Simple ways to pay off your mortgage sooner


If you’ve decided that you want to remain in your home for the long term, then you’d probably love to pay it off long before the 30 years – or 15 or 20 if you opted for a shorter term.

Unless you had cash with which to buy your home, you know you’ll be paying a house payment no matter what. It will either be for your house or for a house belonging to your landlord. But when you think about all the interest you’ll pay over the life of the loan, it’s still painful!

Paying your loan off early means paying less interest, so consider these options:

Add a few extra dollars to each payment. I have a friend who shortened her car loan by about 5 months simply by adding $3.24 to each payment. She rounded the payment from $271.76 to $275. That was painless.

If she’d added $13.24 the term would have been even shorter.

However, if you can afford it…

Add an extra payment to each payment. And no, I don’t mean make double payment. Just double the amount of the payment that is going toward the principal. Here’s an example:

An actual home loan with an interest rate of 3.625% carries payments of $1,632.53 per month. Since the loan is only a few years old, the amount going to the principal each month is only $427.09. That means paying $2,059.62 is equal to paying two payments. A payment of $2,486.71 would effectively make 3 payments.

As time goes by, you’d have to increase that amount, because more of each payment will go to principal as less goes to interest. But you’d still reap the benefit of shaving a few interest-bearing months off your loan early on.

The beauty of these methods is that you can do it when you can afford it, and not do it if you need the money for car repairs instead.

Make one extra payment a year. If you receive a Christmas bonus or get a tax refund each year, consider putting that money toward an extra payment on your loan. In the example above, that one extra payment added to your regular payment would be equal to making 3 extra payments.

Create your own amortization schedule.

If you’d like a bit more structure, first decide how soon you want to pay off that mortgage. Then go on line to find an amortization schedule and plug in your numbers. You’ll learn what your new payment would need to be (minus the taxes and insurance) to pay off the loan in that amount of time.

Do Note:

With any of these methods, be sure to fill out your payment coupon or screen correctly. When you pay extra money, designate it to go to the principal of your loan.

Refinance to a shorter term loan.

While this method might lock you in to a higher payment each month, it has advantages.

I say “might” because one of the advantages is that if you have an FHA loan and now have 20% equity, your refinance to a conventional loan will remove your mortgage insurance premiums.

Second, since shorter term loans generally carry lower interest rates, you may be able to refinance at a lower rate.

Refinancing does come with costs, so talk it over with your mortgage broker and get all the facts before making a decision.

Before you make a decision on paying your mortgage loan off early…

Consider the rest of your financial situation. Would those extra dollars be better spent somewhere else? For instance, if you have credit card debt, or any other higher interest loans, they should be paid off first.

Are you saving for retirement or for your children’s educations? Do you have some money set aside for emergencies – or opportunities?

Would you like to talk it over with a professional?

Then call us today at Homewood Mortgage, the Mike Clover Group. We’ll be glad to show you the facts and figures regarding a refinance – or to help you cerate your own new amortization schedule.

We offer fast, friendly service, combined with some of the lowest rates and best terms available anywhere in Texas.

Call us today at 800-223-7409

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Who makes the final decision on your home mortgage?


When you decide to buy a home, you will likely visit a lender and gain a pre-approval before beginning to shop. After looking at your income, expenses, and credit scores, your loan officer will tell you how much you can borrow and quote you an interest rate. (This is, of course, subject to change as the Fed raises or lowers interest rates.)

You may think that means you’re home free, but that isn’t so. Even though your lender will have checked your credit and done verifications, your loan still must gain approval from an underwriter.

Although underwriting guidelines have been around since 1935, prior to 1970 most lending decisions were based on local knowledge. The banker knew the customers, knew what they did for a living and knew their reputation for paying bills on time – or not.  But then, in the 1989, the Fair Issac Corporation came up with FICO scores and during the 90’s lending became more standardized.

