to-date with the latest, tools, trends, and technologies.

Artificial Intelligence, Machine Learning, and Process Automation

While artificial intelligence (AI) and machine learning (ML) made their presence felt in different financial services applications before 2020, the mortgage industry started leveraging the potential these technologies had to offer a little later.

Consider this – the mortgage industry deals with large volumes of data and requires carrying out many repetitive tasks. AI and ML, on their part, are rather effective when it comes to analyzing data and performing cognitive tasks. These can include the classification of information, determining potential risk, and even making lending decisions. It comes as no surprise, then, that some of the top mortgage providers are already using these technologies to improve the overall process, from applying for a loan to its eventual funding.

While the traditional mortgage process is typically time-consuming, AI can help speed things up by streamlining workflows as well as by gathering, analyzing, and verifying different types of information. Given the rise of predictive analysis, it’s possible to reduce the need for human intervention and automate the decision-making process.

Some mortgage providers have turned to robotic process automation with the primary aim of reducing operational costs. This technology can also play a role in improving productivity and accuracy because it can help carry out repetitive rule-based tasks quickly and efficiently. Within the mortgage industry, robotic process automation can help in areas like loan origination, application processing, customer service, and quality control. For example, this technology is perfect for loan origination, which is otherwise a highly manual step that’s prone to errors.

 

How Blockchain Technology Is Impacting the Mortgage Industry

It’s safe to say that the mortgage industry can do with better recordkeeping, traceability, and accountability. Blockchain can help address this problem in an effective way. While this technology can increase transparency, it also holds the potential to reduce costs. It can do this by reducing the risk for incorruptible and infallible transaction records, paving the way for near-real-time settlement, and eliminating friction from the process.

In its current form, the mortgage industry is home to scores of brokers whose profits add to overall costs. The entire process of getting a mortgage lacks adequate transparency because different organizations hold details pertaining to government records, title deeds, and bank accounts. Mortgage providers depend on these intermediaries to collect information in order to make lending decisions.

Blockchain can address these problems by assigning unique trackable digital IDs for all properties, and the use of distributed ledgers and smart contracts can help eliminate the existing roles of various intermediaries. In addition, the chain of information that blockchain creates can help address concerns surrounding the transfer of documents and minimize instances of mortgage fraud.

Benefits of Technology for Mortgage Providers

A majority of mortgage providers in the U.S. believe that technology can improve the entire lending experience. Traditional systems continue to have limitations and gaps that technology can address to good effect, and lenders may look forward to various benefits. For example, a single digital platform can connect a borrower, a bank, an underwriter, and any other financial organization. Other benefits include:

• A reduction in manual errors
• Simpler risk evaluation
• Lower operational costs
• Automated collection of documents
• Streamlined review process
• The ability to make quick lending decisions

 

How Will Technology Help Borrowers?

If you look at most of the technology trends in the mortgage industry, you’ll realize that borrowers also stand to gain in different ways.

• The online benefit. Until not so long ago, the entire process of getting a mortgage could take a month or two, of which a considerable time went toward just the underwriting. Now, a homebuyer may apply for a mortgage online in a matter of minutes and even get pre-approval on the same day. The ability to connect with loan officers online is a definite plus for tech-savvy consumers. Besides, some lenders complete the entire process online, including the signing of documents and the final closing.
• Streamlined process and better experience. Getting a mortgage typically involves extensive documentation, and making the process paperless can be challenging. However, technology has helped simplify the process of filling and filing multiple forms as well as collating financial information. Technology has also played a role in improving coordination between applicants and loan officers, as well as in enhancing the overall customer experience.
• Increased transparency. Many mortgage providers use digital platforms that give applicants real-time access to the same information that their loan officers can see, including the status of their applications. Getting to view the queries that loan officers have helps increase transparency levels, and borrowers also get to answer them in a timely manner.

 

Conclusion

Given the existing trends in the mortgage industry, providing a good user experience has become increasingly important, and the use the technology can help free up some valuable time. Mortgage providers can turn to AI and ML to automate repetitive tasks like verification of documents and data entry. Digital tools can enhance the customer experience through user-friendly interfaces as well as ease of uploading and digitally signing documents.

Since the role of technology in the mortgage industry continues to evolve, it’s important for mortgage providers to stay on top of the learning curve. By ensuring that they remain abreast of the latest tools, technologies, and trends, they can also do right by their customers.

Most American home buyers need to get mortgages to purchase homes, which is where their creditworthiness enters the picture. Even though lenders might rely on different eligibility criteria when making lending decisions, some aspects remain the same. For example, you may expect your lender to look at the information you provide in your application and your credit score to determine if it should approve your mortgage. In addition, the effect of credit scores on mortgage rates also needs your attention.

 

Effect of Credit Score on Mortgage Applications

Mortgage providers look at applicants’ credit scores to determine how much risk they pose as borrowers. By going through your credit report, a lender is able to take a look at your credit history and see how well you’ve managed your credit in the past. If you’ve missed making payments, have made late payments, or have delinquent accounts, the same will show on your credit report. Any such instance has a negative impact on your credit score.

If you have a poor credit score, getting a lender to approve your application might seem like an uphill task. A good or excellent score, on the other hand, presents you with way more alternatives.

 

What If You Have No Credit Score?

While getting a mortgage in the absence of a credit score or credit history is difficult, it’s not impossible. However, you’ll typically get only a handful of options from which to choose. This is because lenders have no way of determining how well you handle credit, and if you’ll repay the mortgage in a timely manner. If you find a lender willing to give you a mortgage in such a scenario, you may expect to pay a higher-than-usual interest rate. In addition, you might not find the type of mortgage you seek.

If you don’t have a credit history yet, you may consider building it before applying for a mortgage. This will give you access to more options and you may also benefit from a lower interest rate.

Minimum Credit Score for Mortgages

The type of mortgage you wish to get has a bearing on the minimum credit score you need to qualify. In most cases, you may qualify if your credit score is 620 or higher. If you’re looking for mortgages that offer flexibility in this regard, you may benefit by checking what different government-backed programs have to offer. For instance, you may qualify for a United States Department of Agriculture (USDA) loan with a credit score of 640 or higher.

Typically, these are the minimum credit scores you need to qualify for the following types of mortgages:

• Conforming (conventional) loans. 620 or higher
• USDA loans. 640 or higher
• VA loans. 620 or higher
• FHA loans. 580 or higher with a 3.5% down payment, and 500 or higher with a 10% down payment
• Jumbo loans. 700 or higher

 

What’s a Good Credit Score for a Mortgage?

Mortgage lenders across the U.S. use different versions of the standard FICO score when making lending decisions. The score range varies from 300 to 850. The different models include:

• FICO Score 2 (Experian/Fair Isaac Risk Model v2)
• FICO Score 4 (TransUnion FICO Risk Score 04)
• FICO Score 5 (Equifax Beacon 5)

It’s common for mortgage providers to receive a single consolidated report from the three credit bureaus along with the corresponding credit scores. The range that distinguishes the good from the bad is as follows:

• 300 to 579 – Poor
• 580 to 669 – Fair
• 670 to 739 – Good
• 740 to 799 – Very Good
• 800 to 850 – Excellent

Effect of Credit Score on Mortgage Rate

Lenders look at your credit score to determine the risk you present as a borrower and your ability to keep up with payments. In addition, they also use this number to arrive at an interest rate that can help offset the risk. When getting a mortgage, your credit score has a significant impact on the loan’s terms. More often than not, people with good and excellent credit scores get the lowest interest rates, and the converse holds true as well. Bear in mind that the down payment you make also has an effect on your mortgage’s interest rate.

