Factors That Affect Phoenix Interest Rates

Factors That Affect Interest Rates

Many factors are considered when applying for a mortgage loan with the priority being the monthly payment amount. Several aspects contribute to this figure.

Interest rates can play a significant role in determining not just the payment but also the price you’ll pay over the life of the loan.

Have you ever wondered what affects the rates that banks charge? If so, you’re not alone.

Interest rates are determined on two levels. For the sake of this article, we’ll call them internal and external factors. These different items influence most banks and financial institutions everywhere.

External Factors Affecting Interest Rates

  • Supply and Demand – Mortgage rates, like most consumer products, are affected by supply and demand. When the economy is good, and people are buying homes, lenders charge higher prices. When the economy is slow, and homes aren’t selling, banks lower the rates to reel in customers.
  • The Fed – The Federal Reserve Board affects interest rates as a method of controlling economic growth. If the Fed is trying to curb inflation, they raise the prime rate, which slows down the economy and results in higher prices. When the Fed wants to motivate the economy, they lower their standards, which leads to banks charging lower amounts.
  • Bonds – Government-issued bonds can affect mortgage rates as well. Mortgage securities and bonds are in competition for similar investors, so how well the bonds do can change how much interest lenders want to charge customers.

Internal Factors Affecting Interest Rates

Banks lend money to make more money, and they make their money using the interest they collect. There are internal aspects that, while they affect rates, apply only to you.

  • Credit Worthiness – Good credit scores and a regular income are probably what matters most when applying for a loan. Generally, the higher your credit scores, the lower the interest rates you’ll be offered.
  • Loan Type – Rates can be affected by if whether the mortgage is a fixed-rate or an adjustable-rate mortgage.
  • Price of Home – Mortgage loans for small or large amounts may come with slightly higher rates.
  • Location – Rates may vary from state to state.
  • Loan Term – Loans for shorter terms generally have lower rates.
  • Down Payment – The more extensive the down payment, the lower the interest rates are going to be.

How Interest Rates Work

Many homeowners don’t realize that the interest makes up a large part of their monthly mortgage payment. Say a couple borrows $100,000 on a ten-year mortgage. When anticipating their payment amount, they often assume $100,000/120 months = $833. If they weren’t charged interest, that payment amount would be correct. The bank is charging 3% interest, and it’s charged on a monthly basis.

When you take 3% or .03 and divide it by 12, you get .0025. When you multiply $100,000 by that, you get $250, which is the amount of the interest payment. Add the $250 to the $833, and you have an approximate amount for the monthly loan payment. Taxes, insurance, and PMI if needed, are added to that amount.


Although some circumstances affecting overall interest rates are beyond your control, many aspects can be controlled by the borrower. If you have good credit, steady employment and are financially responsible, you’ve won half the battle. Taking advantage of the opportunity to obtain a free credit report can be beneficial.

Doing your research on current financial trends can also keep you aware of the housing market trends. If you’re looking for a mortgage loan give our office a call – our team will be happy to help you.


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Do’s and Don’ts During the Mortgage Process

Mortgage Do’s and Don’ts!

Mortgage ProcessSo you are getting ready to purchase a home? Awesome! Okay, now you might be freaking out over the mortgage process because you’ve probably heard a dozen horror stories from close friends, Uncle Joe, your Cousin Rob and of course…Mom and Dad.

The reality is that getting a mortgage loan does not have to be an overwhelming process. We believe that if you follow some simple do’s and don’ts  that you may actually be able to…dare I say enjoy obtaining a home loan. Wait, what? Did I  really just say that you could actually enjoy the mortgage process? I think I did. Okay, allow me to clarify.

With the right mortgage team (insert shameless plug) making sure that your loan is originated correctly and that all of your bases are covered you most certainly can. Okay, now back to the list. Below is a simple list that will allow you to glide through the mortgage process with ease on your next home purchase.

What to Do After You Have Applied for a Home Loan

  1. Do – Keep things stable! Try not to make any significant life changes that could impact the buying process. For example moving large sums of money from one account to another.
  2. Do – Keep detailed records. Make sure you have access to all of the important tax and income docs, banking information, and more.
  3. Do – Provide your mortgage lender with everything they request at the beginning. This will decrease the amount of work you have to do later on in the transaction.

