YOUR TRUSTED
REAL ESTATE RESOURCE
We curate education on the latest and most common real estate topics for the buyers, sellers and real estate agents driving today’s millennial market.
EXPLORE the most recent
articles & vlogs
By Ralph Dibugnara October 4, 2024 By Christy Bieber Edited By Angelica Leicht September 24, 2024 On September 18, 2024, the Federal Reserve announced a 50 basis point cut to the federal funds rate. For homebuyers faced with record-high mortgage rates in the post-pandemic era, this was welcome news. Many had been prepping for a rate cut in hopes mortgage rates would fall after the September Fed meeting. Those readying themselves for cheaper home loans were given reason for optimism about September's mortgage rate forecast when the Fed delivered a larger-than-anticipated rate cut. Still, the big question for most buyers is whether the Fed's moves will push current mortgage rates low enough so they can finally buy a home with affordable monthly payments. Mortgage costs had already begun dropping in anticipation of the Fed's actions and are down over a point from the post-pandemic highs — but are still higher than during the pandemic and in the years leading up to it. Buyers looking at loan offers in the 6% range are likely wondering if there's a chance rates could decline further in October, even though the Fed doesn't meet again until November. If you're considering staying on the sidelines in hopes that will occur, here's what experts say about your chances. Will mortgage rates drop in October without a Fed meeting? For would-be homeowners focused on the Fed, it's important to realize the central bank doesn't play as big a role in driving borrowing costs as some buyers might think. "The Fed funds rate is not directly tied to mortgage rates, so we don't need the Fed to announce another rate cut in October to see rates continue to decline," says Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage. The Fed sets the overnight rate at which banks borrow from each other. It doesn't impact mortgage rates directly. "Mortgage rates can and do move without a big decision by policymakers," says Ali Wolf, the chief economist for Zonda. "Mortgage rates move on a day-to-day basis based on economic data and investor sentiment." Wolf believes that since economic data is likely to come in muted, rates are likely to continue trending downward in October. Both inflation and employment numbers are key factors to watch. "If inflation continues to show signs of cooling we will likely see rates continue to decline," Alvarez says. While Alvarez warns election uncertainty and an escalation of global wars could potentially have a negative impact, there's also plenty of evidence suggesting economic trends will favor further cuts. "Prices have reached a point where Americans have stopped buying. Unemployment has also continued to increase," says Ralph DiBugnara, founder of Home Qualified. "The combination is bringing inflation down, and with that mortgage rates will continue to fall next month." October's rate cuts still may not be as substantial as borrowers hope, though, unless conditions worsen. "Right now, the economy is running pretty strong but if labor market conditions weaken considerably, that could lead to a more sizable drop in interest rates," says Lisa Sturtevant, PhD and chief economist at Bright MLS. Anticipation of future Fed action could cause rates to fall While some would-be homebuyers saw the long-awaited September rate cut as crucial to declining mortgage rates, the reality is that borrowing costs had already started to fall in anticipation of the Fed's actions — and this is a pattern likely to repeat. "The expected Fed rate cut this week has already been largely baked into mortgage rates, which have been falling since July," Sturtevant says. "An expectation of a rate cut by the Fed in November could actually cause mortgage rates to fall in October in anticipation." Alvarez agrees that when the Fed is hawkish about future rate cuts, this positively impacts the mortgage market. That's good news as the central bank signaled another half-point rate decrease is likely this year. With the Fed's intentions made clear, lenders can act sooner rather than later. "The Fed has changed their sentiment to one of reducing the borrowing rate," DiBugnara says. "The markets now understand that the Fed has no choice but to lower rates." Investors and banks will react accordingly. Buyers shouldn't wait for a rate cut to act While all available evidence suggests rate cuts are likely outcome in October, there are no guarantees — and there are some risks worth considering. "Many homebuyers have been waiting on the sidelines for rates to fall. If there is a surge in mortgage demand in October, mortgage rates could actually be pushed up a bit as lenders respond to that increased demand," Sturtevant warned. An increase in buyer demand could also put upward pressure on home prices, leaving would-be borrowers in the unfortunate position of facing a more competitive market and higher purchasing costs just as mortgage loans become more affordable. Since buyers can refinance a home loan if rates decline, but can't buy at today's prices if home costs surge, those who have been sitting on the sidelines may want to take advantage of opportunities available now. Today's rates aren't the most competitive in history, but they're down considerably from recent highs. Borrowers who are financially ready can get in at a reasonable cost before home prices rise and consider refinancing later if rates continue to decline. The bottom line While a Fed meeting won't happen in October, potential home-buyers could still see important changes in the mortgage and housing market — including a reduction in loan rates. Still, the downside risks of delaying a home purchase in anticipation of future rate cuts may outweigh the upside. Would-be borrowers should seriously consider taking action before a potential home price surge — especially with the Fed signaling rate cuts could continue into 2025. Future opportunities to refinance are likely to become more plentiful over time, but the home prices of today may be gone for good tomorrow.