During the housing boom that began in the early 2000’s, underwriting standards were loosened. A sub-prime market was born. For a while, some joked that all you has to do to obtain a loan was have the ability to fog a mirror.

Then, of course, that whole sub-prime scheme crashed, along with home prices. Lenders lost money when borrowers simply could not pay.

The result: tougher standards. The Consumer Financial Protection Bureau enacted requirements for tougher background checks into a potential borrower’s bank accounts and other assets, employment and employment history, spending habits, and credit rating.

An Underwriter will check your credit history.

He or she will look at your FICO scores from Experian, Equifax, and Transunion. If your reports contain a red flat such as a bankruptcy or a collection, you’ll be required to submit a letter explaining why that happened and what you’re doing to ensure that it doesn’t happen again. Depending upon the credit problems you’ve had and how long ago they happened, you may be required to make a larger down payment. And of course, poor credit scores always mean that you’ll be offered a higher interest rate than a borrower with no blemishes.

Your perceived risk comes next.

In addition to your credit score, the underwriter will want to know your income and the amount of money you owe. He or she will consider all debts, including student loans, child-support payments, car loans, and private loans. The difference between your income and outgo is known as your debt-to-income ratio.

Different lenders have different regulations, but in general your total monthly debt obligation, including your home mortgage payment, should be no more than 43% of your pre-tax monthly income.

The underwriter or an investigator will verify your bank information and will contact your employer to verify your employment. Lenders like to see stability in employment, and 3 years or more in the same job (or with an employer who has given you job advancements) is a good thing.

If there is anything about your employment history, finances, or credit history that raises questions, the underwriter will ask for additional information. The best thing you can do to assure that you’ll get that loan is to respond quickly, completely, and with good humor.

Lastly, the Underwriter will examine your home appraisal.

Learning from the past, underwriters (and the lenders who hire them) want assurance that the appraised value does make sense.  Yes, that does mean that some of the loans granted in the early 2000’s were based on fraudulently inflated home values. Appraisers were sometimes being pressured by buyers, sellers, and even real estate agents and loan officers. Backed by the belief that the true price is the one that a buyer is willing to pay, those appraisers allowed prices to climb, and climb, and climb.

The attempt to avoid this problem led to a shake-up in the appraisal process with unintended consequences. New regulations called for the use of appraisers who were not familiar with the lenders or agents, or with the communities and the real estate markets in which they were appraising homes.

In addition to scrutinizing the appraisal, a good underwriter will consider the location of the home and how it might be affected by natural disasters, such as floods.

Underwriting standards and loan requirements were extremely tight immediately following the housing crash in the late 2000’s. Fortunately, they have now relaxed a bit.

Underwriters take their task very seriously.

The term originated with the insurance industry – Lloyds of London, specifically. The person who said “Yes, I will accept and insure that risk” signed his name at the bottom of the paper – under the proposal.

Today, the person signing is not risking his or her own funds, but is obligating the bank to take that risk. It’s no wonder that they want to be very careful.

If you want to buy a home, call or come and see us…

We at Homewood Mortgage, the Mike Clover Group, will be happy to get you pre-approved using the same methods and underwriter uses.

In addition, we have a well-deserved reputation for fast, friendly service, combined with some of the lowest rates and best terms available anywhere in Texas.

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Before you attempt to buy a house…


Before you attempt to buy a house…

Unless you are sitting on a bag of money large enough to purchase a house for cash, you should become pre-approved for a home mortgage loan. If you skip that step, home sellers will not take your offers seriously.

Before you become pre-approved – which is exactly like making an application for that loan – you need to consider three things:

  • Your credit score – because it will affect everything
  • How much down payment you’ll need
  • Your debt-to-income ratio

Since your credit score affects everything, let’s start there.

The higher your score, the better your odds of qualifying for favorable loan terms.