Even a seemingly small difference in interest rates can have a significant effect on how much you end up paying as interest over the course of the loan term.  The data that follows comes from myFICO, highlighting mortgage rates by credit score and showing how your monthly payments will vary if you get a $200,000 30-year fixed-rate mortgage. The amounts indicate national averages. The mortgage rates are effective as of August 31, 2023.

 

FICO Score – 760 to 850
APR – 6.751%
Monthly payment – $1,297

FICO Score – 700 to 759
APR – 6.973%
Monthly payment – $1,327

FICO Score – 680 to 699
APR – 7.150%
Monthly payment – $1,351

FICO Score – 660 to 679
APR – 7.364%
Monthly payment – $1,380

FICO Score – 640 to 659
APR – 7.794%
Monthly payment – $1,439

FICO Score – 620 to 639
APR – 8.340%
Monthly payment – $1,515

The difference in monthly payments between the top and bottom tiers stands at $218. Over the course of 30 years, this will amount to more than $78,000.

Other Factors That Affect Mortgage Rates

While your creditworthiness plays an important role in the interest rate that applies to your mortgage, lenders look at other factors too. Besides, mortgage rates keep changing based on the Fed’s monetary policy, economic growth, and inflation. When it comes to what a lender looks at to determine interest rates, the factors that make a difference include:

• Location of the home. A report released by the Federal Reserve Bank of Dallas indicates that location plays an important role in mortgage rates, which tend to vary from one metro to the next. This, incidentally, is also the case with rural areas.
• Loan amount and price of the home. If you require a rather small or very large loan amount, you may expect to pay a higher interest rate. The amount you need to borrow is essentially the difference between the home’s selling price and the down payment amount.
• Down payment. Typically, making a large down payment comes with a lower interest rate. This is because your lender will view you as a low-risk borrower, given the equity you hold in your home. If you’re comfortable making a down payment of 20% or higher, doing so might work well for you from the long-term savings point of view.
• Loan term. Shorter loan terms tend to come with lower interest rates when compared to longer terms. However, they require that you make larger monthly payments.
• Debt–to-income (DTI) ratio. Your DTI ratio indicates how much of the money you earn each month goes toward your debt payments. Mortgage providers want this number to be 43% or lower. Lenders view low DTI ratios with favor, which may then translate into a lower interest rate.
• The lender you select. Interest rates may vary even for the same type of mortgage depending on the lender you select. Mortgage providers charge different interest rates based on factors like overhead costs, experience, reputation, and profit margins. Bear in mind that the lender that provides the lowest rates is not necessarily the best because you also need to account for customer service and flexibility in terms.

 

How to Improve Your Credit Score?

If your credit score is not up to the mark, consider improving it before applying for a mortgage. Doing this helps open up more avenues and you may also benefit from a lower interest rate. Following a few simple steps can set you on the right path.

Review Your Credit Reports

Start by getting a copy of your credit reports from the top three credit bureaus – Experian, Equifax, and TransUnion. Go through each carefully to determine why your credit score is low. There are instances when credit reports carry erroneous information, so keep an eye out for these. If you find any error, contact the credit bureau and request it to make the required correction.

 

Pay Your Bills on Time

Among the different factors that affect your credit score, payment history takes the top spot, accounting for 35%. Given the effect this factor has, it’s crucial that you pay all your bills on time. You may keep track of your bills by creating some kind of filing system or setting alerts. Automatically paying your bills by linking them to your bank account is ideal. You may also consider paying your bills using a credit card to earn rewards and improve your credit score, but tread this path only if you’re sure you’ll be able to pay off your credit card balance in full every month.

 

Pay Down Balances

Your credit utilization ratio, which indicates how much of your available revolving credit balance you’ve used, has a 30% weightage in your credit report.  For example, if you have three credit cards with a combined balance of $15,000 and owe a total of $7,500, your credit utilization ratio is 50%. From the credit score point of view, this number should be 30% or lower.

If your credit utilization ratio is over 30%, try to pay off as much of the debt you owe to bring this number down. Getting it to around 10% is ideal if you wish to improve your credit score. Another way to improve your credit utilization ratio is to ask your credit card providers to increase your credit limit. However, it’s best that you refrain from using more credit until you apply for a mortgage.

 

Fix Delinquencies

Fixing a minor credit card delinquency like missing a payment is fairly easy but ignoring any bill over a prolonged period might have serious implications. While the issuer of the credit will close your account, your debt might end up with a collection agency and you might risk facing garnishment of your wages. Besides, its mention might stay on your credit report for up to seven years.

Paying off debt that’s with a collection agency might have a positive effect on your credit score depending on the model in question. If you have serious delinquency, you should ideally start making payments as quickly as possible. Contact the issuer of your card to check if it has any hardship program. Consider settling the debt if you’re okay with making a lump sum payment. Getting in touch with a credit counseling agency to get on a debt management plan might also be an option.

 

Don’t Close Old Accounts

The length of your credit history has a 10% weightage in your credit score, and the longer it is, the better. As a result, if you have any old account you plan to close, think again because doing so may have an adverse effect on your credit history’s length. Closing a relatively new account, on the other hand, will not have as damaging an effect.

Don’t Apply for New Credit

New credit accounts for 10% of your FICO score, and each time you apply for new credit, your credit score goes down by a few points. As a result, it’s best that you don’t apply for any form of credit until you get your credit score on track.

 

Conclusion

Having poor creditworthiness and a low credit score might work as a dampener if you wish to get a mortgage. This is because lenders view applicants from this bracket as high-risk borrowers. Besides, even if you qualify for a mortgage, your credit score still plays a role in the interest rate you get. If you have an average credit score, you may consider improving it before applying for a mortgage because it can pave the way for a better deal.

Now that you know the effect of credit scores on mortgages, determine if yours is good enough to apply for a home loan. If so, consider getting in touch with a mortgage provider to find out if you qualify for preapproval. You may then look for homes based on the amount for which you qualify.

 

 

Disclaimer

The payment on a $300,000, 30-year fixed rate loan at 6.50% and 75% loan-to-value (LTV) is $1,896.20. The Annual Percentage Rate (APR) is 5.692%. Payment does not include taxes and insurance premiums. If you add taxes and/or insurance to your mortgage payment then the actual payment will be greater. Some state and county maximum loan amount restrictions may apply. This is an example and is for illustrative purposes only.

Buying a home can be an exciting yet daunting process, which is why it’s best to tread with caution. If you find a house you like, carrying out an inspection on your own before making an offer is ideal as it can save you time and heartache. While perfection is typically hard to find, an inspection enables you to narrow down on a home that’s in fairly good shape. This DIY home inspection guide highlights why you should go through the process and the aspects that need your attention.

 

Why DIY Home Inspections?

Consider this – you make an offer on a home only to find out through the home inspection report that it comes with some serious flaws. While a home inspection contingency might give you the means to back out of the offer, you would still have spent considerable time in the process, and you’ll need to start over again. Carrying out a DIY home inspection before you make an offer minimizes this risk greatly.

Conducting a DIY home inspection makes it to the list of the top tips for buying a home because it gives you the means to identify existing and potential problems. With a checklist in place, you get an indication of what to look for and where, which helps simplify the process. It also helps avoid surprises in the professional inspection report you get later, because you know of some or most of the problems beforehand.

Bear in mind that while a DIY home inspection is always good, you should still opt for a professional inspection before you make the purchase. This is because a certified home inspector comes with the right training and tools that can help fill any gap you might have in your DIY inspection.

How to Do a Home Inspection Before Buying?