What NOT to Do After You Have Applied for a Home Loan

  1. Don’t – Change jobs. A job or career change can literally derail the mortgage process, causing you to kiss those soon-to be-keys goodbye.
  2. Don’t – Apply for any new debt. Any new debts could throw your approval out of whack and be the cause for decline.
  3. Don’t – Be the reason for delay. Remember your Mortgage Team has a job to do and that is to help you get into your home quickly and efficiently. Getting them everything they request ASAP helps us, help you, and in turn gets you into your home sooner.

I  hope you have found this simple list to be of value. If you are looking for a Phoenix Mortgage Lender in AZ I  would be honored to serve you. To set up your personal preliminary mortgage consultation please contact my office at 480-351-5904 today.

With Gratitude,

Jimmy Vercellino

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Conventional Financing for Your Home Purchase

Conventional Financing for Your Home Purchase A home purchase is a big deal. It is probably the largest transaction you’ll ever make in your lifetime. With so many types of financing available, it can often be hard to choose or know which type best meets your needs.

As great as many of the government-backed programs are, many individuals aren’t eligible and must go with conventional financing.

Here is an overview of conventional financing and what it entails.

What Are Conventional Loans?

Conventional mortgage loans are loans that are not guaranteed or insured by the government or a government program. Conventional loans are also known as conforming loans. This is because they must conform to the guidelines set by mortgage industry leaders Freddie Mac and Fannie Mae.

Freddie Mac and Fannie Mae purchase mortgages from qualifying lenders. They are then sold on the open market to other banks and lenders. This helps those lenders gain more capital to be able to provide more loans for home purchase.

Conventional loans come from banks, credit unions, and similar private lending institutions. They can be adjustable-rate or fixed-rate mortgages and may have terms from 10 years to 30 years. Freddie Mac and Fannie Mae set guidelines in the following areas.

  • Type of home purchase
  • Amount of income of the borrower
  • Credit scores
  • Maximum loan amount
  • Required documentation from the borrower
  • Debt-to-Income (DTI) ratio guidelines

Conventional Loans vs Non-conventional Loans for Home Purchase

Conventional loans are not guaranteed by government agencies such as the Federal Housing Administration or Department of Veteran Affairs. When a non-conventional loan is guaranteed or backed by the government, it means that the government agency agrees to pay the lender in the case that the borrower defaults on the loan.

Conventional loans must adhere to the various guidelines set by Freddie Mac and Fannie Mae. Conventional loans require a down payment that may be up to 20 percent. On a conventional loan, the borrower must have a DTI that does not exceed the bank’s requirements.

Conventional Loan Requirements

Because conventional loans are not backed by the government, they are riskier for banks and lenders and, therefore, have stricter requirements. To be eligible for a conventional loan for a home purchase, the borrower must typically meet the following requirements.

  • Must have a down payment of up to 20 percent
  • Credit scores must be around 600 or higher.
  • The borrower must meet the lender’s minimum income requirements.
  • Borrower’s DTI must not exceed the lender’s DTI maximum, which is usually about 43 percent.
  • Loan amount must not exceed the guidelines. In most cases, the maximum is $424,100.
  • Private mortgage insurance may be required depending on the LTV (loan-to-value ratio).

Advantages of Conventional Loans

Below are some of the advantages/pros of conventional loans.

  • Private mortgage insurance is cheaper than with non-conventional loans.
  • There is no PMI required upfront on conventional loans.
  • When mortgage insurance is required, it can be eliminated when the LTV reaches 78 percent of the home’s value.
  • There is no down payment required if borrower puts 20 percent down, which can come by way of the home’s value. For instance, if the loan amount is less than 80 percent of the home’s value, that amount can be equivalent to the down payment.
  • Home buyers can borrow up to $424,100 or $625,500 in higher cost areas.
  • The home can be found in almost any area.



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How to Choose the Right Type of Mortgage Loan

Hey Friends / Hey Family!!