While many credit scoring models exist for different purposes, most lenders will use your FICO score. A perfect FICO score is 850, but few people are perfect. Here’s how scores are rated:

  • 760 and above: excellent
  • 700 – 759: good
  • 650 – 699: fair
  • Below 650: poor.
  • 580-649: you’ll only qualify for a FHA loan or possibly a VA loan.
  • 579 and less: Get busy improving your credit before you try to buy a home.

Before visiting a lender, go to and request a copy of your credit report. You’re entitled to one free report every year, and you should take advantage of that. Even if you aren’t planning to borrow money, checking your report will allow you to catch mistakes that could cause trouble later. That means do read each entry and make sure it is accurate.

If you’re planning to purchase a home, do pay the extra fee to get your FICO score. Then, if you need to raise the score, begin taking those steps.

How much down payment will you need?

You’ve no doubt heard/seen the figure 20% named as the gold standard. It rates that nickname for two reasons:

You’ll get the best rate and terms if you put down 20% or more.

If you put down 20% you will not be subject to private mortgage insurance, which can add several hundred dollars per month to your house payment.

Many lenders offer programs with down payment requirements ranging from 5% to 15%, and FHA loans require only 3 ½% down. Veterans can get VA loans with zero down and no private mortgage insurance. USDA loans are available with the same zero down terms.

Will you ever need MORE than 20% down?

Yes, if you want a jumbo loan (a loan above the limits for government sponsored loans) your down payment may need to be as much as 30%

Right now the limit for government-sponsored loans in most communities is $726,200. In areas with an extremely high cost of living (such as Manhattan and San Francisco) the threshold is $1,089,300.

The more you can put down, the better, so seek help if you qualify.

This USDA website offers information on down payment assistance programs in Texas.

What is your DTI ratio?

First, what is a DTI ratio? DTI stands for debt-to-income and it is the ratio of how much you earn to how much you are obligated to pay out each month.

It encompasses all of your debts, such as a car loan, credit card balances, school loans, etc.

If you earned $6,000 per month and paid out $1,000 in debts, your DTI would be 16.6% (1,000 divided by 6,000). In general, lenders want to see your DTI ratio to be 36% or less after figuring in your new monthly mortgage payment.

So if your new payment would be $1,000 they would add that to the $1,000 you’re paying in other debts and calculate DTI by dividing 2,000 by 6,000. Your new DTI would be 33.3%. Some lenders will allow a DTI of up to 43%, but if you plan ahead to keep your DTI ratio under 36% you’ll always be safe.

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What happens next with interest rates?


What happens next with interest rates?

Anyone wanting to buy a house with a home mortgage loan right now is wishing interest rates would come down. But is that likely to happen? And if so, when?

People are also wondering: “Why have mortgage interest rates increased so much in 2022 and 2023?”

Because inflation has been raging. In response to that, the Fed raised interest rates to bring it under control.

The thirty-year mortgage interest rate hit 7.2% in August, 2023, marking the highest rate in more than 20 years. This was done purposely to rein in spending. When there’s less spending, inflation cools.

Thinking back: Following the global financial crisis, rates were dropped to stimulate the economy. Now it appears to been over-stimulated, possibly by the “stimulus money” and abundant unemployment benefits that were distributed to citizens in response to the pandemic shutdowns. This influx of money, together with increased fuel prices, brought about inflation. Now interest rates have been raised higher than anticipated because the increase has not been working as well as expected.

Housing has taken a severe hit, but other sectors of the economy have been slower to respond. Many financial experts believe that household savings and a greatly increased use of credit card debt has kept other spending moving along. That should change over the coming months, when we’ll see a sharp drop in spending in other parts of the economy.

What about the yield-curve inversion?

First, what is a yield-curve inversion? It is the situation that comes about when short-term (2 year fed-funds) bonds yield a higher rate than long-term (10 year Treasury) bonds.

I expect the current situation to hold steady as long as the yield-curve inversion holds.

Will interest rates fall?