Carrying out a DIY home inspection tends to take time, so it’s ideal that you give yourself a few hours to go through the process. The inspection requires looking at different parts of a house, from its exterior to its attic and basement.  You need to pay complete attention to the process because you don’t want to miss out on any problem.

The Exterior

While most homes can withstand the elements, inclement weather conditions might affect older structures without leaving any visible signs, and this is where a professional home inspection can help.

When carrying out a DIY inspection, look for cracks in the foundation and walls. Inspect the deck and structural boards to see if there’s any rot, especially at the ends. Vines on walls can be cause for concern, as can leaning stairways, bowing walls, cracked/missing siding, dislocated posts, damaged beams, and peeling/flaking paint.

If the home has a septic tank, find out how long it’s been in place. Remember that tanks over 30 years old are near their end and might need replacement soon. In addition:

• If there’s a sprinkler system, test its water pressure and overall functioning.
• Look for holes and cracks in the walkway and driveway.
• See if all the outdoor lights are working.
• Determine the sturdiness of the fence and look for loose boards.
• Determine if the garage door works as it should (especially if it comes with a remote).
• Check for dead patches in the lawn.

The Roof

The roof of a home is among its most important part, which is why its inspection is vital. While the roof is typically difficult to inspect on your own, and climbing it is one way to get a clear picture, you may still identify problems from the ground. For example, you can use binoculars to examine the shingles and look for cracking, cupping, and curling. Loss of texture can indicate that the shingles need replacement. Look for cracks and rust in the roof’s gutters. Other causes for concern include cracked or rusty flashing, painted-over vents, and any obvious sag in the roof.

The Kitchen

When it comes to the kitchen, start by determining if there is enough storage space to meet your needs, as this is something no home inspector can gauge. Check the tiles and countertops for chips and cracks. Open and close drawers and cabinets to ensure they function properly and don’t serve as obstructions. In addition:

• Check if the water faucets work fine.
• Look for leaks under the sink.
• Check all the burners of the stove.
• Turn the oven on to see if it works.
• Check the condition of the refrigerator, dishwasher, microwave, and garbage disposal unit.

The Bathroom

While a certified home inspector is the best person to inspect a bathroom, you may still cover a few important points in your DIY home inspection.

• Check the toilet flush.
• Run water in the tub and sink to see if it drains.
• Check if the tub has cracks, chips, or stains.
• Look for chipped, loose, and broken tiles.
• Ensure that the bathroom is well-ventilated.
• Determine if there’s enough storage space.

Crawlspaces, Attics, and Basements

While it’s common to use these spaces for little other than storage, they feature prominently in most home inspections, all the more so because they usually don’t receive the same level of attention as the rest of the home.  When inspecting any such space, keep an eye out for:

• Inadequate insulation
• Poor ventilation
• Musty or damp smells
• Water stains
• Decaying wood
• Cracks in the foundation

Walls and Ceilings

Check if the walls and ceilings suffer from discoloration because yellow spots are indicative of water-induced damage. Large spots might be cause for concern because they’re typically a sign of leaky roofs or ice dams. Smaller spots, on the other hand, are usually a result of sweaty or leaking pipes, and might indicate significant behind-the-scenes damage.

If you find black spots on walls or ceilings, there’s a good chance you’re dealing with mold. While treating mold is possible, addressing the excessive moisture that results in the mold might not be easy. If you find mold in the bathroom, improving its ventilation might fix the problem. However, mold in the basement might become a recurring problem.

The presence of powdery white deposits in basements along concrete slabs and the foundation typically point to water seepage. This is also the case if you come across corroded concrete blocks or bowed walls. When examining crawl spaces, the presence of musty smells, rotting wood, and mold typically indicate moisture-related problems.

Your inspection should also cover gaps between the flooring and walls, significant cracks, peeling or flaking paint, sagging ceilings, and leaning walls.

Doors, Windows, and Furnaces

Doors play a key role in keeping a home secure, which is why they make it to most DIY home inspection checklists. When inspecting doors, here’s what you need to look for:

• Decaying or rotting wood
• Bowed frames
• Trouble in opening and closing
• Non-functional latches and locks
• Rusted or exposed lintels
• Cracked/broken glass
• Missing/cracked caulk around frames and joints
• Exterior doors with improper weather-stripping

If you come across fogged windows, know that replacing them is not cheap. Windows exposed to excessive condensation might indicate an under-the-weather furnace or heat exchanger. However, it might be hard to spot signs of condensation during the summer. Make sure you find out how old the furnace is and check stickers that indicate its service history. While a well-maintained furnace might last for up to 40 years, the typical lifespan ranges from 20 to 25 years.

The Plumbing

When you turn the water on in the kitchen or bathroom, determine if there’s a drop in pressure after some time. Run the water for a few minutes to check if it drains quickly enough. Determine if all the drainpipes in the kitchen and bathroom go into walls, because if they run directly into the floor, there’s a possibility that the drains are vented poorly. Adding a vent is not easy and requires using the services of a plumber. Other red flags you need to look out for include:

• Gurgling noises coming from pipes
• Leaking or rusty pipes
• Unlevel or unsteady toilets
• Presence of mold
• A buildup of sediment in hot water tanks
• Code violations

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Switches and Electrical Outlets

While there are various aspects surrounding electrical fitting that you should ideally leave to a professional home inspector, there are a few problems you might be able to diagnose on your own. Use a receptacle tester for checking electrical outlets to ensure their wiring is okay. New electrical outlets might indicate a recent wiring job. If you find reverse polarity, it might indicate that a professional did not carry out the job. In addition, keep an eye out for:

• Non-functioning switches and outlets
• Painted outlets
• Three-prong outlets without grounding
• Concealed breaker boxes
• Breaker box switches without labels
• Exposed and uncapped live wires

 

What About a Professional Home Inspection?

While not necessary, you should get a certified home inspector to inspect the house you wish to purchase as this gives you a better picture of its condition. In most instances, the buyer pays for the inspection, unless a seller agrees to as part of the negotiation process.

The average cost of a home inspection varies between $281 and $402. Just how much you need to pay depends on the size of the home, its location, its age, and the checks that the inspection covers. Bear in mind that not all home inspectors cover the same elements, so it’s important to find out what they’ll look at during the inspection.

What’s Home Inspection Contingency?

The contract that you draw up when you make your offer can include different contingency clauses, one of which includes home inspection contingency. This clause implies that you have the right to withdraw your offer or ask the seller to carry out repairs based on the inspection report. If you choose to withdraw the offer, you stand to get your deposit back.

If you include a home inspection contingency clause in your offer letter, you get a predetermined time period to carry out the inspection and potential follow-ups. For example, if the home has an electrical problem and the inspection report suggests getting an electrician to give it a look, you need to do what’s required before the end of the given timeframe. In most instances, buyers get one to two weeks to complete the inspection.

 

The Most Common Problems

While just about every home comes with its own share of problems or shortcomings, some are more prevalent than others. The corresponding do-it-yourself home inspection checklist highlights the most common ones.

• Structural. Foundation problems are typically expensive to fix, and there are instances when you can’t fix them at all.
• Roof. Older homes might have problems with their roofs, and replacing a roof costs a tidy sum.
• Pest infestation. It’s common for home inspectors to find pests, especially termites. This can be a problem because a full-blown infestation might even cause structural problems.
• Mold. Homes in humid climates might suffer from mold, the presence of which can cause illnesses. In addition, mold can spread quickly.
• Plumbing. Running toilets and leaking faucets are fairly common. While relatively easy to fix, these indicate that s home’s overall upkeep is not up to the mark. Clogged drains might indicate more serious problems.
• Electrical. Old homes might have outdated wiring and electrical systems that do not meet modern standards. You need to take electrical problems seriously as they could be potential fire hazards.