By Ralph Dibugnara October 4, 2024 By Christy Bieber Edited By Angelica Leicht September 24, 2024 On September 18, 2024, the Federal Reserve announced a 50 basis point cut to the federal funds rate. For homebuyers faced with record-high mortgage rates in the post-pandemic era, this was welcome news. Many had been prepping for a rate cut in hopes mortgage rates would fall after the September Fed meeting. Those readying themselves for cheaper home loans were given reason for optimism about September's mortgage rate forecast when the Fed delivered a larger-than-anticipated rate cut. Still, the big question for most buyers is whether the Fed's moves will push current mortgage rates low enough so they can finally buy a home with affordable monthly payments. Mortgage costs had already begun dropping in anticipation of the Fed's actions and are down over a point from the post-pandemic highs — but are still higher than during the pandemic and in the years leading up to it. Buyers looking at loan offers in the 6% range are likely wondering if there's a chance rates could decline further in October, even though the Fed doesn't meet again until November. If you're considering staying on the sidelines in hopes that will occur, here's what experts say about your chances. Will mortgage rates drop in October without a Fed meeting? For would-be homeowners focused on the Fed, it's important to realize the central bank doesn't play as big a role in driving borrowing costs as some buyers might think. "The Fed funds rate is not directly tied to mortgage rates, so we don't need the Fed to announce another rate cut in October to see rates continue to decline," says Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage. The Fed sets the overnight rate at which banks borrow from each other. It doesn't impact mortgage rates directly. "Mortgage rates can and do move without a big decision by policymakers," says Ali Wolf, the chief economist for Zonda. "Mortgage rates move on a day-to-day basis based on economic data and investor sentiment." Wolf believes that since economic data is likely to come in muted, rates are likely to continue trending downward in October. Both inflation and employment numbers are key factors to watch. "If inflation continues to show signs of cooling we will likely see rates continue to decline," Alvarez says. While Alvarez warns election uncertainty and an escalation of global wars could potentially have a negative impact, there's also plenty of evidence suggesting economic trends will favor further cuts. "Prices have reached a point where Americans have stopped buying. Unemployment has also continued to increase," says Ralph DiBugnara, founder of Home Qualified. "The combination is bringing inflation down, and with that mortgage rates will continue to fall next month." October's rate cuts still may not be as substantial as borrowers hope, though, unless conditions worsen. "Right now, the economy is running pretty strong but if labor market conditions weaken considerably, that could lead to a more sizable drop in interest rates," says Lisa Sturtevant, PhD and chief economist at Bright MLS. Anticipation of future Fed action could cause rates to fall While some would-be homebuyers saw the long-awaited September rate cut as crucial to declining mortgage rates, the reality is that borrowing costs had already started to fall in anticipation of the Fed's actions — and this is a pattern likely to repeat. "The expected Fed rate cut this week has already been largely baked into mortgage rates, which have been falling since July," Sturtevant says. "An expectation of a rate cut by the Fed in November could actually cause mortgage rates to fall in October in anticipation." Alvarez agrees that when the Fed is hawkish about future rate cuts, this positively impacts the mortgage market. That's good news as the central bank signaled another half-point rate decrease is likely this year. With the Fed's intentions made clear, lenders can act sooner rather than later. "The Fed has changed their sentiment to one of reducing the borrowing rate," DiBugnara says. "The markets now understand that the Fed has no choice but to lower rates." Investors and banks will react accordingly. Buyers shouldn't wait for a rate cut to act While all available evidence suggests rate cuts are likely outcome in October, there are no guarantees — and there are some risks worth considering. "Many homebuyers have been waiting on the sidelines for rates to fall. If there is a surge in mortgage demand in October, mortgage rates could actually be pushed up a bit as lenders respond to that increased demand," Sturtevant warned. An increase in buyer demand could also put upward pressure on home prices, leaving would-be borrowers in the unfortunate position of facing a more competitive market and higher purchasing costs just as mortgage loans become more affordable. Since buyers can refinance a home loan if rates decline, but can't buy at today's prices if home costs surge, those who have been sitting on the sidelines may want to take advantage of opportunities available now. Today's rates aren't the most competitive in history, but they're down considerably from recent highs. Borrowers who are financially ready can get in at a reasonable cost before home prices rise and consider refinancing later if rates continue to decline. The bottom line While a Fed meeting won't happen in October, potential home-buyers could still see important changes in the mortgage and housing market — including a reduction in loan rates. Still, the downside risks of delaying a home purchase in anticipation of future rate cuts may outweigh the upside. Would-be borrowers should seriously consider taking action before a potential home price surge — especially with the Fed signaling rate cuts could continue into 2025. Future opportunities to refinance are likely to become more plentiful over time, but the home prices of today may be gone for good tomorrow.