Hopefully, the last rate hike was in July. Then, again hopefully, the Fed will begin cutting the fed-funds rate after its first 2024 meeting in February.

An inflation rate of 2% is the goal. When that happens, which they hope will be by the end of 2025, the concern will shift to shoring up economic growth. At that time, we expect to see the 30-year home mortgage rate drop to about 4.5%. So far, the average for 2023 is 6.75%.

As for inflation…

Many of us do expect inflation to drop drastically. In fact, it may well fall below the target of 2% and average only 1.8% from 2024 through 2027.

Since everything is tied together, the GDP is also affected by interest rates.

We believe that if the fed shifts to easing the rates by the end of this year, the GDP should start to accelerate in 2024 and 2025. Of course, if that doesn’t happen, then we’ll see the fed raising rates higher than we expect in order to cause a short-term recession.

Housing is a major component of the GDP, and is the most interest-rate sensitive. Thus, we’re hoping to see lower rates in order to enable more consumers to obtain mortgages.

It’s a tough call for many consumers, since higher interest rates may lessen demand and thus reduce home prices in some markets. The question for them will be “Do I buy now and refinance when interest rates drop, or should I hold off because prices will come down and I could get stuck with an upside-down mortgage?”

Looking to the future, we’re choosing optimism…

We believe the fed funds rate will fall below what many investors are expecting, and we believe inflation will fall faster than the Fed expects. If we’re right, then the Fed will cut interest rates more than current projections would indicate.

Following rate cuts, we expect to see GDP growth.

This should begin to happen approximately 9 months from now and continue on into 2025, 2026, and 2027. As supply constraints ease, the GDP should grow without triggering inflation again. We expect to see about 3% more growth than the consensus of opinion expects.

While we are still experiencing shortages in durable goods, energy, and automobiles, we believe those shortages could shift into gluts in just a few years. If we’re right, inflation will fall.

What does the future hold for interest rates?

Right now, the forecast is focused on the Fed and what it will or won’t do to reduce inflation. That’s the short run.

In the long run, the Fed will be less important and interest rates will be determined by other aspects of the economy. For decades, forces such as age demographics, productivity growth, and economic inequality have played a role by creating an excess of savings over investment. These forces haven’t gone away. They’ve simply taken a temporary back seat to more forceful and chaotic forces.

The tide will turn, and we believe interest rates will come down and stay down for quite some time.

For the lowest home mortgage rates available in Texas today…

Contact Homewood Mortgage, the Mike Clover Group. We have a well-deserved reputation for fast, friendly service, combined with some of the lowest rates and best terms available anywhere in Texas.

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These home mortgage mistakes will cost you money, so avoid them!


Homeowners who have made these home mortgage mistakes wish they could back up and start over, but sometimes it’s too late.

Instead of having regrets later, heed these warnings before you apply for a home mortgage loan.

Mistake #1: Thinking that bigger is always better.

When it comes to obtaining a mortgage loan, that big-name bank might be the absolutely wrong choice. A small local bank or a mortgage broker with access to programs from multiple banks might be the best choice.

While it’s true that we no longer live in towns with a local banker who knows our family, knows our reputation, and can make decisions based on his or her own judgement, locals do have knowledge that can be helpful to us. They might also have more flexibility and more ability to actually consider each circumstance and find a program to suit your needs.

In addition, your local banker or mortgage broker might be far more interested in helping you, if for no other reason than to promote his or her own business and reputation.

Mistake #2: Taking too long to make decisions.

If you’re making comparisons between two or more lenders, make it a priority to decide. If you’ve got a house in mind that you want to buy, you need to move quickly. If you don’t already have that house under contract, it could already be sold to someone who made faster decisions.

If you do have the house under contract, do not delay over choosing a lender and locking a loan rate.

Sit down with the paperwork as soon as you have it and make your comparisons. Don’t wait until morning – or until after dinner. Rates can and do change drastically, sometimes not just overnight but from morning to afternoon.