 

Conclusion

If you plan to buy a house, a DIY home inspection gives you the means to identify existing and potential problems, which, in turn, gives you an indication of whether or not to make an offer. You should ideally give yourself enough time to go through the entire home carefully, its exterior and interior alike. When it’s time for a professional inspection, you may look for a certified inspector on your own or ask your mortgage provider for references.

Finding out about a denied mortgage application is never easy, given that the person receiving the news is typically looking forward to buying a house. While lenders cannot deny mortgages based on age, gender, religion, race, marital status, or one’s nation of origin, there are other factors that might lead to a denial. As a result, taking a look at common mortgage denial reasons and understanding what you can do if a lender denies your application might help you avoid these pitfalls so you can get approved.

 

Mortgage Application Denials in Numbers

Data released by the Consumer Financial Protection Bureau (CFBC) indicates that the denial rate for mortgage applications in 2020 was 9.3%, which was higher than in 2019 (8.9%). It points out that FHA applications came with a denial rate of around 14.1%, whereas the number for conforming home loan applications stood at 7.6%. The denial rate for Black and Hispanic borrowers was higher when compared to non-Hispanic and Asian borrowers.

 

What Are the Common Reasons a Mortgage Application is Denied?

Mortgage denial reasons come in different forms and understanding them might help you get one step close to homeownership. This is because when you know what might affect your application adversely, you may implement remedial measures to increase the likelihood of success. Here are signs that indicate your mortgage might be denied.

• No/poor creditworthiness. Lenders view people with no or poor credit history as high-risk borrowers. If you fall in this bracket, you might have trouble finding a lender who would approve your mortgage application, although you may have a few options.
• High DTI ratio. Your debt-to-income (DTI) ratio highlights how much you owe in comparison to your income. A DTI of 28% or lower is ideal, although lenders typically want this number to be 36% or lower. If it’s 43% or higher, a denied mortgage application is hardly surprising.
• Problems with the home. It’s common for some types of mortgages as such FHA loans to have strict requirements surrounding the condition of the home you wish to purchase. If the home does not pass the required inspection, a denial of your application is on the cards.
• The appraised value. If the appraised value of the home you wish to buy is less than its selling price, you may expect the lender to deny your application or offer a lower-than-desired amount. In case of the latter, you have the option of paying the difference on your own.
• Job changes. if you get a promotion at work or move to a better-paying job in the same industry, it typically does not have an adverse effect on your mortgage application. However, some job changes might have a negative impact. These include switching fields, new jobs with preset termination dates, and moving from being a salaried employee to a consultant or a freelancer.
• Judgments and liens. Lenders commonly run title searches before closing. If your lender finds any unpaid judgments or federal/state tax liens linked to the home you wish to buy, you may expect it to deny your mortgage application.
• Early retirement. If you’ve retired early and fail to show you have adequate income, your lender might view you as a high-risk borrower even if you’ve already saved seemingly enough money.
• Recent credit activity. Closing a credit card account or more tends to have a negative effect on your credit utilization ratio by reducing your total available credit, which might lower your credit score. As a result, refrain from doing so before applying for a mortgage or its closing. In addition, applying for new forms of credit during this period indicates added liability to your lender, so it’s ideal that you steer clear of doing this as well.
• Student loan. A mortgage can be denied due to a student loan if its outstanding amount leads to a high DTI ratio. A history of delinquent payments toward a student loan is also a possible reason for denial.
• Source of down payment. If you plan to make your down payment through a source your lender cannot verify or by using down payment assistance a seller is willing to provide, your lender will deny your application because it’s against the rules. This also holds true for funds you may receive from any type of non-collateralized loan.
• Multiple Write-Offs. Self-employed individuals who have multiple write-offs when they file their taxes might face problems when they apply for mortgages. While you might turn to business deductions with the aim of saving taxes, lenders would look at your net income after the deductions. As a result, you need to make sure your net income is enough based on the amount you wish to borrow. If it’s not, you might want to go easy on the write-offs.

Mortgage Loan Denied in Underwriting

There are chances of getting denied after pre-approval for a mortgage if your lender finds a suitable cause during the underwriting process. This is because the preapproval stage mainly involves looking at your credit score, monthly income, DTI ratio, and assets. However, during the underwriting stage, lenders take a much closer look at your finances by going through your pay stubs, W-2 forms, bank statements, tax returns, and all other financial documents they might deem appropriate. 

Since the underwriting stage is when a lender gets a clear picture of where you stand financially, it is possible that your application might fail to meet the cut. Besides, any significant changes in your finances from the time of preapproval to the underwriting might also lead to a denial.

What Happens if You Don’t Get Approved for a Mortgage?

If a lender denies your mortgage application, you may expect to receive a denial letter via email or regular mail. Some lenders also inform applicants of their decisions over the phone. It is common for lenders to provide the reason behind the denial, although if this is not the case with your lender, you may choose to call and find out. Once you know the reason, make sure you address it effectively before applying again.

Your Mortgage is Denied – Now What?

If a lender denies your mortgage application, know that this happens with many people. In some cases, simple technicalities can be the cause for denial, which you may rectify by providing any additional information that your lender requires. However, there are instances when you might have to explore other options.

Speak With Your Lender

The law requires that a lender should inform you of why it is denying your mortgage application. At times, lenders deny applications because of inadequate paperwork or not having access to the required information. Once you know the reason for the denial, you might be able to speak with your lender and provide the documentation it needs. In some instances, explaining your specific situation over the phone can help an underwriter reconsider the decision.

Check Your Credit Reports

If you failed to review your creditworthiness before applying for a mortgage and it is the cause for denial, you need to go through your credit reports carefully. Bear in mind that you ideally need good creditworthiness to qualify for a mortgage, and if an error in your credit report is causing your credit score to suffer, you might be able to fix it. Remember that mistakes in credit reports are not uncommon, and according to a study by Consumer Reports, 34% of consumers have at least one error on their credit reports.

If you spot an error on any of your credit reports, contact the credit bureau in question and request it to make the required correction. This process tends to take time, which means you might have to back out of your existing offer.

Look at Government-Backed Loans

If a lender denies your application for a conventional mortgage because of a less-than-perfect credit score or inadequate down payment, you may consider looking at what government-backed loans have to offer. These typically come with less stringent creditworthiness and down payment requirements, although you need to meet other conditions.

• USDA loans. The U.S. Department of Agriculture (USDA) works as a guarantor for these loans. You may get a USDA loan to buy a home in a rural area, a small town, or an eligible suburban area. These loans are ideal for low- and moderate-income applicants. They require no down payment.
• VA loans. The Department of Veteran Affairs guarantees these loans. You may apply for a VA loan as a military veteran, a military member on active duty, a reservist, or an eligible surviving spouse. These loans come with no down payment requirement.
• FHA loans. The Federal Housing Administration (FHA) backs these loans. You might qualify for one with a credit score as low as 500. Depending on your credit score, you may make a down payment of 3.5% or 10%,

Ask for a Lower Amount

Among the most common mortgage denial reasons is the loan amount. For example, while a lender might be unwilling to lend you $750,000, you might qualify if you seek $600,000. Remember that your income has a direct bearing on the loan amount for which you might qualify, so you need to pay due attention to this aspect. If you consider buying a more affordable home or can manage to make a larger down payment, you may consider applying for a new loan, albeit for a smaller amount.

Think Down Payment Assistance

The more money you can put toward your down payment, the lesser you need in the form of a mortgage. While this does not guarantee the approval of your next mortgage, it does increase the odds of success. Most down payment assistance programs tend to favor first-time homebuyers, but this is not always the case.

