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Mortgage Insurance, smart way to get in?

Mortgage Insurance

Mortgage insurance: Added cost to homebuying or smart way to get in?

The homebuying process is exciting, but can also seem fraught with added costs, like a home inspection, title insurance and closing costs. And if you can’t afford a full 20 percent down payment on a conventional home loan, then you will most likely pay for private mortgage insurance (MI). Some people consider private MI yet another added cost, but it helps creditworthy middle-income homebuyers qualify for home financing sooner with a low down payment. Is it really an added cost if it saves time and money in the long run?

For most people, low down payment home loan options include conventional loans with private MI and government-backed loans like those offered by the Federal Housing Administration (FHA). While comparable, each of these options has important differences. For example, the minimum down payment for an FHA mortgage is 3.5 percent while it’s only 3 percent on a conventional, privately insured mortgage.

Another key feature of private MI is that it can be canceled when a borrower reaches 20 percent equity in his or her home. Borrowers who purchase a home with private MI can typically cancel it within 5 to 7 years, resulting in their monthly bill going down. Private MI’s cancelability makes it a more affordable option over FHA-backed mortgages, which typically require mortgage insurance premiums for the entirety of the loan term. Both are offered by most mortgage lenders, so it’s smart to ask a loan officer for both options so you can compare and do the math.

The myth that a homebuyer needs 20 percent down to obtain a mortgage is simply not true. Low down payment mortgages are widely available and used every day across the country. In 2018, the National Association of Realtors found that first-time homebuyers typically put down 7 percent, while repeat buyers put down an average of 16 percent. Many homebuyers choose a lower down payment option to preserve some savings for home improvements or save for other goals. The time it could take to save up a 20 percent down payment is significant. On average, it could take up to 20 years to save a full 20 percent, plus closing costs, for a $257,700 house — the national median sales price. With home prices on the rise, the amount of time it takes to save up could only increase. Private MI can mean the difference between getting into the home of your dreams sooner or waiting for years.

For over 60 years, more than 30 million homeowners of all backgrounds have used private MI to successfully buy their homes. In the past year alone, private MI helped more than one million borrowers nationwide purchase or refinance a mortgage. According to a study by U.S. Mortgage Insurers, 56 percent of purchase borrowers were first-time homebuyers and more than 40 percent had incomes below $75,000.

For decades, millions of homeowners and prospective homebuyers have relied on private MI to help them affordably and responsibly purchase their homes — in turn helping them build personal wealth. Today’s historically low mortgage interest rates are a good reason to buy a home now. It is estimated that in 2019, the average rate for a 30-year fixed-rate mortgage will be around 5 percent. Borrowers should take advantage of these historically low mortgage interest rates because experts forecast that primary mortgage rates are on the rise.

Getting a mortgage with private MI and keeping more of your hard-earned money in the bank can be a very smart way to invest in your future. Check out lowdownpaymentfacts.org to learn more.

BPT

Posted in: Mortgage Related Blog

Mortgage Loan Types

Conventional & Government

conventionalloan


FHA Loans Defined

An FHA insured loan is a US Federal Housing Administration mortgage insurance backed mortgage loan which is provided by an FHA-approved lender. FHA insured loans are a type of federal assistance and have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford.

To obtain mortgage insurance from the Federal Housing Administration, an upfront mortgage insurance premium (UFMIP) equal to 1.75 percent of the base loan amount at closing is required, and is normally financed into the total loan amount by the lender and paid to FHA on the borrower’s behalf. There is also a monthly mortgage insurance premium (MIP) which varies based on the amortization term and loan-to-value ratio.  FHA loan guidelines are currently as follows:

Credit ScoreMinimum 640
Max Loan Amount
$294,515 (varies per county)

Min Down Payment 3.5%
Term 15 or 30 Years
Income / Debt Ratio 31% HOUSING / 43% TOTAL DEBT

SELLER CONTRIBUTIONS

UP TO 6% OF SALES PRICE

  • Mortgage Insurance is required.
  • Upfront Fee is 1.75% of the base loan amount and can be added back to mortgage.
  • Monthly fee is .85%. times the base loan amount divided by 12.
  • Seller must pay Tax Service Fee, Termite Inspection and/or Repairs.