By Ralph Dibugnara September 12, 2024 By Sandy John, Andrew Pentis, Katie Lowery, CNN Underscored Money If you have a 30-year home loan, refinancing to a 10-year mortgage allows you to pay off your loan decades earlier and score a lower interest rate. But these savings come at the expense of a considerably higher monthly payment, making it easy to outrun your budget. Here’s a look at today’s 10-year refinance rates: Current 10-year refinance rates You may not see 10-year refinance rates advertised widely, but many mortgage lenders offer conventional, decade-long terms, said Ralph DiBugnara, a veteran mortgage industry executive based in New York. “Ninety-five percent of the time, it’s the same rate as the 15-year fixed-rate mortgage,” which are “usually the most advantageous rates in the market,” DiBugnara said. Like other mortgage rates, 10-year refinance rates fluctuate based on factors such as the state of the economy and the overall credit market. The Federal Reserve has maintained the federal funds rate after an unprecedented rate-hike cycle with 11 increases between March 2022 and November 2023 to fight post-pandemic inflation. How 10-year refinance rates are trending After reaching their highest point in more than 20 years in late 2023, mortgage refinance rates have generally been trending downward. “If the economy starts to cool and the Fed signals a shift toward lowering rates, we might see a bit of a dip in refinance rates,” said Mike Roberts, a Utah-based mortgage broker. “That would be great news for homeowners looking to lock in a lower rate.” In mid-2024, Fannie Mae’s Economic and Strategic Research Group forecasted that 30- year mortgage rates will average 6.4% in 2025. Following that estimate, we may see (10- and) 15-year rates around 5.75% next year. (That’s because the 15-year rate has been 66 basis points lower on average than the 30-year rate over the past five years, according to our analysis.). 6 tips for scoring competitive 10-year refinance rates 1. Check your budget. The payments on a 10-year term will be much higher than you’re currently paying if you have a 30-year loan, and you’ll need to have documentation to verify that your income will cover the payments. Calculating your monthly dues — and double-checking affordability via your budget — is a wise first step. 2. Check your credit scores. You’ll likely need a 620 score to get a conventional loan, but a higher score can result in a lower interest rate. Pay all of your bills on time, make sure all your accounts are up to date and try to pay down debts before applying for a refinance. 3. Figure your loan-to-value ratio. For a refinance, you may need to have at least 20% equity in your home to get the best mortgage rates. So, if your home is worth $400,000, you’d need to have $80,000 in equity (.20 x $400,000 = $80,000). 4. Shop around. Compare interest rates, closing costs and other expenses, which the lender will list on a loan estimate document. By comparing the annual percentage rate, or APR, via preapprovals, you can compare all the refinance costs, not just the interest rate. 5. Consider discount points. Some lenders allow you to purchase mortgage discount points in exchange for a lower interest rate. One point typically costs 1% of the loan amount and may lower the interest rate by, say, 0.25 percentage points — but the actual discount amount varies by lender. 6. Choose a loan. Select the lender you want to work with and lock in your interest rate. Here are examples of reputable mortgage refinance lenders that offer some of the best 10-year refinance rates: How do refinance rates work? While the overall economy and the rates set by the Federal Reserve influence mortgage refinance rates, lenders also set rates based on the strength of your application. “It’s a combination of factors — the overall economic climate, the Fed’s policies, your credit score, your loan-to-value ratio and the demand for loans in the market,” said Roberts. “Typically, refinance rates are a bit lower than purchase rates, but the gap has been narrowing lately.” For example, if you have high credit scores, you’ll be offered a lower rate than someone with fair credit scores. You can also lower your interest rate by having more home equity before refinancing. The state where the property is located can also affect the rate you pay, as can the loan program you choose. Related >> How mortgage rates are determined Like new home loans, shopping around for the right refinance lender and choosing a shorter term loan can also result in a lower mortgage rate. Factors affecting individual 10-year refinance rates Credit scores and history Loan program Rate type (fixed or adjustable) Borrowing amount Equity amount Loan term length Location Getting a lower mortgage rate will help to lower your monthly payment. Even a slightly lower mortgage rate can result in substantial savings over the 10- to 30-year loan period. Example: Say you refinance $300,000 on your mortgage. Here’s how changing the term of your home loan could affect your monthly payment and total costs. (The mortgage payments here cover principal and interest only.) Term Fixed interest rate Monthly payment Total repayment 10 years 6.500% $3,406 $408,794 15 years 6.500% $2,877 $470,438 20 years 6.875% $2,303 $552,946 30 years 7.125% $2,021 $727,755 Pros and cons of a 10-year fixed-rate refinance Pros Cons Lower rates and higher overall savings (if you’re refinancing from a longer term) Accrue equity at a faster clip Increase your odds of a mortgage-free retirement Less commonly available among lenders Stricter eligibility requirements Closing costs (2% to 6% of the loan amount) Higher monthly cost (than longer loan terms) Can get in a financial bind if income drops Less payment flexibility Should you refinance your home loan to a 10-year term? Refinancing to a 10-year term can save you many thousands of dollars compared to a longer term loan. In exchange, you must commit a lot of money every month to paying off your mortgage. “If you can swing the higher monthly payment and you really want to be mortgage-free faster, it’s definitely worth considering,” said Roberts. “The interest savings can really add up over time.” Some homeowners prioritize a mortgage-free future, but before committing to a 10-year term, be sure your budget can handle the higher payment without being stretched too far. “The danger I see is, people take a 10-year fixed and then struggle with the higher payment — it’s about 70% [more expensive on average] than a 30-year fixed,” said Steve Hill, a California-based mortgage broker. “If you think your mortgage payment is expensive now, try almost doubling it. It’s not for everyone.” When it might be wise to refinance to a 10-year term When it might be unwise You have a high, steady income You’re preparing for retirement and will have a fixed income within 10 years You want to be mortgage-free faster to focus on other financial priorities Your income could change or is unpredictable You need more room in your budget for other obligations, such as high-interest debt or investing goals You have an ultra-low mortgage rate You want flexibility to pay off your mortgage on time or ahead of schedule, as possible Your current mortgage has a prepayment penalty How to apply for a 10-year mortgage refinance Applying for a 10-year mortgage refinance is a lot like applying for a mortgage with other terms, but some specific considerations are involved. Here are six steps to help you through the mortgage refinance process. 1. Do the math. Use a mortgage calculator to estimate your monthly payments with a 10-year mortgage refinance. If you’re not confident that you can afford 120 straight months of that payment, consider keeping a longer loan term and instead paying extra toward the principal each month. “That way, if an emergency strikes, you're not stuck [with] the higher payment,” said Hill. 2. Check your eligibility. Make sure your credit scores are the best they can be. You’ll also want to check your home equity. The more equity you have, the less risky you are to the lender, which could mean a better interest rate. Although it can be possible to refinance a mortgage with bad credit, you’ll pay higher rates, potentially negating any savings you’d see from refinancing. 3. Research lenders. Ten-year refinance loans aren’t as common as 15- and 30-year terms, so narrowing your list of prospects should be easy. Get preapproved with at least one bank, credit union and online lender each to compare rates — and choose the right mortgage lender. 4. Gather your documentation and apply. Each lender has unique requirements, but they’ll also require documentation to show proof of income, assets and debts. You’ll likely be asked to hand over recent pay stubs and bank statements, for example. 5. Get a home appraisal. Before the mortgage underwriting process can begin, your lender will need a new appraisal of your home to determine its current value. 6. Close on the loan. Your refinance loan will have a closing process and closing costs just like your original mortgage. Like with your original home loan, you’ll have a right of rescission, or a special grace period — until midnight of the third business day after the transaction — to cancel the loan contract. If you have doubts about your ability to afford the high payments of a 10-year term, this is your last chance to back out.