You might qualify for down payment assistance if you have low/moderate income, you don’t have poor creditworthiness, your debt-to-income (DTI) ratio is within desirable limits, and you wish to live in the house you buy.

Down payment assistance may come in the form of one-time grants, matched-savings programs, forgivable loans, and low-interest loans. Repayment terms depend on the one for which you qualify. For example, you don’t need to repay a forgivable loan if you live in the home you purchase for a predetermined time period that’s typically upward of five years.

Get a Co-Signer

If your mortgage application is denied because of poor creditworthiness or insufficient income, applying with a co-signer who has a good credit score might work well for you. This is because mortgage providers consider co-signers’ credit scores and income when making lending decisions. A co-signer’s good credit score might also result in a lower interest rate. However, finding a co-signer might not be easy, given that getting a mortgage is typically a long-term commitment.

Wait Until You Fix All Issues

If you’ve run through all your alternatives, you have no other option than to wait until you fix all the issues that are currently keeping you from becoming a homeowner. For example, if you have a less-than-desirable credit score, you need to start by getting it in order, which could take a few months, a year, or even longer. If your income is the problem, you may consider getting a second job. If you don’t have enough money to make the required down payment, you’ll need to start saving.

 

Conclusion

Applying for a mortgage can be a daunting task, all the more so because of the intricacies involved in the process. Often, simply not submitting a required document might result in a lender denying your application. As a result, it’s crucial that you look at the common mortgage denial reasons because this gives you the ability to increase the possibility of your application’s success.

If your mortgage is denied, start by getting in touch with the lender to determine if there’s a possibility of a reversal in the decision. If not, contact a different mortgage provider and look at the options it has to offer. If you feel you might still not qualify for a mortgage, address all possible issues before you apply again.

Given the shortage of affordable housing options across the U.S., down payment assistance programs offer a lifeline to homebuyers who are looking for some type of financial support. As housing prices continue to rise, the dream of homeownership seems increasingly out of reach for many low- to moderate-income families. Fortunately, down payment assistance programs provide the required support by making homeownership more affordable.

 

What is Down Payment Assistance?

Various local and state housing agencies, nonprofit organizations, and private-sector lenders offer down payment assistance (DPA) programs. These programs typically come in the form of loans and grants, and you get to use the funds you receive to cover your home’s down payment. While some down payment assistance programs let you use the funds you receive to cover closing costs, others might prohibit you from doing the same.

There are more than 2,000 programs available nationwide, and each program varies depending on its location and its source of funding. Some of these programs give priority to first-time homebuyers, and others favor specific groups such as teachers, healthcare workers, and veterans.

 

How Does Down Payment Assistance Work?

Down payment assistance programs come in different forms and might have unique requirements. Here are the most common.

One-Time Grant

This type of assistance typically comes in the form of a grant, especially when the amount is relatively small (usually lower than $5,000). Down payment assistance grants help bring down administrative costs associated with getting a mortgage. More often than not, you don’t have to repay the money you receive through a grant.

Matched-Savings Program

With a matched-savings program, you typically need to hold your savings in an individual development account (IDA) with a bank, community organization, or government agency. The institution in question then matches your deposit amount. For example, if you deposit $2,500 in your IDA, you’ll receive $2,500 from the participating institution that you may use to cover your down payment. You don’t have to repay the funds you receive through a matched-savings program.

Forgivable Loan

A forgivable loan functions as a second mortgage that does not require repayment provided the homeowner stays in the home for a predetermined number of years. These loans come with 0% interest, and lenders typically forgive them after five or more years. However, if a homeowner moves or sells a property before the end of the forgiveness period, he/she may need to repay all or part of the borrowed amount.

For example, if your lender requires that you live in the home for a minimum of 10 years but you move out after seven years, it’s likely you’ll need to repay a portion of the loan. The money you receive through forgivable down payment assistance is usually enough to cover a home’s down payment entirely.

Low-Interest Loan

This type of assistance might require that you make regular repayments or your lender may choose to defer payments until you sell the home. The terms and conditions vary depending on the agreement between a homebuyer and a lender.

Shared-Equity Model

Under this model, you receive all or a portion of the down payment amount. You need to share a small percentage of the home’s appreciated value upon its resale, and you also need to repay the entire down payment loan amount.

 

The Need for Down Payment Assistance

Apartment List’s Millennial Homeownership Report for 2022 points out that affordability has become a major concern for millennials making housing-related decisions.

It indicates that close to two-thirds of millennials who wanted to buy homes in 2021 had no savings at all, and only 15% said they had saved in excess of $10,000. Even this amount is considerably lower than the median down payment amount on single-family homes bought using financing in the first quarter of 2023, which stood at $26,250.

It’s fair to say that the inability to make a down payment stands in the way of several potential homebuyers. Fortunately, buyers don’t necessarily have to make a 20% down payment because different types of mortgages have varied down payment requirements. Besides, down payment assistance programs can help bring them one step closer to their homeownership dream.

 

Are You Eligible for Down Payment Assistance?

Most down payment assistance programs typically cater to first-time homebuyers. However, repeat buyers have a few options too, provided they have not owned a home or more in the preceding three years. Not everyone qualifies for down payment assistance because each program comes with its own set of rules and eligibility criteria. These guidelines tend to remain the same.

• You have low to moderate income
• The house you purchase will be your primary residence
• The home is in a particular county or locality
• The home’s price falls within local purchase limits
• You don’t have poor credit history
• Your debt-to-income (DTI) ratio is not very high
• You have completed a homebuyer education course
• You plan to get a loan from an approved mortgage lender

Remember that down payment assistance programs tend to come with their own nuances, and eligibility criteria may vary based on the program you select and where you live. Buying a home in some areas might make you eligible to qualify easily and even get more money. You may get information about these areas from your real estate agent or mortgage provider.

 

Finding Down Payment Assistance Programs

While there are a few national down payment assistance programs, most are run at the state, county, or city level. One way to look for DPAs is to ask your loan officer, as he/she should ideally have the required information about local and acceptable options. In addition, you may carry out an online search by using the name of the state, country, and city in which you reside.

Bear in mind that agencies, organizations, and institutions that offer down payment assistance programs usually refrain from spending funds on advertising because of which not many people get to know about them. The U.S. Department of Housing and Urban Development (HUD) provides information about local home buying programsin different states, but it does not offer a comprehensive list of all the down payment assistance programs in the country. As a result, it’s imperative that you carry out a thorough search based on where you live.

Before you apply for any DPA, it’s important to go through its terms and conditions to determine if they align with your goals.  For instance, some might require that you live in the house you purchase for a predetermined time period, and others might need you to get a Federal Housing Administration (FHA) loan. In addition, applying for down payment assistance may slow down the home buying process.

 

How Much Down Payment Assistance Can I Get?

Almost every down payment program has its own guidelines and there is no uniformity in the amount you may expect. While some provide a fixed amount, others provide a percentage of the home’s purchase price up to a predetermined maximum limit.

The Down Payment Assistance Loan (DPAL) offered by the State of New York Mortgage Agency (SONYMA) covers 3% of a home’s purchase price (maximum of $15,000). The HomeFirst Down Payment Assistance Program, on the other hand, offers up to $100,000 to cover down payment or closing costs if you plan to purchase a home in any of New York’s five boroughs.

Depending on the location of the house you wish to purchase, you may receive a few thousand dollars or considerably more. The program you select will also have a bearing on whether or not you need to repay the funds you receive.

 

What Type of Mortgage Can You Get?