Mistake #3: Not fiercely protecting your credit rating.

Just one missed payment on a credit card can drop your FICO credit score up to 110 points! And in case you didn’t know it, reducing your score by that much will make a profound difference in the mortgage interest rate you’ll be offered. Even worse news is that the missed payment will remain on your credit report for 7 years.

So – just don’t miss a payment. Pay every bill on time, every time. Some accounts do have grace periods, but don’t get into the habit of using them. If you do, you could fall prey to “time creep” and suddenly realize that a payment was due yesterday.

Mistake #4: Becoming complacent.

You purchased your house a few years ago and got a rate that you could comfortably pay. In the years since, your income has increased, so the payment is even less of a burden. As a result, you just make the payment each month and don’t think much about it.

That could be costing you a bundle! Even now that rates have gone up, it could pay to take a look at the rate you’re paying and the rate you could be paying. It’s true that a refinance does usually come with fees, but it could still be worth the time to do the calculations.

Here’s a for-instance: If you’ve been paying 10% and could now refinance at 7%, your savings on each $100,000 that you owe would be $212 per month.

Mistake #5: Paying only the minimum.

Whether it’s a credit card or a home loan, paying a bit more than required can pay off handsomely.

Remember that the interest you pay is calculated on the balance owing each month. So when you make extra payments toward the principal of your loan, you pay less interest and more of each payment goes to the principal. A few cents less interest becomes a few dollars less interest – and over time can mean paying off your mortgage years sooner.

Some people make a whole extra payment each year. Some make bi-monthly payments. Some make a large lump sum payment when they get a tax refund or a bonus at work.

But it doesn’t have to be that dramatic. I know someone who rounded a car payment up from $271.65 to $275 per month. The result was that the car was paid off 3 months early.

So think about it. Even adding an extra $20 to your payment each month will save you money in the long run.

If you’d like to see where you stand…

Contact us at Homewood Mortgage, the Mike Clover Group. We’ll be glad to talk with  you, determine which loan program would be most beneficial to you, and provide you with a loan estimate that you can use in comparing us to other lenders.

We do have a reputation for fast, friendly service, with some of the lowest rates and best terms available anywhere in Texas.

Call us today at 800-223-7409

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Mortgage loans becoming more difficult to obtain…


The grumbling we’re hearing across the nation from real estate agents is valid – many of their potential home buyers really cannot obtain a mortgage loan.

Do you remember the banking industry’s reaction to the sub-prime mortgage crisis of 2007-2010? After years of easy lending, it became nearly impossible for many to buy a home, even though prices had come down. Now it is happening again.

According to the Mortgage Bankers Association’s Mortgage Credit Availability Index (MCAI), fell by 0.3 percent in July, bringing the availability of mortgage credit to its lowest point since 2013.

When this index falls, it indicates a tightening of lending standards. In this case, it also represents a pullback on underutilized loan programs in order to reduce operational costs. Lower loan volumes equate to lower profits, so this is an interesting reaction.

In addition to tightening standards, fewer homeowners are requesting cash-out refinancing.

A drop in cash-out loan programs was partially responsible for the decline in the MCAI, even as fewer homeowners made application. The 30 year fixed rate in July was more than a full percentage point above the rate last year, making cash-out refinance far less desirable. Homeowners are instead turning to home equity or consumer loans. Jumbo lenders have also reduced the number of loan programs on offer.

The MCAI is compiled using data from more than 95 lenders and investors. Thus they may not accurately reflect the situation in any one city or with every lender.

Here at Homewood Mortgage, the Mike Clover Group, we have become creative in order to get things done for our clients. While other lenders have turned them away, we’ve been busy creating in-house specialty loans to meet the challenge.

These specialty loans include bridge loans, construction loans, down payment loans, and more. At the Mike Clover Group, we find it gratifying to help clients get into homes when they’ve previously been told that there was no chance!