By Sandy John, Andrew Pentis, Katie Lowery, CNN Underscored Money If you have a 30-year home loan, refinancing to a 10-year mortgage allows you to pay off your loan decades earlier and score a lower interest rate. But these savings come at the expense of a considerably higher monthly payment, making it easy to outrun your budget. Here’s a look at today’s 10-year refinance rates: Current 10-year refinance rates You may not see 10-year refinance rates advertised widely, but many mortgage lenders offer conventional, decade-long terms, said Ralph DiBugnara, a veteran mortgage industry executive based in New York. “Ninety-five percent of the time, it’s the same rate as the 15-year fixed-rate mortgage,” which are “usually the most advantageous rates in the market,” DiBugnara said. Like other mortgage rates, 10-year refinance rates fluctuate based on factors such as the state of the economy and the overall credit market. The Federal Reserve has maintained the federal funds rate after an unprecedented rate-hike cycle with 11 increases between March 2022 and November 2023 to fight post-pandemic inflation. How 10-year refinance rates are trending After reaching their highest point in more than 20 years in late 2023, mortgage refinance rates have generally been trending downward. “If the economy starts to cool and the Fed signals a shift toward lowering rates, we might see a bit of a dip in refinance rates,” said Mike Roberts, a Utah-based mortgage broker. “That would be great news for homeowners looking to lock in a lower rate.” In mid-2024, Fannie Mae’s Economic and Strategic Research Group forecasted that 30- year mortgage rates will average 6.4% in 2025. Following that estimate, we may see (10- and) 15-year rates around 5.75% next year. (That’s because the 15-year rate has been 66 basis points lower on average than the 30-year rate over the past five years, according to our analysis.). 6 tips for scoring competitive 10-year refinance rates 1. Check your budget. The payments on a 10-year term will be much higher than you’re currently paying if you have a 30-year loan, and you’ll need to have documentation to verify that your income will cover the payments. Calculating your monthly dues — and double-checking affordability via your budget — is a wise first step. 2. Check your credit scores. You’ll likely need a 620 score to get a conventional loan, but a higher score can result in a lower interest rate. Pay all of your bills on time, make sure all your accounts are up to date and try to pay down debts before applying for a refinance. 3. Figure your loan-to-value ratio. For a refinance, you may need to have at least 20% equity in your home to get the best mortgage rates. So, if your home is worth $400,000, you’d need to have $80,000 in equity (.20 x $400,000 = $80,000). 4. Shop around. Compare interest rates, closing costs and other expenses, which the lender will list on a loan estimate document. By comparing the annual percentage rate, or APR, via preapprovals, you can compare all the refinance costs, not just the interest rate. 5. Consider discount points. Some lenders allow you to purchase mortgage discount points in exchange for a lower interest rate. One point typically costs 1% of the loan amount and may lower the interest rate by, say, 0.25 percentage points — but the actual discount amount varies by lender. 6. Choose a loan. Select the lender you want to work with and lock in your interest rate. Here are examples of reputable mortgage refinance lenders that offer some of the best 10-year refinance rates: How do refinance rates work? While the overall economy and the rates set by the Federal Reserve influence mortgage refinance rates, lenders also set rates based on the strength of your application. “It’s a combination of factors — the overall economic climate, the Fed’s policies, your credit score, your loan-to-value ratio and the demand for loans in the market,” said Roberts. “Typically, refinance rates are a bit lower than purchase rates, but the gap has been narrowing lately.” For example, if you have high credit scores, you’ll be offered a lower rate than someone with fair credit scores. You can also lower your interest rate by having more home equity before refinancing. The state where the property is located can also affect the rate you pay, as can the loan program you choose. Related >> How mortgage rates are determined Like new home loans, shopping around for the right refinance lender and choosing a shorter term loan can also result in a lower mortgage rate. Factors affecting individual 10-year refinance rates Credit scores and history Loan program Rate type (fixed or adjustable) Borrowing amount Equity amount Loan term length Location Getting a lower mortgage rate will help to lower your monthly payment. Even a slightly lower mortgage rate can result in substantial savings over the 10- to 30-year loan period. Example: Say you refinance $300,000 on your mortgage. Here’s how changing the term of your home loan could affect your monthly payment and total costs. (The mortgage payments here cover principal and interest only.) Term Fixed interest rate Monthly payment Total repayment 10 years 6.500% $3,406 $408,794 15 years 6.500% $2,877 $470,438 20 years 6.875% $2,303 $552,946 30 years 7.125% $2,021 $727,755 Pros and cons of a 10-year fixed-rate refinance Pros Cons Lower rates and higher overall savings (if you’re refinancing from a longer term) Accrue equity at a faster clip Increase your odds of a mortgage-free retirement Less commonly available among lenders Stricter eligibility requirements Closing costs (2% to 6% of the loan amount) Higher monthly cost (than longer loan terms) Can get in a financial bind if income drops Less payment flexibility Should you refinance your home loan to a 10-year term? Refinancing to a 10-year term can save you many thousands of dollars compared to a longer term loan. In exchange, you must commit a lot of money every month to paying off your mortgage. “If you can swing the higher monthly payment and you really want to be mortgage-free faster, it’s definitely worth considering,” said Roberts. “The interest savings can really add up over time.” Some homeowners prioritize a mortgage-free future, but before committing to a 10-year term, be sure your budget can handle the higher payment without being stretched too far. “The danger I see is, people take a 10-year fixed and then struggle with the higher payment — it’s about 70% [more expensive on average] than a 30-year fixed,” said Steve Hill, a California-based mortgage broker. “If you think your mortgage payment is expensive now, try almost doubling it. It’s not for everyone.” When it might be wise to refinance to a 10-year term When it might be unwise You have a high, steady income You’re preparing for retirement and will have a fixed income within 10 years You want to be mortgage-free faster to focus on other financial priorities Your income could change or is unpredictable You need more room in your budget for other obligations, such as high-interest debt or investing goals You have an ultra-low mortgage rate You want flexibility to pay off your mortgage on time or ahead of schedule, as possible Your current mortgage has a prepayment penalty How to apply for a 10-year mortgage refinance Applying for a 10-year mortgage refinance is a lot like applying for a mortgage with other terms, but some specific considerations are involved. Here are six steps to help you through the mortgage refinance process. 