If you wish to apply for down payment assistance, there’s a good chance you’ll need to work with an approved mortgage provider. In some instances, you might have to get a specific type of mortgage. More often than not, down payment assistance programs cover all popular mortgage types. These include:

• Conforming loans – guaranteed by Freddie Mac or Fannie Mae
• USDA loans – guaranteed by the U.S. Department of Agriculture
• VA loans – guaranteed by the U.S. Department of Veterans Affairs
• FHA loans – guaranteed by the Federal Housing Administration

How Much Down Payment Do You Need?

A big misconception about the home buying process is how much money one needs for the down payment. According to a post published on the National Association of REALTORS website, 35% of homebuyers feel they need to make a down payment of 16% to 20%, whereas 10% feel they need more than 20%. In reality, you might not need to make any down payment if you qualify for the right type of mortgage.

Here are down payment requirements for different types of mortgages:

• Conforming loans – 5% to 20%
• VA loans – 0%
• USDA loans – 0%
• FHA loans – 3.5% if your credit score is 580 or higher, or 10%

The same National Association of REALTORS post indicates that first-time home buyers have typically paid a down payment of 6% to 7% since 2018, although the average down payment for repeat buyers increased from 13% in 2014 to 17% in 2021.

 

Pros and Cons of Down Payment Assistance

You need to pay due attention to every aspect of the home buying process, and getting down payment assistance is no different. While qualifying for down payment assistance comes with benefits, there are possible drawbacks you need to be aware of as well.

Pros

• Become a homeowner sooner. Qualifying for down payment assistance takes away the need to save money for a down payment, which could take a few years. Consider this – you need a mortgage of $400,000 and have to make at least a 10% down payment. That amounts to $40,000, which might take a while to save.
• Avoid PMI. If you get a conventional loan and offer less than 20% as down payment, you need to get private mortgage insurance (PMI). If down payment assistance helps you get to the 20% mark, you don’t need to pay extra for PMI.
• Get better mortgage terms. Lenders ask for down payments to minimize their risk, and the larger the down payment you make the more favorable the terms you may expect. This is because a large down payment brings down the loan-to-value ratio, which lenders view with favor.
• Have money after closing. If you intend to use all your savings to make a down payment, down payment assistance can ensure that you still have some money after the closing.
• Possibility of no repayments. Depending on the down payment assistance program for which you qualify, you might not have to repay the money you get. This is typically the case with grants.

Cons

• Long-term costs. If your down payment assistance program comes in the form of an interest-bearing loan, you could end up paying more than you would without the assistance.
• Financial burden. While down payment assistance might help you purchase the home of your dreams, you need to think twice about the financial impact it will have over the course of time. Make sure you take a close look at your budget before you decide to move forward.
• Longer to close. Getting down payment assistance adds another step to the home buying process, and often increases the time it takes to get to the closing table.
• Occupy home for a preset timeframe. Some down payment assistance programs require that you use the home you purchase as your primary residence for a predetermined time period that might vary from three to 10 years.

 

Conclusion

If you wish to buy a home but don’t have enough money to make a down payment, you may take a look at what different down payment assistance programs have to offer. These typically come in the form of one-time grants, matched-savings programs, forgivable loans, and low interest loans. Bear in mind that the availability of these programs depends largely on where you live, and their eligibility criteria tend to vary as well. If you’re unsure about the programs for which you may qualify, asking your mortgage provider might be the way to go.

Applying for a mortgage can be a daunting process, especially because of the number of options from which you get to choose. Besides, while you might qualify for a particular type of home loan, you might not for another. Looking at the pros and cons of different types of mortgages is also important when it comes to making a selection. Here, you get to learn what sets USDA, VA, and conventional loans apart, and this may help you determine which one might work best for you.

 

Property Type

If you get a USDA loan or a VA loan, you need to use the home you purchase as your primary residence. However, this does not mean you need to be a first-time homebuyer. All it requires is that you move into the house after the purchase, and not use it as a second home or for investment purposes. Conventional loans don’t come with any such restrictions, and you may use the proceeds from a conventional loan to buy a vacation home or an investment property.

 

Eligibility

Whether you wish to get a USDA, VA, or conventional loan, you need to show that you have a steady source of income. However, income requirements vary from one loan type to another. Other eligibility criteria also vary based on the type of mortgage you select.

USDA Loans

You need to be a resident of the U.S., a permanent resident alien, or a noncitizen national to apply for a USDA loan. You need to live in the home you purchase and it should serve as your primary residence. The home you wish to purchase needs to be in an eligible rural area, as designated by the U.S. Department of Agriculture. You may use the department’s property eligibility site to determine if any specific area makes the cut.

Income plays a key role in qualifying for a USDA loan because it is for families that can demonstrate financial need. As a result, your adjusted gross income needs to be less than or equal to your area’s median income. The exact number depends on the state and county you reside in; the number of people in your household; and the number of under-18-year-olds, full-time students, and disabled people who reside in your home.

You may expect lenders to look at your debt-to-income (DTI) ratio, which should ideally be 43% or lower. Your DTI ratio highlights where you stand when it comes to your recurring debts and income.

While there are no minimum credit score requirements to qualify for a USDA loan, most lenders look for scores of 640 or higher.

VA Loans

Qualifying for a VA loan requires that you or your spouse meet the eligibility criteria laid out by the Department of Veterans Affairs (VA). You need to meet your lender’s income and credit requirements, and you also need to get a certificate of eligibility (COE).

Minimum active-duty service requirements are not the same for service members, veterans, National Guard members, and Reserve members. If you’re a service member, you need to have been in service for a minimum of 90 days (with no break). For veterans, National Guard members, and Reserve members, these requirements vary depending on when and the duration for which they served.

Surviving spouses of veterans may qualify under different circumstances such as if a veteran dies in service, is missing in action, or has become a prisoner of war.

Lenders that offer VA loans require that you provide a certificate of eligibility (COE). This sheds light on whether your VA entitlement may help you qualify for a VA loan. While most lenders that deal in VA loans look for credit scores of 620 or higher, some are willing to provide these loans to applicants with credit scores of over 500.

Your DTI ratio should ideally be no more than 41%, although there can be exceptions for applicants who have high residual income. It’s also important for you not to have defaulted on any type of federal debt in the past.

Conventional Mortgages

While some people use the terms conventional mortgages and conforming mortgages interchangeably, they are not the same, although the eligibility requirements are largely similar.

What sets a conforming mortgage apart from one that’s not is that the former needs to adhere to terms and conditions that meet the criteria set by Fannie Mae/Freddie Mac, mainly when it comes to the maximum loan amounts.  In 2023, the upper limit for single-unit properties located in high-cost areas is $1,089,300, and this limit is subject to change every year.

Most providers of conventional mortgages require borrowers to have credit scores of 620 or higher. They also look for DTIs under 43%, although this number can be even lower if you have average creditworthiness.

 

Loan Size

The maximum you may borrow through any type of mortgage depends on your income, assets, and credit history. However, you may also be subject to specific limits depending on the type of loan you wish to get.

USDA Loans

USDA loans come with area loan limits that may vary based on the county in which any given property is located. For example, this limit stands at $377,600 for most eligible counties across New York (and the rest of the country). However, it changes to $581,200 for Orange County and to $871,400 for Putnam County.

VA Loans

Since 2020, eligible veterans, existing service members, and survivors who have full entitlement don’t have to worry about the $144,000 maximum VA loan limit. You receive full entitlement by meeting any of these conditions:

• You have never made use of your VA home loan benefit.
• You’ve repaid a previous VA loan completely and sold the home.
• While you’ve used your VA home loan benefit, you were involved in a compromise claim or a foreclosure and repaid your loan completely.

If you have remaining entitlement, you may use it to get another VA loan, although you are then subject to the county-specific loan limits that apply on conforming loans.