If you’ve been told that there’s no loan program to help you, or if you just want to begin your quest for a loan with a mortgage company that is focused on solutions, call Homewood Mortgage, the Mike Clover Group.

Call us today at 800-223-7409

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What’s the prognosis for interest rates in 2023?


Prospective home buyers are naturally confused and wondering what to do. With interest rates double what they were not all that long ago, they’re wondering whether they’ll continue to rise or whether waiting a bit will mean paying a lower rate.

In July it looked as if mortgage rates were rising, but then at the end of the month they dropped back to 6.81%, which is where they were at the beginning of the month.

Various financial gurus are making predictions, but of course no one can know what will happen.

According to Mortgage News Daily, “U.S. Treasuries are at the core of the rate market.  When investors become less interested in buying them or when the government becomes more interested in selling them, rates rise.”  

The inflation rate, the Federal Reserve’s attempts to rein it in, the consumer price index, and the monthly jobs reports also play roles. Due to all these factors, the Fed has been making rate hikes to the benchmark federal funds rate since March. As of July 2023, the federal funds rate is the highest it has been in 22 years.

The official inflation reading for June 2023 was 3%, after going to 9.1% in June of 2022, but the target number is 2%. The word is that it won’t be easy, but the Fed committee will continue efforts to “wrestle inflation down” to the 2% target. The next meeting is scheduled for September 19-20, and no one knows yet whether they’ll raise rates again or pause.

While many are expecting rate increases, other economists are saying no. Higher interest rates have slowed home sales, caused people to cut back on investments, and put strain on community banks.

Fannie Mae’s July Housing Forecast predicted a third quarter average mortgage interest rate of 6.8% on a 30 year loan. economist Jiayi Xu believes rates could drop to near 6% by year’s end. Others, such as New American Funding CEO Rick Arvielo, Transformational Mortgage Solutions founder David Lykken, and Home Qualified president Ralph DiBugnara say they believe rates have crested and will likely remain in the6.9% range through the end of the year.

Refinancing numbers have dropped considerably.

Fourteen million homeowners refinanced in 2020 and 2021, when rates were at their lowest. In addition, 40% of current U.S. mortgages originated during those years. Those homeowners have enviably low mortgage interest rates, so have no incentive to refinance in 2023.

After years and years of low rates, current rates are a bit of a shock to consumers. Thus, according to Mortgage Bankers Association data, purchase and refinance applications are near their lowest level since the 1990’s.

Some homeowners ARE still paying a higher interest rate than is currently available. For them, a refinance is feasible – but only if the rate will be at least 1% lower, and only if they intend to remain in that home for several more years. Remember that refinancing does cost money, so it could be a few years before you’ll reach a break even point to balance what you’ll save with what it costs to refinance.

Refinance could also be a good idea if you have an adjustable rate mortgage (ARM) and want to refinance to a fixed mortgage. Since ARMS due fluctuate, a fixed rate lends much more stability to household budgeting.

What about purchasing a home in 2023?

Purchasing a home right now, even at today’s elevated mortgage interest rates, is a wise idea if your other choice is renting.

That advice is, of course, conditioned on you planning to stay in the community to occupy that house for a few years.

Renting gives you no stability at all, since rental properties can be sold (or foreclosed upon) and landlords can either raise rents or ask you to vacate at the end of your rental contract. Rents are going up across the country, so higher rents are a probability rather than a possibility.

Additionally, should rates come down, prices are likely to go up, in accordance with the law of supply and demand.

To get the very best rates you can get…

First and foremost, take steps to increase your credit score. And… check your credit regularly in order to spot and correct errors. Yes, they do happen!

Save for a larger down payment. If necessary, sell some seldom-used toys to build your down payment fund. (Do keep records of anything sold.)

Or – use some of your saved funds to buy discount points. Once you’ve chosen a lender, he or she can help you determine which would save you the most money in the long run.