1. Do the math. Use a mortgage calculator to estimate your monthly payments with a 10-year mortgage refinance. If you’re not confident that you can afford 120 straight months of that payment, consider keeping a longer loan term and instead paying extra toward the principal each month. “That way, if an emergency strikes, you're not stuck [with] the higher payment,” said Hill. 2. Check your eligibility. Make sure your credit scores are the best they can be. You’ll also want to check your home equity. The more equity you have, the less risky you are to the lender, which could mean a better interest rate. Although it can be possible to refinance a mortgage with bad credit, you’ll pay higher rates, potentially negating any savings you’d see from refinancing. 3. Research lenders. Ten-year refinance loans aren’t as common as 15- and 30-year terms, so narrowing your list of prospects should be easy. Get preapproved with at least one bank, credit union and online lender each to compare rates — and choose the right mortgage lender. 4. Gather your documentation and apply. Each lender has unique requirements, but they’ll also require documentation to show proof of income, assets and debts. You’ll likely be asked to hand over recent pay stubs and bank statements, for example. 5. Get a home appraisal. Before the mortgage underwriting process can begin, your lender will need a new appraisal of your home to determine its current value. 6. Close on the loan. Your refinance loan will have a closing process and closing costs just like your original mortgage. Like with your original home loan, you’ll have a right of rescission, or a special grace period — until midnight of the third business day after the transaction — to cancel the loan contract. If you have doubts about your ability to afford the high payments of a 10-year term, this is your last chance to back out.
Thursday, August 22, 2024 By: Ralph dibugnara How Piggyback Loans Work Piggyback loans can help you avoid private mortgage insurance, but they come with costs of their own. By Ben Luthi | Edited by Sebastian Oliveira | Reviewed by Whitney Blair Wyckoff | Aug. 9, 2024, at 1:39 p.m. https://money.usnews.com/loans/mortgages/how-piggyback-loans-work Getty Images A piggyback loan comes with many benefits, but make sure you can afford the additional closing costs that come with it. Key Takeaways A piggyback loan is a loan you take out alongside a primary mortgage to avoid paying private mortgage insurance. You can choose between different loan structures. For example, with a 80/10/10 loan, the borrower takes out a primary mortgage covering 80% of the sales price, a piggyback loan financing 10% and a down payment covering the remaining 10%. These loans aren't necessarily cheaper than PMI, so do the math to determine whether it makes sense for you. If you're making a small down payment on your home, a piggyback loan might help you avoid some extra costs on your mortgage. However, these types of loans aren't without their own costs and drawbacks. Here's what you need to know. What Is a Piggyback Loan? A piggyback loan is a second mortgage – usually a home equity loan or home equity line of credit , also called a HELOC – that you take out alongside a mortgage. SEE: Best Home Equity Loans Homebuyers use piggyback loans to avoid paying private mortgage insurance, or PMI, which typically kicks in if your down payment is below 20% of the home's selling price. PMI acts as an insurance policy to protect the lender if you fall behind on payments or default altogether. A piggyback mortgage arrangement typically offers a primary mortgage for 80% of the home's value, plus a home equity product to make up the difference between your down payment and the remaining 20%. The piggyback loan usually comes with a higher interest rate than the first mortgage, and the rate can be variable, which means it can increase over time. Piggyback loans became popular during the housing boom in the early to mid-2000s. In 2006, for instance, roughly 30% of homebuyers in New York City used one, according to a report from the NYU Furman Center. The loan combination made it possible for aspiring homeowners to buy the homes they wanted and avoid PMI without putting down 20% or more in cash. But it also left their homes more vulnerable to default. When the national housing bubble burst in the late 2000s, homeowners with less equity in their homes were more likely to default than others who had significant equity. Piggyback mortgages still exist but are rare. "There was a decrease in popularity but also a substantial tightening up of the guidelines by the lenders that offer those piggyback second mortgages," says Jeff Brown, a mortgage professional with NEXA Mortgage. And they're not seeing much of a comeback, even with the recent spike in home prices. According to Ralph DiBugnara, CEO of Home Qualified, a digital real estate resource, "the need has been reduced with the expansion of mortgage products that require less than a 20% down payment and do not require PMI." Read: Best Personal Loans. Types of Piggyback Loans There are a few ways you can structure a piggyback mortgage. Here's how the different options break down based on your primary mortgage, piggyback loan and down payment. 80/10/10 loan. This option is worth considering on a conventional loan and involves a primary mortgage covering 80% of the sales price, a piggyback loan financing 10% and a down payment covering the remaining 10%. 