Conventional Loans

If you plan to purchase a single-unit home by getting a conforming loan backed by Fannie Mae or Freddie Mac, you need to account for conforming loan limits (CLLs). In most counties across the U.S., this limit stands at $726,200 in 2023, up from $647,200 in 2022. In some high-cost counties, this number increases to $1,089,300.

If you get a non-conforming conventional loan, the maximum you may borrow depends on the lender you select. Some lenders provide jumbo loans of up to $2 million, although they typically require borrowers to have excellent credit scores and make large down payments.

 

The Down Payment

The USDA vs. VA loan comparison stands in the balance when it comes to down payment because both come with a 0% down payment requirement. This means you may get either one without making any down payment.

When it comes to conventional mortgages, first-time homebuyers may pay as little as 3% toward down payment, although this depends on their income and creditworthiness. People who are buying their second homes or earn less than 80% of their area’s median income might need to pay 5% to 10%. If you plan to purchase a home that’s not a single unit, you may need to pay at least 15%.

 

Interest Rates and Fees

Since the government backs USDA loans and VA loans, they usually come with lower interest rates than conventional loans. However, the interest rate you get depends on the lender you select, your income, your credit score, the down payment amount, the loan term, and other factors.

If you get a USDA loan, you need to pay a one-time 1% guarantee fee and a 0.35% annual fee (charged monthly). With a VA loan, you need to pay a VA funding fee that varies from 0.5% to 3.3% of the loan amount. Whether or not you’ve taken a VA loan previously and the down payment you make has a bearing on the funding fee you need to pay.

For example, if you’re getting a VA loan for the first time and are making a 5% down payment, you’ll need to pay 2.15% as funding fee. If your down payment increases to 10% or higher, the funding fee drops to 1.25%. If you’ve used a VA loan in the past and make a 5% down payment toward your new VA loan, you pay a 3.3% funding fee, and it reduces to 1.25% if you make a down payment of 10% or more.

No matter which type of loan you get, you also need to account for closing costs. These may come in the form of application fees, loan origination fees, appraisal fees, attorney fees, rate lock fees, and underwriting fees.

Mortgage Insurance

The down payment you make toward a conventional home loan affects whether you need to pay extra for private mortgage insurance (PMI). If your down payment is less than 20% of the home’s selling price, you need to get PMI. This stays in place until you build at least 20% equity in your home.

When it comes to mortgage insurance, it may appear that the USDA loan vs. conventional loan comparison tilts the balance in favor of the former. However, while USDA loans don’t require you to pay extra for mortgage insurance, you need to pay an annual guarantee fee that’s typically included in your monthly mortgage payment. Your lender then pays this fee to the USDA.

The VA loan vs. conventional loan comparison is not very different for mortgage insurance. While you don’t have to pay extra for mortgage insurance if you get a VA loan, you need to pay a funding fee that your lender charges as a percentage of the loan amount. You may pay this at closing or as part of your monthly mortgage payments.

 

Applying for a Mortgage

You may apply for a VA loan through any lender you select after getting a Certificate of Eligibility (COE), which you may obtain online, via mail, or through your lender. If you wish to get a USDA loan, you need to limit your search to the department’s list of approved lenders. You get considerably more lenders from which to choose if you plan to apply for a conventional loan.

Seek Preapproval

Consider this – after looking for your dream home, you narrow down on one that costs $750,000. However, once you apply for a mortgage, you find out you qualify to borrow just $500,000.Getting preapproved gives you an indication of how much money a lender is willing to lend to you and this gives you the ability to look for homes accordingly. Besides, a preapproval indicates to a seller that you’re serious about the process and have the backing of a lender.

Bear in mind, though, that a preapproval does not come with a guarantee because your lender would review your creditworthiness when carrying out the underwriting process as well.

Compare, Apply, Wait, and Close

It makes sense to get a preapproval from more than one lender as this gives you a better indication of where you stand. If you’ve skipped this stage, get quotes from multiple lenders and compare them across interest rates, fees, and loan terms. Look at what previous customers have to say about their services, because getting a mortgage is usually a long-drawn affair. Select a lender you’re comfortable with and submit your application.

Processing a mortgage application may take time, so it’s best to be patient. Respond to queries or requests from your lender quickly as this helps hasten the process. Upon your loan’s approval, go through your closing statement and prepare to complete the final paperwork.

 

Conclusion

Now that you know the differences between USDA loans, VA loans, and conventional loans, determine which one might work best for you based on eligibility criteria, the type of property you wish to purchase, loan amounts, and the down payment you wish to make. Once you decide on the type of loan you want, look for a mortgage provider that strikes a balance between affordability and service.

Homeowners insurance offers financial protection to deal with different disasters or accidents that involve your home.  Once you get homeowners insurance, your insurance provider is typically responsible for covering losses to your home, your belongings in the home, as well as any other structure on the property. If you experience a sudden or accidental home-related loss, you stand to receive a payment to cover the same up to a predetermined coverage limit, minus any applicable deductible. However, there’s more to homeowners insurance than that and understanding the intricacies might help you choose the right alternative.

 

Who Needs Homeowners Insurance?

Statistics collated by ValuePenguin show that more than 85% of the country’s homeowners have homeowners insurance. There is no legal requirement to get homeowners insurance. However, if you plan to get a mortgage to buy a home, there is a good chance your lender will require you to get homeowners insurance.

Mortgage providers usually require borrowers to get homeowners insurance because it safeguards their interests by providing the required money to repair or rebuild a home that’s damaged or destroyed by a tornado, lightning, fire, or any other force.

 

How Much is Homeowners Insurance?

According to insurance.com, the average cost of homeowners insurance in the U.S. stands at $2,777 per year. Not surprisingly, premiums for homeowners insurance have increased consistently over the last two decades. According to data released by Statista, the country’s average annual homeowners insurance premium stood at $536 in 2001, and it increased to $1,272 in 2019.

How much you need to pay toward homeowners insurance costs depends on where you live because pricing varies from one state to another.

Insurance.com indicates that Hawaii offers the most affordable homeowners insurance across the U.S., with an average cost of $582 per year. California is second on the list, followed by Washington D.C., Vermont, and New Hampshire. Oklahoma, with an average annual premium of $5,317, holds the distinction of offering the most expensive homeowners insurance in the country.Insurance.com also points out that the average cost of homeowners insurance in New York stands at $1,388 per year.

 

What Does Homeowners Insurance Cover?

It is common for most standard home insurance policies to provide coverage for the actual structure, personal belongings in the home, liability, and additional living expenses. The coverage typically includes your furniture, electrical appliances, electronic gadgets, heating/cooling systems, jewelry, clothing, and other belongings.

Liability coverage may come in handy if someone who does not reside in your home, but is injured on your property and needs money to cover medical expenses. If you are temporarily displaced from your home owing to a covered loss, additional living expenses coverage helps cover the hotel and food costs you incur during this period.

Coverage for additional structures on the property such as garages, sheds, barns, patios, swings, fireplaces, and fences is usually part of the parcel. However, if you have a pool or any other type of high-risk recreational feature, you might need added liability coverage.

What Does Homeowners Insurance Not Cover?

Homeowners insurance companies refrain from covering damages caused by earth movement, be it in the form of an earthquake, a sinkhole, a landslide, or subsidence. If you live in a region that is prone to experiencing natural disasters, you may want to look at specific types of homeowners insurance. These may come in the form of catastrophe insurance, flood insurance, or windstorm insurance.