Type of Mortgage LoanBuying a home and obtaining a mortgage is perhaps one of the largest debts you will ever acquire in your life. For this reason, we want to help you professionally manage that debt, and in order to do that we must find out what is important to you about your upcoming home purchase.

In other words, we want to custom fit this mortgage to your individual needs like a well-tailored dress for the ladies or a custom-made suit for the fellas. You feel me? Good! So let us discuss this some more. In order to choose the right type of mortgage loan for you, it’s worth mentioning the 4-5 types of mortgages that you will most likely encounter when speaking to a mortgage lender. Let us have a look below.

1. VA Loan – This loan is available for Active Duty Service Members and Veterans that allows them to purchase a home with zero down and no private mortgage insurance (PMI).

2. FHA Loan – This type of mortgage loan allows a homebuyer to purchase a home with as little as 3.5% down, which can also be a gift. This loan also allows for prospective homebuyers with less than perfect credit to obtain a loan in as little as 2-3 years after a bankruptcy or foreclosure. The FHA loan does, however, have private mortgage insurance on the loan on an up-front and monthly  basis.

3. Conventional Loan – These loans require as little as 3-5% down and require private mortgage insurance. However, the PMI eventually drops off once you have accumulated 20% equity in your home. Keep in mind that this PMI will usually be required for a 5-year minimum before you have it removed from this type of mortgage loan.

4. Jumbo Loans – These loans are categorized as anything above the conforming loan limit of $453,100 (in most counties – some high cost counties allow you to go higher).

5. Down Payment Assistance Loans – These loans are available for homebuyers that are interested in obtaining a grant in the form of a forgivable second mortgage that ends up being forgiven in 3-5 years after you have owned the home. Remember this is a generalization as each program has different guidelines/requirements.

Now that we have reviewed each type of mortgage loan, ask yourself the question, “Which one of these mortgages would appeal the most to me?” From there, it is time to zero in on structuring your mortgage. What I mean by structuring the mortgage is ensuring that the down payment, cash to close, and monthly payment are all within your budget for this upcoming purchase. From there your mortgage provider will be able to tell you exactly how much you qualify for and off you go… Now it’s time to get your certified prequalification form and write Your New Home Story!

If you are in the market to purchase a home and would like more information on different types of mortgage loans, feel free to contact me today at 480-800-8387 or email me to schedule your preliminary mortgage consultation over the phone.

Semper Fi!
Jimmy V.

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First Time Home Buyer? Learn How Jumbo Loans Work

How Jumbo Loans WorkShopping for a home to buy can be exciting and fun. Nothing can diminish the excitement quicker than finding your dream home costs more than you’d hoped. And you discover you may not be able to get the loan from your lender.

Ever consider a Jumbo loan? Jumbo loans are an ideal option today for homebuyers who find luxury homes that fall out of the guidelines that conventional lenders must follow.


This home loan program is used when the purchase price exceeds the amount set by Freddie Mac and Fannie Mae. As of 2018, the conforming limits for mortgage loans is $453,100. This means that if the price is higher than $453,100 the loan must be classified as a J

umbo loan. Because homes are more expensive in certain areas, the conforming limits are different in these areas.

In some areas, the limit is $679,650. Areas like Alaska, Hawaii, Guam and the U.S. Virgin Islands have higher limits. The highest conforming loan limit is $721,050. In some of the high-cost areas, a home buyer can get a mortgage loan for more than $700,000 and still pay the FHA’s minimum loan down payment of 3.5%.

Jumbo Loans vs. Conforming Loans

When banks use the term “conforming loans”, what they are referring to are traditional mortgage loans given by banks and lending institutions. They’re called conforming because they conform to government guidelines regarding things like loan size, debt-to-income ratio and credit scores. Traditional mortgage loans are often referred to as conforming because they conform to government guidelines regarding things like credit, debts and loan size.

About the only similarity between conforming loans and this program is that they’re both used to purchase homes. Here are the differences between the two.