80/15/5 loan. This option works similarly to the 80-10-10 loan, but instead of putting down 10% and borrowing the remaining 10% with a piggyback loan, you're only putting down 5% and financing the remaining 15% with the second home loan. 75/15/10 loan. This option, which involves a 15% piggyback loan and a 10% down payment, may be used when buying a condo. This is primarily because mortgage rates for condos tend to be higher if the loan-to-value ratio is higher than 75%. 80/20 loan. This arrangement, which was popular during the years leading up to the 2007 housing crisis, didn't require a down payment at all. You'd simply take out a primary mortgage to finance 80% of the sales price and 20% with a secondary loan to cover the rest. This piggyback arrangement isn't common anymore, though. Pros of Piggyback Loans It Could Save You Money PMI can cost between 0.3% and 1.5% of your loan amount annually. So if your mortgage is for $250,000, you could be on the hook for $750 to $3,750 in PMI premiums each year. That translates to a monthly payment of $62.50 to $312.50 on top of your principal and interest payment to your lender, plus property taxes. Depending on how much the second mortgage costs in monthly payments, you could end up paying less than you would with PMI. But it easily could go either way, says DiBugnara. "Some second mortgages used for piggyback loans will carry a much higher interest rate," he adds. "In that case, it's very likely that the payment will be higher than a PMI payment." Make sure you do the math to find out which option is better in your situation. You Can Deduct Interest From Both Loans The IRS allows you to deduct interest paid on up to $750,000 in qualified mortgage debt ($375,000 if you're married but filing your tax returns separately). That includes home equity loans and HELOCs used to buy, build or substantially improve the home used as collateral. Adding these savings into your calculation of whether a piggyback loan can save you money can make things more complicated. Also, it can be tough to know exactly how much you could save – or even if it makes sense to itemize your deductions and claim the mortgage interest deduction at all – unless you speak with a tax professional. How to Handle Rising Mortgage Rates While you can't control market conditions, there are some steps you can take to reduce your rate. Ben Luthi May 6, 2022 Read: Best FHA Loans. You Can Keep a HELOC for Other Purposes A home equity loan is an installment loan, which means you get the full loan amount as a lump sum and pay it back in equal installments. With a HELOC, however, you'll get a revolving form of credit during the draw period, which you can pay back and borrow again over time to pay for home improvements and other expenses. Cons of Piggyback Loans Closing Costs Could Reduce Value In addition to paying closing costs on your first mortgage, you may need to pay closing costs on your home equity loan or HELOC. However, some lenders offer home equity products with low or no closing costs. You'll want to find out what the lender charges so you can include it in your calculations. Even if closing costs are low, the math may still not work out in your favor, and paying PMI could end up being cheaper than taking on a second home loan. It Could Make Refinancing Tough If you get your piggyback loan from a different lender from the one that provides your first mortgage, which is typical, refinancing your home to get cash out or score a lower interest rate could be more difficult later. This is because both lenders would need to agree to the refinance unless you're taking out a big enough refinance loan to pay off the second mortgage. Persuading both lenders can be tough, especially if the value of your home has declined since you bought it. Read: Best Mortgage Refinance Lenders. The Cost Could Go Up Over Time If the second loan you're taking out is a HELOC with a variable interest rate, don't base your calculations solely on the current cost of each option. A variable interest rate can fluctuate with the market index interest rate. There's no way to know exactly how much more a variable interest rate can cost you, because it's impossible to predict the movements of market interest rates. If you're on a tight budget and can't handle having your mortgage payment increase over time, a variable-rate piggyback loan may not be a good choice. How Do You Qualify for Piggyback Loans? Qualifying for a piggyback loan can be difficult because second mortgage lenders may have different eligibility requirements. While the specifics can vary from lender to lender, here's what you'll typically need to get approved for both loans: Credit score: You'll typically need a FICO score of 620 or higher for the primary mortgage, but the minimum for the secondary mortgage can be 680 or higher. Debt-to-income ratio: Mortgage lenders like to see a debt-to-income ratio of 43% or lower, and that includes both the primary and secondary home loans. Note that a smaller down payment will also typically result in higher interest rates. Read: Best Mortgage Lenders Piggyback Loan Alternatives Look for Loans With No PMI Some lenders offer conventional loans with no PMI even if you don't have a 20% down payment. Depending on the lender, this can be restricted to a first-time homebuyer or low-income program, or you may need to agree to a slightly higher interest rate. As with a piggyback loan, run the numbers to make sure you're not paying more in the long term with a higher rate than you would with PMI. Pay Down Your Balance Quickly Conventional mortgage lenders will usually add PMI to your loan if your loan-to-value ratio is higher than 80%, but eventually your loan balance should fall under that threshold. Lenders are required by law to automatically remove the PMI once your LTV reaches 78% based on the original loan and home value. If you're expecting a significant windfall or have the cash flow required to make extra payments, you could reduce your loan balance more quickly and get you to the point where you no longer need the insurance. As you're working on paying down your balance, if you think your home's value has increased and you're at or below 80%, you can get an appraisal done on the house. If you're right, you can request that the lender remove the PMI manually. Wait Until You've Saved Enough While there are ways to buy a home now and avoid PMI, you might be better off waiting until you have enough cash on hand for a 20% down payment. Saving the 20% you need to avoid PMI can take years. But if you think you can save enough cash quickly, it may be worth it to wait. Updated on May 13, 2022: The story was previously published at an earlier date and has been updated with new information.