USDA Loans Defined

A USDA Home Loan from the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, is a mortgage loan offered to rural property owners by the United States Department of Agriculture. Applicants for home loans may have an income of up to 115% of the median income for the area. Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance. In addition, applicants must have reasonable credit histories.

Additionally, the property must be located within the USDA RD Home Loan “footprint.”  USDA Loans offer 100% financing to qualified buyers, and allow for all closing costs to be either paid for by the seller or financed into the loan.  USDA loan guidelines are currently as follows:

Credit ScoreMin 620
Max Loan AmountNo Max, 100% Financing
Terms30 yrs, Owners Occupied
Income Debt Ratio29% Housing / 43% Total Debt

PROPERTY ELIGIBILITY

TO DETERMINE IF A PROPERTY IS LOCATED IN AN ELIGIBLE RURAL AREA, VISIT: https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

INCOME LIMITS

VARY BY STATE AND COUNTY.  FOR INCOME LIMITS BY STATE, VISIT:

HTTPS://WWW.USDALOANAGENCY.COM/AM-I-ELIGIBLE/

SELLER CONTRIBUTIONS

UP TO 6% OF SALES PRICE

  • USDA Funding Fee is 1% of the loan amount, which is financed into the mortgage.
  • Monthly mortgage insurance fee is 0.35% times the total loan amount divided by 12.
  • Do not have to be a first time home buyer to qualify, but cannot presently own a home.


VA Loans Defined

A VA loan is a mortgage loan in the United States guaranteed by the United States Department of Veterans Affairs (VA).  The program is for American veterans, military members currently serving in the U.S. military, reservists and select surviving spouses (provided they do not remarry) and can be used to purchase single-family homes, condominiums, multi-unit properties, manufactured homes and new construction.

The VA does not originate loans, but sets the rules for who may qualify, issues minimum guidelines and requirements under which mortgages may be offered and financially guarantees loans that qualify under the program. The basic intention of the VA home loan program is to supply home financing to eligible veterans and to help veterans purchase properties with no down payment.  VA loan guidelines are currently as follows:’

Credit ScoreMin 620
Max Loan Amt.$453,100
100% Financing To Qualified Veterans
Terms15, 20, 30 Years
Income / Debt Ratio29% Housing / 41% Debt
or higher with underwriting approval

(or higher with Underwriting approval)

SELLER CONTRIBUTIONS

UP TO 6% OF SALES PRICE

  • VA Funding Fee may be waived for Veterans who are at least 10% disabled.
  • VA Funding Fee is 2.15% for first time use and 3.3% for subsequent use (reservist 2.40% first time use).
  • Wood infestation Report is required on VA Loans.
  • Jumbo VA loans are available.

Conventional Loans Defined

Mortgages can be defined as either government-backed or conventional.  Mortgages not guaranteed (or insured) by Government agencies such as the Federal Housing Administration (FHA), the Department of Veteran Affairs (VA) or the US Department of Agriculture (USDA) are known as conventional home loans.

Conventional loans are guaranteed by private lenders such as banks, credit unions or mortgage companies, or by government-sponsored enterprises (GSEs) such as Freddie Mac and Fannie Mae.

Conventional loans represent approximately two-thirds of the home loans issued in the United States.  Conventional loan guidelines are currently as follows:

Credit Score Min 620
Max Loan Amount $453,100
Min Down Payment 5%
Terms 10, 15, 20 or 30 Years
Income / Debt Ratio 28% Housing / 36% Total Debt
   

SELLER CONTRIBUTIONS

2% OF SALES PRICE INVESTMENT PROPERTY

3% OF SALES PRICE LTV 90.01-95%

6% OF SALES PRICE LTV 75.01-90%

9% OF SALES PRICE LTV 75% OR BELOW

  • For Loan-to-Values above 80%, there will be PMI. The higher the down payment, the lower the PMI.
  • 5% must be from the borrower’s own funds
  • Funds to close may come from a secured loan. The terms and monthly payment amount must be verified and included in the total debt ratio.
  • Funds may come from a sell of an asset (automobile, boat, etc.).  Must document ownership and value of secured item. Require copy of bill of sale and proof of funds received.  A gift from a relative may be used as long as the first 5% is the borrowers own documented funds.