  • Jumbo loans are from the same bank that originally provides the money to the homeowner. Conforming loans come from a lender but are often later sold on the open market to government-backed lenders like Fannie Mae and Freddie Mac.
  • To be considered Jumbo loans, they must be for a certain dollar amount.
  • They are not government-backed, and usually have higher interest rates than conforming mortgage loans.
  • Conforming loans are offered at many more banks and lending institutions. The lack of availability of Jumbo loans makes them more competitive, often resulting in higher interest rates and stricter guidelines.
  • Conforming loans typically require lower down payments.
  • Conforming loans are often offered with credit scores in the 600s, while Jumbo loan customers should have credit scores of at least 700.
  • Because the dollar amounts are higher, there is more documentation involved and higher closing costs than with conforming loans.
  • Jumbo loan customers may have to have cash or savings equal to several months of mortgage payments.
  • Applicants must adhere to stricter guidelines, such as having two home appraisals.

Advantages of Jumbo Loans

Despite there being some disadvantages to, there are many times when they’re the right choice. There are pros and cons to all loan types. Here are some advantages:

  • They offer tax breaks to borrowers, who can claim interest payments on loans up to $1 million.
  • The interest rates are lower than in recent years.
  • Private mortgage insurance is not required on this mortgage program.
  • Homeowners can buy luxury homes with Jumbo loan that they might not otherwise be able to afford.
  • Customers with higher credit scores can get lower interest rates with Jumbo loans.
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Home Plus Mortgage Loan Program Benefits

Benefits of the Home Plus Mortgage Loan Program

Buying a home is very exciting and probably the largest transaction you’ll ever make. With the serious housing recession experienced a few years ago, very few people were able to accomplish this.

While the economy has picked up dramatically the past couple years, it’s still very difficult for many individuals or families to buy homes.

Fortunately, there are programs like the Home Plus Mortgage Loan Program to help potential homebuyers fulfill their dreams of being homeowners. Here is a little information on the program as well as the benefits it offers.

What is this Program?

This is a mortgage program administered by the Arizona Industrial Development Authority to help individuals or families buy homes in Arizona without the worry of coming up with a big down payment and closing costs.

Arizona residents can use this program to buy homes in any county but Pima County. Residents of Pima and Tucson County can get down payment assistance from the Pima Tucson Homebuyer’s Solution Program.

What are its Benefits of  Home Plus Mortgage Loan Program?

  • Lower income individuals can become homeowners.
  • Get assistance with down payment and closing costs
  • Assistance is on the second mortgage and gradually forgiven
  • Assistance not added to the first mortgage
  • Applicants get a 30-year mortgage
  • Lenient requirements (credit scores and DTI)
  • Veterans get an additional 1% assistance

How Does It Work?

The Home Plus Mortgage Loan Program offers potential homebuyers assistance with down payments and closing costs on a 30-year fixed rate first mortgage. The amount of assistance a homebuyer can get from the program is based on a percentage of the principal balance of the mortgage loan. This may be from 0% to 5% depending on the loan type.

The recipient receives the assistance in the form of a three-year, no payment, no interest, deferred soft second mortgage loan. Each month, this assistance is forgiven at a rate of 1/36 over the term of the loan.

Applicants can choose from different types of loans, such as VA, FHA, USDA, Freddie Mac, Fannie Mae or some other conventional loan. The percentage of assistance the home buyer chooses will determine the amount of assistance the homebuyer receives. For instance, if an individual wants to buy a home for $200,000 and they choose the 5% option, they would get $10,000 in assistance.

The first step the applicant should take is meeting with a lender to determine eligibility for the Home Plus program. Once it’s been determined that he or she is eligible, they can begin house hunting. When they find their dream home, their realtor will be responsible for negotiating, coming up with the final price and taking care of finalizing the sales contract. With sales contract in hand, the borrower can see the lender and begin the loan process.

Eligibility Requirements

To be eligible for the Home Plus Mortgage Loan Program, the applicant and the loan must meet the following requirements.

  • The home must be the primary residence.
  • Purchase price cannot be higher than $371,936
  • Borrower income must not be higher than $92,984
  • Borrower’s debt-to-income must not be higher than 45%
  • Potential buyers must complete a pre-purchase homebuyer course
  • Co-signer not required to live in the home.