Thursday, August 15, 2024 By: Ralph dibugnara Should You Have a Property Survey At the Ready When Selling Your House? Jennifer BillockContributing Author Alexandra LeeJunior Associate Editor https://www.homelight.com/blog/property-survey/ July 30, 2024 A property survey is a document that shows your property lines , including any land, structures, and features that you legally own (versus that which you don’t own!) as a schematic diagram of angles and measurements. A property survey looks like a sketch drawn from an aerial perspective and may be as simple as four boundary lines with their respective dimensions. Surveys can also be more detailed and include past improvements to the property, topography, utilities, and more. So, is a survey required to sell a house? You don’t always need a property survey to sell your house, but you can imagine how this handy little piece of paper would be a nice visual aid for potential homebuyers. Depending on your lot, a survey could also be necessary to clear up any questions over your boundary lines or easements on the property. Read on to find out when the property survey comes into play during a typical real estate transaction and how to obtain one if you need it. Get an Estimate on Your Home's Value If you’re thinking about selling but wondering how much your home is worth, an online estimate is a great place to start. Then, when you’re ready to sell, your agent will perform a comparative market analysis to nail down your list price. Get Estimate What’s the point of a property survey? Generally, a property survey is not required to sell a house. Sometimes, if your lot is well-defined, you don’t need to bother with it. “The majority of the time, we don’t do surveys on city residential lots unless there’s a specific reason that we need to,” said Derek Gilbert , a top real estate agent in Centennial, Colorado. A lot of newer subdivisions have fences. You can see where the homes are. It doesn’t necessarily mean they’re built in the right place, but it gives you an idea of the lot. So we don’t usually do surveys unless there’s something weird that caught your eye and indicated we should probably get a survey and make sure this is right. Derek GilbertReal Estate Agent Property surveys in general, however, may help to add transparency to a home purchase. Here are a few cases and property types where a property survey might change the direction of a transaction, for better or worse: 1. Acreage properties Rick Wilson , a professional land surveyor who’s owned a surveying company since 1981, says that he’s working on a project right now where a buyer bought 50 acres, but discovered later the fences on the land are all off by about 98 feet. “Now he’s going to wind up in court proving his boundary that should have been demonstrated to him before he bought the property,” Wilson said. “It’s a lengthy court process, and it’s expensive. Any time you have two attorneys and court filings, it’s going to be an expensive deal.” 2. The property has some kind of unique hazard An upfront property survey could save a seller from getting too far into a deal that later unravels due to unknown factors . In one case, after the buyer signed a purchase contract on a house in Missouri, he asked Wilson’s company to do a property survey, one that included looking for sinkholes. As it turned out, the under-contract property was on a sinkhole-designated area. That means the underground water channel below the building collapsed, putting the property at risk for flooding and collapsing itself. About 20% of the U.S. is at risk for sinkholes, especially Florida, Texas, Alabama, Missouri, Kentucky, Tennessee, and Pennsylvania . The property hadn’t collapsed, but the buyer didn’t want to go through with the purchase and the seller had no idea there was even an issue to begin with. The situation could have been avoided if the seller had taken the initiative to get a property survey done before beginning a sale. “If the seller had knowledge of the situation, he could have had a geotechnical engineering group evaluate the stability of the site and make recommendations as to the risks associated with the building,” Wilson said. “A stormwater engineer could address the flooding question. With full disclosure and planned mitigation, a buyer could be enticed to buy the property, although it might be at a reduced sales price.” The same advice could apply to a property owner who’s selling a house in a designated floodplain . 3. Boundary confirmation When you sell a piece of real estate, the size recorded with the title must equal the actual property size. Sometimes, neighbors accidentally build over the property line or fences erected on boundary lines encroach on the area designated by the title. A survey may be ordered to confirm the actual boundary and the discrepancy between the recorded land deed and the current boundary. “We once had a property whose boundary didn’t match up to the title,” says Ralph DiBugnara , President of Home Qualified . “Turns out the neighbor added an extension to his home without checking the property lines. The extension encroached on the seller’s property. Needless to say, the deal didn’t go through, which was a shame because the buyer really liked the house.” Ralph did not know how the property owner handled the encroachment with the neighbor, but in other cases, homeowners face the unpleasant prospect of tearing down garages, extensions, or fences built on neighbors’ properties. 