*Information as of 02/23/2019. All of the above information is subject to change or may have additional requirements.

cleardot

Posted in: Mortgage Related Blog, Uncategorized

Investment Property Defined

What Is Considered As Investment Property

property

Investment property is real estate purchased with the intention of earning a return on the investment (ROI).  This ROI could come as rental income, the resale of the property or sometimes both.

When securing a loan for a primary residence, a borrower typically has access to a wide variety of financing options, including FHA, VA, USDA and Conventional loans; however, it is often more challenging to secure financing for an investment property.

Insurers do not provide mortgage insurance to investment properties.  Therefore, investors must have a substantial down payment to secure financing for their investment properties.  Lenders typically insist on good credit scores, lower loan-to-value ratios (LTV), and ample savings to cover six months’ worth of reserves.

Investment loan guidelines are currently as follows:

CREDIT SCORE

MINIMUM 660

MAXIMUM LOAN AMOUNT

$453,100

MINIMUM DOWN PAYMENT

25%

TERMS

15 OR 30 YEARS

2% OF SALES PRICE

SELLER CONTRIBUTIONS

RESERVES REQUIRED

MINIMUM OF 6 MONTHS PITI

(PITI – Principal, Interest, Taxes and Insurance)

Borrower may not have more than four (4) financed properties, including principal residence. Having multiple properties may require borrower to furnish additional documentation.

Appraiser may be required to complete an operating income statement with the appraisal.

*Information as of 02/20/2019.  All of the above information is subject to change or may have additional requirements*

Posted in: Mortgage Related Blog, Uncategorized

Mortgage: Pre-Approval is Key In Home-Buying

Mortage home
Brought to you by Heritage Bank Mortgage Services

     An important and necessary step to buying a home is getting a mortgage, unless it is 100% cash down payment.  The process can be intimidating for first-time buyers.  The best place to start is to get preapproved by a lender.

    “If you are thinking of buying a home, it’s best to start the qualification process as early as possible,” says Tim Williams, vice president of  mortgage services @ Heritage Bank.

    A pre approval ( or pre-qualification) letter is a document from a lender stating that they are tentatively willing to lend you money up to a certain amount.  Different lenders use the terms prequalification and preapproval differently.  Some lenders may only offer a prequalification, while other lenders may only offer a preapproval. for simplicity, we use the word preapproval in this article.

   Preapproval is based on certain assumptions, and while it’s not a guaranteed loan offer, it does let a seller know that you’re likely to get financing.  Sellers frequently require a preapproval letter before accepting your offer on a house.  Without it, you could lose out on a house you really like to another buyer who is preapproved.

START EARLY

   A  preapproval letter may have an expiration date ( typically 30 to 60 days).  Because of this, some home shoppers wait until they’re ready to start shopping before getting preapproved.  But getting preapproved early in the process is a good way to spot potential issues ( such as errors on your credit report) in time to correct them.

    “You can gain valuable feedback, not only on where you stand currently, but also regarding advice on the actions you could take to help improve your credentials,” says Williams.  “It’s always better to start sooner rather than later.”

GATHER INFORMATION

    Every lender is different, so find out what documentation is required in order to get preapproved.  Some lenders base preapproval letters solely on the information you provide.  Other lenders dig into the details with you now to make certain you have all the documentation you need.  This can prevent delays and surprises later.

    All lenders will require documentation at some point if you decide to apply for a loan.  It’s better to know now that you need an additional document ( which could take some time to get) than when you’re about to close on your dream home.

Ask your prospective lender what assumptions they made to issue your preapproval.  Is there anything about your situation that could lead to your loan being denied later on?  Are there factors that could increase your interest rate or loan costs?

HOW MUCH?

Lenders preapprove you by looking at income, assets, debts and credit history, but your financial life is much more complicated than that.  Only you can decide how much to spend on a home.  If a lender preapproves you for more than you want to spend, you can still use the preapproval to shop for homes without changing your target price.

Be up front with your real estate agent.   If you don’t want to see homes above a certain price, say so.  Limiting your search is a good way to avoid falling in love with a house that costs more than you want to spend.