If you live in an area where your home faces a risk of hurricanes, it is ideal that you have adequate coverage to safeguard your interests. Since a regular homeowners insurance policy does not provide coverage for hurricane damage, getting a hurricane insurance policy might be the order of the day. A hurricane insurance policy is basically a combination of home, flood, and windstorm insurance.

While homeowners insurance typically covers flooding caused by interior problems, this is not the case when it comes to flooding caused by external factors. If you live in a flood-prone area, there’s a good chance your mortgage provider will ask you to get a separate flood insurance policy.

 

Types of Homeowners Insurance

There are eight different types of homeowners insurance to choose from. The one you should select depends on the type of house you wish to insure and the coverage you seek. Knowing how one differs from the other may help you make a suitable decision.

HO–1

If you’re looking for the cheapest homeowners insurance, HO-1 policies deserve your attention. This is homeowners insurance in its most basic form and offers coverage for your home’s structure, attached structures, and basic features. Since it does not provide coverage for liability, personal property, third-party medical expenses, and additional living expenses, it is not the most popular option.

As a named perils policy, an HO-1 policy only provides coverage to your home in specific circumstances. These include:

• Fire/smoke
• Theft and vandalism
• Lightning, hail, and windstorms
• Volcanic eruptions
• Explosions
• Damage from vehicles or aircraft
• Civil disobedience/riots

HO–2

Much like an HO-1 homeowners insurance policy, an HO-2 policy also provides coverage only for named perils. However, unlike an HO-1 policy, an HO-2 policy provides coverage for your home as well as personal belongings. Commonly referred to as “broad form” coverage, an HO-2 policy might include liability coverage and additional living expenses coverage.  This type of policy covers the same perils as HO-1 policies along with a few added ones. These include:

• Accidental discharge of water/steam from an appliance or a sprinkler, heating, air conditioning, or plumbing system
• Freezing of an appliance or a sprinkler, heating, air conditioning, or plumbing system
• Cracking, burning, bulging, or tearing apart of a sprinkler, heating, air conditioning, or plumbing system
• Ice-, snow-, or sleet-inflicted damage
• Falling objects
• Accidental and sudden damage owing to an artificially generated electrical current

HO-3

The most commonly sought-after homeowners insurance policies come from this segment. An HO-3 policy provides coverage to your home’s structure and personal belongings as well as liability in case of injury or damage. In addition, a typical HO-3 policy also covers medical expenses and additional living expenses. Some homeowners insurance companies let you choose from add-ons such as smart home kits and virtual maintenance services that you may bundle with your HO-3 policy.

Often referred to as a “special form” policy, insurance companies offer it to owners of standalone homes and not to those who live in duplexes or condominiums. An HO-3 policy is an open perils policy, wherein it offers protection from all types of disasters unless it lists any exceptions.  However, personal possessions remain subject to the named perils listed in your policy.

The perils typically excluded from HO-3 policies include:

• Wear and tear
• Hurricanes, earthquakes, and floods
• Bird-, rodent-, and/or vermin-infestation
• Poor maintenance
• Neglect
• Mold and fungus
• Damage caused by pets
• Actions carried out by the government
• Intentional actions
• Enforcement of ordinances or building codes
• Vandalism at vacant homes
• Problems with the foundation
• War
• Nuclear hazards

The named perils that provide coverage to personal property through an HO-3 policy are:

• Fire/smoke
• Snow- or ice-inflicted damage
• Plumbing- or HVAC-related water damage
• Damage owing to electrical current
• Freezing of pipes
• Theft and vandalism
• Falling objects
• Lightning, hail, and windstorms
• Volcanic eruptions
• Explosions
• Damage from vehicles or aircraft
• Civil disobedience/riots

HO-4

HO-4 policies are not for homeowners but for renters. This renters insurance policy provides protection if your personal possessions get damaged under specific circumstances. In addition, most HO-4 policies come with liability insurance as well as additional living expenses coverage. Since this insurance is not for homeowners, it does not provide coverage for a home’s structure. The perils that an HO-4 policy covers include ones that an HO-3 policy covers for damage to personal property.

HO-5

If you’re looking for the best homeowners insurance policy, consider taking a look at what HO-5 policies have to offer. Often referred to as a “comprehensive form” policy, it provides coverage to your home as well as personal belongings on an open perils basis. It also comes with liability insurance, additional living expenses coverage, and medical expenses coverage.

When compared to HO-3 policies, HO-5 policies tend to offer higher limits for valuables such as jewelry and antiquities. Not everyone qualifies for an HO-5 policy because insurance companies tend to follow more stringent guidelines while issuing these and usually offer them to homeowners with new houses that face low risks of loss. If your home is in an area that has high crime rates or is prone to wildfires, getting an HO-5 policy might not be possible.

Even though an HO-5 policy is an open perils policy, certain exclusions still apply. Some of the common ones include:

• Earth movement
• Bird-, rodent-, and/or vermin-infestation
• Law or ordinance
• Government action
• Mold
• Intentional actions
• Vandalism at homes vacant for over 60 days
• Theft in an under-construction home
• Problems with a home’s foundation
• Water damage from sewer backup pr floods
• Mechanical breakdown
• Wear and tear
• Neglect
• Pets owned by the insured
• War
• Nuclear hazards

HO-6

Insurance companies provide HO-6 policies exclusively to condo owners and homeowners who live in co-op units. In this case, you are, in all likelihood, responsible for any damage to your unit. However, the condominium or homeowners association (HOA) is responsible for insuring the property’s common areas, which you help pay for in the form of HOA or condo fees.  An HO-6 policy provides unit/dwelling coverage, personal property coverage, medical payments/personal liability, loss of use coverage, and additional living expenses coverage.

Like other types of homeowners’ insurance, HO-6 policies also come with a list of exclusions. The common ones include:

• Law or ordinance
• Government action
• Earth movement
• Intentional damage or injuries
• Water damage from sewer backup pr floods
• Wear and tear
• Neglect
• War
• Nuclear hazards

HO-7

If you have a mobile or manufactured home such as a modular home, a trailer, a recreational vehicle (RV), or a sectional home, you may insure the same by getting an HO-7 policy. While it offers an open perils system for the property, a named perils system applies to the personal property inside the unit. An HO-7 policy offers coverage to the primary unit as well as detached structures such as garages and fencing. If a covered loss damages or destroys your property, your insurer pays the claim based on the unit’s replacement cost and not its market value.

The named perils for coverage of personal property in an HO-7 policy include:

• Fire/smoke
• Theft and vandalism
• Damage owing to electrical current
• Falling objects
• Plumbing- or HVAC-related water damage
• Snow- or ice-inflicted damage
• Freezing of pipes
• Explosions
• Civil disobedience/riots
• Lightning, hail, and windstorms
• Volcanic eruptions
• Damage from vehicles or aircraft

HO-8

Insuring an old home can be challenging, especially if its value is less than the money it would take to repair the home. This is where an HO-8 policy can help. Homeowners insurance companies typically provide these policies to people who own historically or architecturally significant properties as well as to those who own homes built using methods that are no longer prevalent.

An HO-8 policy provides coverage for the property, your personal belongings, medical payments, liability, and additional living expenses. However, coverage of the home and your personal property rely on a named perils system. The perils on the list include:

• Fire/smoke
• Theft and vandalism
• Explosions
• Civil disobedience/riots
• Lightning, hail, and windstorms
• Volcanic eruptions
• Damage from vehicles or aircraft

Conclusion

If you own a home or plan to buy one, getting homeowners insurance can come with peace of mind, where you know you have the required financial protection to cover possible losses to your home and belongings. If you plan to get a mortgage, there’s a possibility your lender will require homeowners insurance. In any case, make sure you look at all available options and select one based on your individual needs and requirements.