4. Proper noting of an easement in the deed Easements on a property are a “ legal right to trespass .” Utility companies could have an easement on a property so they can access utility lines, or an owner of an acreage lot could grant access to their private road to a neighbor, creating an easement for them to pass through. Easements can be an issue when you have to clear title and they’re not properly documented. Mo Choumil , founder and CEO of ATG Title in Fairfax, Virginia, recently ran into an issue like this. A local home backed up to railroad tracks and should have had an easement noted in the property’s description. But there wasn’t one documented, so now the house won’t sell without a correction to the deed, which would cost tens of thousands of dollars, Choumil said. House Deed vs Title: What’s the Difference?Learn more Demystifying Property Title Search: Your Questions, AnsweredLearn more 5. Homes without a defined lot Property surveys can bring an added value to a home sale, unless something drastic like those sinkholes come to light. If the property is unique or oddly shaped , it can bring clarity to the buyer about where exactly the lot lines are. Sometimes, it can even make the sale more enticing for a buyer — like if the property is bigger than everyone initially thought, or if there’s good placement among utility lines for a potential addition or outbuilding. 6. Property additions Whether you’re selling your house or not, you may still need a property survey at some point to avoid issues like boundary encroachments. You should consider getting one if you’re planning to do any of the following home projects, some of which might require one. General home addition Garage addition New building on the property Any other type of major construction Planting trees or shrubs Building a fence Adding a patio Adding a deck “A property survey will show you a picture of your property with all the improvements, utilities, and easements on it,” Wilson said. “With all that information, you can plan your deck expansion and know you’re not going to be pushing it out to another property or digging holes where there should be utilities. “Surveys let you plan better for whatever improvement it may be, whether that’s shrubbery, or an addition to the building, or adding a deck, or pouring a concrete patio.” Top 9 Renovations to Increase Home Value in 2024Learn more Adding a Bedroom or Office? How Much Does a Room Addition Cost?Learn more During a sale, the person who wants the survey is the person who pays for it. There’s no hard and fast rule designating who pays for the property survey in a home sale — it often comes down to who wants one. If the buyer wants it, the buyer pays. If the seller wants it, the seller pays. It can also be worked into a sale and negotiated between the buyer and the seller. The cost of a survey can vary based on where the home is located. If it’s an older subdivision that doesn’t have a lot of records about property lines, that will take longer and be more expensive. “We’re doing one now where the subdivision was built in the 1890s,” Wilson said. “There’s very little monumentation [indicators of property lines — like fences, trees, streets, or even flags stuck in the ground along the lot lines], so we are doing a lot of interpretation and spending a lot more time on it. It’s going to cost more.” The size of a property can change the cost, as well — it’ll take quite a bit longer to survey 40 acres than a half-acre. On the whole, though, both Gilbert and Wilson have seen property survey costs range between $400 and $1200. The lower end is usually for newer subdivisions, and the higher end is for older, Wilson says. According to Angi, the national average is about $543 . HomeGuide says the average range is between $200 and $1,200 . Where can you get a property survey if you need one? In some states, property surveys are public record — but in others, they aren’t. Check with your public records office first to determine if they have one. At the least, they might have a plat map , which shows the lot lines, buildings, and streets of a neighborhood. If none of that is accessible, you’ll have to do it on your own. If you’re getting a new property survey… If you’re starting out from scratch on a property with no survey already done, the easiest way to find a surveyor to do it is to search online. You could try Yelp, a simple Google search, or even the Yellow Pages. But the best option to find a reputable surveying company, Gilbert says, is to ask your real estate agent for a referral. “They’re going to have people that are comfortable with and have prior experiences with,” he said. They’ll also be able to tell you if you need one or not. For instance, if you’re adding a deck that is clearly well within the bounds of your property lines, you likely won’t need a survey for that project. If you’re finding an old one… Getting a property survey for a house that’s already had one will save you both time and money — assuming you know who did the survey. Wilson says most surveyors will give homeowners a copy of a previously ordered survey upon request. Keep in mind, however, that if you weren’t the original person who requested the survey be done, you will still be charged a fee. According to Wilson, that fee is to cover the cost of updating the survey, redirecting it to a new owner, and covering any copyright costs. “But it’s certainly going to be less than if I’m coming into an area I haven’t been in before and spending a lot more time getting a new survey pulled together,” he said. “I always encourage people to go back to the original surveyor because they’ve already done the job once. It’s easy to retrace it and update it.” The bottom line when it comes to property surveys is this: They may not be needed, but they’re certainly a good idea. You never know what issues could come up during the home sale process, so unless you’re absolutely sure about your property lines, placement of the utilities, easements, and more, it’s worth it to spend the extra money in the name of minimizing future hassles. Header Image Source: (Gorodenkoff/ Depositphotos)
HOME QUALIFIED HAS BEEN FEATURED ON
let us connect you to
investors in real estate
Looking to build a home, buy a fixer upper
& repair or invest in a real estate project long term?
We can connect you to experts who have loan products.
get hq’s hottest insider tips & news articles delivered direct to you