If you’r preapproved for less than you were planning to spend, ask the lender if there was a particular factor (your income, for example) that limited the preapproval amount.  You may need to adjust your home price expectations.

SHOPPING LENDERS

Getting preapproved is important because it helps you shop for a home, but at this stage lenders aren’t in a position to give you enough information for you to decide which lender offers the best deal.  Getting a preapproval doesn’t commit you to using that lender for your loan.  Choose a lender after you’ve made an offer on a house and received official loan estimates from each of your potential lenders.

  • Portions courtesy of the Consumer Financial Protection Bureau

Posted in: Mortgage Related Blog

Talk To RP.

 

Have a question? Give me a call at 615-348-5278

Client Review

He is very attentive to client Real Estate needs and belives in quality client care.

RP worked with me through the purchase of a new home and sale of my existing home. He quickly learned what I wanted and found it for me in a few days. He directed me in what I needed to do to sell my existing home and it sold very quickly for very close to my asking price when we listed it. He is very attentive to client Real Estate needs and belives in quality client care.

Roger Smith Middle, TN

I will definitely recommend him to all my friends and family

Home sale is a daunting ordeal and RP made it very seamless. For every small detail that came up RP had an answer or got one at the earliest. I will definitely recommend him to all my friends and family.

Stevenson Middle, TN

I am glad I made right choice by picking RP for my home purchase

" I am first time home buyer, RP is a wonderful person and a wonderful person to work with. RP was just awesome throughout the whole process of buying my home. I've already recommended him my close friends and family members who are first time home buyers.
The home he helped me pick out, me and my family could not be happier!!!!!!!!!!!!!"
RP helped me think as home owner even before buying, what can be expected being home owner for first couple of years, 5 yrs, 10 yrs, what kind of expenses I need to look through etc... I am glad I made right choice by picking RP for my home purchase.

Robin Robinson Middle, TN

My experience with RP was simply outstanding

My experience with RP was simply outstanding. My wife and I were looking to downsize to a smaller home with in middle TN area. RP worked with us on a very personal basis and helped us to understand what we really wanted. At one point, RP even told us that "You might decide to buy this house, but I will not sell it to you. RP is knowledgeable and always available. he would always show up on short notice and take us to see potential homes. I have been watching the listing since our offer was accepted and there has still not been another home like the one RP found!

Ravi Singh Middle, TN

RP, you are a true professional

RP, you are a true professional. This entire experience can be so overwhelming and you walked us through every step of the way from selling our home, believing in us, our vision for a new home and all the business details in between. Your expertise in this field is outstanding and your patience is commendable. Thank you RP. It was our pleasure working with you. You were always there for us.

Pete Klingsick

Regardless of whether you are buying or selling, I would highly recommend RP

The service and personal attention I received from RP was exceptional. He is truly a high-caliber professional and his knowledge of the local market and negotiating skills were key in ensuring that I received the best offer for my home. Regardless of whether you are buying or selling, I would highly recommend RP. I could not have asked for a better Realtor to facilitate the process of selling my home.

Arieal B Middle, TN

We would highly recommend your services to anyone moving.

RP, thank you for your help and suggestions that greatly speeded up the process of selling our home. We can't believe it sold in less than a week! We would highly recommend your services to anyone moving. You acted in a highly professional and informative manner and it was great getting to know you.

Laxman Middle, TN

We were first time home buyers and had no idea of the steps to take in purchasing our first home

We were first time home buyers and had no idea of the steps to take in purchasing our first home. Every step was explained by RP ahead of time. RP was there when we looked at our first property and continues to be there a month after moving into our new home as follow up on how it is going...

Shyam Sundar Middle, TN

RP symbolizes the integrity and commitment that are vital to his profession.

We felt very fortunate to work with RP on our recent Real Estate transaction. From the beginning of our moving process to the end, Michael was a professional, efficient agent. All aspects of selling and purchasing were explained with precise detail. RP used a variety of resources to advertise our home which led to a sale! He was also keenly aware of our needs and subsequently found our new home. The entire closing process went very smoothly. We found ourselves in a new home in less than two months. RP symbolizes the integrity and commitment that are vital to his profession.

Nina & John Middle, TN

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