Shop around. Get quotes from multiple lenders. Do NOT assume that they all offer the same rates and terms – they do not.

Negotiate with lenders – ask them to match the best deal or to reduce or waive some loan fees. Remember that when demand is low, lenders do want your business and are likely to offer incentives to get it.

Opt for a shorter-term loan.

Keep an eye on rates and forecasts and lock in when rates are down.

What is the 5-year forecast for mortgage rates?

Most experts believe rates will come down again, by perhaps as much as 2%, but when? Some think within a year. Others think it will happen within 2 or 3 years.

Most do admit that mortgage interest rates will fluctuate in reaction to other issues, such as the inflation rate, the bond market, consumer confidence, etc. Events outside of our realm, such as the war in Ukraine, could also affect our rates.

No one can accurately predict the future, so you should do what makes the most sense for you today.

If you have a high interest mortgage loan or an adjustable rate loan that is apt to turn into a high interest rate loan, then you should at least consider refinancing.

If you’re currently renting, and planning on staying in your community for at least the next 3 or 4 years, then you should consider purchasing your own home.

If you’d like to discuss your options…

Contact us at Homewood Mortgage, the Mike Clover Group. We’ll be glad to go over your situation with you and help you determine the best course of action. We’ll also be glad to provide you with a loan estimate that you can use in comparing us to other lenders.

We do have a reputation for fast, friendly service, with some of the lowest rates and best terms available anywhere in Texas.

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Dos & Don’ts When Buying a Home!

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What’s the difference between a Conventional Mortgage loan and a FHA loan?


What’s the difference between a Conventional Mortgage loan and a FHA loan?

If you’re thinking of buying a home, you may be getting advice regarding the kind of mortgage loan to choose. Does it matter? What are the real differences between Conventional and FHA loans?

Policies vary between lenders, but these are the generalities:

First, the similarities:

  • Both Conventional and FHA mortgage loans are available for varying lengths of time. While most do choose a 30-year amortization, you might instead choose 10, 15, or 20 years.
  • Both can be obtained for a low down payment.
  • Both are available to borrowers with less-than-stellar credit scores.
  • Both base the interest rate for individual clients on that client’s income, credit scores, debt load, etc.

So what are the differences?

Conventional loans:

Contrary to popular belief, it isn’t necessary to have a 20% down payment in order to obtain a conventional loan. In fact, in some cases, borrowers may pay as little as 3% down.

It is always preferable to pay 20% down, because that exempts you from paying for private mortgage insurance. This is the monthly fee the lender collects to mitigate the damage should you default on your loan. This fee ranges from just under 0.6% to 1.86% of your home loan.

To be considered for a conventional loan, you need a credit score of at least 620.

Your debt-to-income ratio must not exceed 50%. That means that all of your monthly payment obligations, including your new mortgage loan, must not exceed 50% of your monthly pre-tax income.

The other differences are that conventional loans can cover higher loan amounts than FHA loans, and they take less time to process.

FHA Loans:

Approximately 40% of the homes mortgaged in the U.S. today are obtained with FHA loans. These are government-backed and insured by the Federal Housing Administration. This insures that the banks will not lose money should the borrowers default.

That means that all FHA loans are subject to MIP – a Mortgage Insurance Premium. The borrower will pay an upfront fee of about 1.75% of the loan value and an annual fee that is typically 0.85% of the loan amount. This fee remains in place for the life of the loan, making it advantageous for homeowners to refinance into a conventional loan once they have 20% equity in the home.

This government backing enables first-time buyers with little savings and those with poor credit to become homeowners.

The minimum down payment for a FHA loan is 3.5%. However, a portion of that down payment may be in the form of a gift from a family member.

The stated minimum credit score is 580. However, applicants with scores as low as 500 may be approved if they have a down payment of at least 10%.