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Buy a House With Low to No Down Payment – Here’s How

How to Buy a House With Low to No Down PaymentOne of the factors that make it most difficult for individuals or couples to become homebuyers is coming up with a big down payment. Commonly, 20%, which is common at many banks, on a $100,000 loan is $20,000.

To some, that amount may as well be $100,000 because it’s almost impossible! Fortunately, there are many options available today for potential homebuyers.

Loan Options with Low or No Down Payment

Here are some excellent loan options that offer low or no down payments to eligible applicants.

VA Loan

Offered through the Department of Veterans Affairs, the VA mortgage loan is a zero-down loan available to current or former military personnel. Although applicants can put a down payment down if they so wish, there is no down payment required.

VA loans do not require excellent credit, and they offer 100% financing. They are even available to those who have been in the National Guard or Reserves for at least six years.

First time home buyers may be required to pay a 2.15% loan fee upfront. Mortgage insurance is not required with VA loans, which alone can save homebuyers hundreds of dollars.

FHA Loan

Offered through the Federal Housing Administration, the FHA loan is probably one of the most popular home mortgage loan types for several reasons. It only requires a 3.5% down payment, and the down payment can come from a gift or an approved non-profit organization.

Borrowers do not need good credit to be approved for an FHA loan. While this may vary by lender, credit scores typically can be as low as 580 with an FHA loan.

FHA loans do require two types of mortgage insurance. One type, 1.75% of the loan, is paid upfront, and the other type, 0.85% is added to the mortgage and paid each month. Mortgage insurance can be canceled when the home reaches 20% equity.

Another big benefit of FHA loans is that their interest rates are substantially lower than conventional mortgage loans.

HomeReady Mortgage®

Backed by Fannie Mae, the HomeReady Mortgage® is a conventional loan type that offers low down payments to eligible borrowers. Borrowers can pay down payments as low as 3%.

The HomeReady Mortgage® is not just for first-time home buyers, but is open to all buyers who meet the requirements. Although borrowers of all incomes can benefit from this mortgage, it’s aimed at helping those with low and moderate incomes.

Because this is a government-backed loan, borrowers also get lower interest rates. It’s typically for borrowers who have a household income 80% less than the median income in that area. The home’s census must meet certain requirements.

Home Possible Mortgage®

The Home Possible Mortgage®, which is backed by Freddie Mac, is a conventional mortgage loan that requires potential borrowers pay as little as 3 percent down payment. Borrowers can have less than perfect credit scores and can have income from non-traditional methods.

Although Home Possible Mortgage® is designed to help low-to-moderate-income home buyers, it’s open to all incomes as long as they meet the eligibility requirements.

When you’re ready to take the plunge, or even if you’re just thinking about it, stop and visit us or give us a call. Our loan specialists are First Choice Loan Services are always ready to help you and show you what we have to offer.


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USDA Loans – How They Help Low Income Home Buyers

How USDA Loans Help Low Income Home BuyersIndividuals or families who want to purchase homes in rural areas often find USDA loans to be the best option.

For eligible applicants, they can offer an opportunity for a person or family to purchase their dream home without having to meet some of the stringent requirements often found in conventional mortgage loans.

What is a USDA Loan?

Offered through the United States Department of Agriculture, USDA loans are mortgage loans for rural and suburban homebuyers. Unlike many other mortgage loans, they require no down payment. Their purpose is to improve the quality of life and economy in rural America.

They also offer low-interest rates to eligible applicants and are also relatively easy to get for those who meet the requirements. More than 126,000 families were able to purchase and upgrade their homes in 2017 through the Rural Development program.

What Are Requirements for a USDA Loan?

Despite it being said that these loans are very accessible, applicants still must meet the eligibility requirements, which are listed below.

  • Must be U.S. citizen or U.S. no-citizen national or qualified alien.
  • The property must meet program criteria.
  • Must meet income levels.
  • Purchase must be for main occupancy.
  • Must be legally able to obtain financing.
  • Must provide proof of willingness to make payments on time.
  • Must not have been banned or suspended from participating in federal programs.

Are There Requirements as to How the Money Can Be Used?

There are requirements on how the loan proceeds can be used, but they are quite generous.