FHA loans are stricter than conventional in that the debt-to-income ratio is lower, at only 43%. The difference: If your monthly income is $5,000, you can qualify for a Conventional loan if your debts don’t exceed $2,500. For FHA, your total debt must not exceed $2,150.

FHA loans do come with a loan limit. In most places that limit is $472,030. However, in high-cost areas such as San Francisco County or the Bronx, in New York, the limit is $1,089,300. Check with your lender to learn the FHA loan limit in your city.

Which loan should you choose?

If you can manage it, a conventional loan is the one to choose. However, if you can’t, and if all of the reasons to purchase a home apply to you, then it could be advantageous to start your homeownership career with an FHA loan.

When you’d like to explore your options…

Turn to Homewood Mortgage, the Mike Clover Group. We’ll be happy to discuss your situation and show you the options available.

Call us today at 800-223-7409

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Creative Financing: Is a Home Equity Investment Right for You?


First, what is a home equity investment (HEI)? Also known as a Home Equity Sharing Agreement, it is a way for a cash-strapped homeowner with shaky credit to turn some of his or her home equity into cash.

The homeowner can get cash without taking on additional debt. However they do come with high fees and a loss of home equity.

When you enter into a home equity investment, you allow an investment company to buy a portion of your home’s equity in exchange for cash. These investments are liens, not loans, and they are sold for a percentage of equity, rather than cash.

Generally these agreements last for 10 to 30 years – or until the house is sold. If it is not sold, the homeowner will be liable to pay back the original lump sum, plus the agreed upon percentage of any appreciation in the home’s value.

If the homeowner doesn’t have the cash and cannot get a loan for repayment, the investor can force the sale of the house.

When homes are appreciating significantly, the homeowner could owe the investor 2 or 3 times the original investment at the end of the contract period. Smart homeowners do go into these agreements with a set cap on the annual appreciation that the investor can earn.

The homeowner is taking a risk of owing far more than expected. However the equity buyer is also taking a risk, because at the end of the agreement, the home could have lost value.

Pros and Cons of a Home Equity Investment

The most significant pro is being able to access cash immediately, even with bad credit. This can be attractive to homeowners who are real estate rich and cash poor, with a credit score too low to qualify for a home equity loan. (620 is generally the bottom limit).

Self-employed homeowners and those with a high debt-to-income ratio might also find a Home Equity Investment to be their best option, since there are no monthly payments. 

On the downside, taking on a HEI means pre-selling a percentage of your home’s equity – and future equity. Barring a real estate market crash, you will be paying back more than the lump sum you received.

If you’re a homeowner with options, doing the math might be a good idea.

Doing a simple comparison without considering fees for either type of transaction, let’s look at how the numbers might add up.

Let’s say your home is worth $300,000. If you sell 15% of your equity, you’ll receive $45,000. If your repayment is due in 10 years and the house appreciates by 5% per year, it will be worth $488,668. In other words, it will have gained $188,668 in value. 15% of that would be $28,300. Therefore, you would owe the investor $73,300 (the original $45, plus $28,300).

Had you taken out a home equity loan for $45,000 at 8%, your monthly payment would have been $546. 120 payments at $546 would equal $77,520, so the Home Equity Investment would have cost less.

Unfortunately, we don’t know how much a home will appreciate in 10 years, and the rate a homeowner could get on a home equity loan would depend on credit scores, debt to income, and all the rest. Again, a ceiling on the investor’s income percentage would help protect the homeowner’s interest.

Another con is that your present mortgage holder might not allow you to enter into a HEI, or they might assess a penalty for doing so. They could also invoke their acceleration clause and require immediate payment in full.

Therefore – before you consider this option, do read your mortgage contract carefully.

If you’d like to talk it over with a knowledgeable loan officer, call us.

We at Homewood Mortgage, the Mike Clover Group, will be glad to sit down with you and examine your options.

Call us today at 800-223-7409

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