  • For new or existing residential property to be used as your home
  • For a site with an existing or new dwelling
  • To refinance a current eligible loan
  • For repairs or remodeling an existing dwelling
  • To install features for a household member with a physical disability
  • To pay fees for connection and cost of utilities
  • For a pro-rata share of property taxes to be paid at closing
  • For necessary household equipment like laundry appliances, heating and cooling equipment, wall-to-wall carpeting, ovens, ranges and refrigerators
  • To purchase energy efficient products (solar panels or insulation)
  • For installing broadband service to the dwelling
  • To pay for preparation costs, including landscaping, driveways, foundations, trees and fences

How Do USDA Loans Help Low-Income Home Buyers?

They can help low-income home buyers in many ways. When consumers can’t purchase a home or obtain a mortgage loan, it’s usually because they can’t afford a down payment. Or it can be that they can’t afford high monthly payments that may result from high interest rates. USDA loans are known for offering homebuyers lower interest rates than they’d find with conventional loans, which mean lower monthly payments.

Another bonus, and probably the biggest one, is the zero-down payment feature. A large down payment requirement is probably the biggest reason aspiring homebuyers cannot buy homes today. If a homebuyer must put down 20 percent on $150,000, that comes to $30,000. By not requiring a down payment, the USDA loan is very much helping low-income individuals become homebuyers.

If the USDA loans sounds like it might be the right loan for you, and you think you may meet the requirements for the loan, don’t wait another second. Contact us at First Choice Lending Services. Speak with our qualified loan specialists and see what we can offer you.

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Learn More About the USDA Mortgage Loan

Helpful Facts About USDA Mortgage Loan

Potential homebuyers today have many options available to them in the way of mortgage loan programs.

One loan program that offers many benefits to potential homebuyers is the USDA Mortgage Loan. Here is some information on the USDA mortgage, including what it is, who it’s for and steps to take if interested.

What is a USDA Mortgage?

Officially referred to as the Section 502 Single Family Housing Guaranteed Loan Program, the USDA mortgage loan is a mortgage option offered to individuals or families living in rural and certain suburban areas in the United States.

Although the finance comes from lenders, the loans are guaranteed by the U.S. Department of Agriculture.

The purpose of the USDA’s loan program is to provide families with low-to-moderate income the chance to purchase home in rural areas.

USDA loans do not require the borrower to have a down payment. However, because you’re not putting 20 percent down payment, you’ll need to purchase private mortgage insurance (PMI).

Eligibility for a USDA Mortgage Loan

Although the main eligibility requirement for a USDA mortgage is low-to-moderate income, there are other requirements applicants must meet to be eligible for the loan.

  • Must be a U.S. citizen
  • Must have consistent income for at least two years
  • No late payments on bills for last 12 months
  • Appropriate income-to-debt ratio, as per lender
  • Must occupy dwelling as primary residence
  • Income must not be more than 115 percent of area median income.
  • Must not have been suspended from participating in other federal programs
  • Property must meet program eligibility

Do I Have to Live on a Farm to Get a USDA Mortgage?

Although the home you’re hoping to buy must be in an area that is considered rural, you do not have to live on a farm.

What many don’t realize is that in almost every county throughout the nation, there are parts that are deemed rural. You can live only a mile or so from a large city and still be living in an area that’s zoned rural.

If the property you wish to buy includes a lot of acreage, the property may still be eligible as long as it’s not going to be used primarily for income-producing reasons. Properties used to produce income and vacation homes cannot be purchased with a USDA mortgage.

Benefits of a USDA Mortgage Loan

Here are some of the benefits of a USDA mortgage loan.

  1. No Down Payment – This is probably the biggest benefit for potential home buyers. On a conventional mortgage requiring 20 percent down payment, the home buyer would need to put down $20,000 on a $100,000 home purchase. Even with a 3.5 percent down payment (FHA loans), the borrower would have to come up with $3,500.
  2. Interest Rates Lower Than Market Rates – Because this is a USDA-backed loan, borrowers are charged a lower-than-average interest rate, and the rate won’t fluctuate based on your down payment or credit scores.
  3. Less Rigid Credit Requirements – Borrowers with less-than-perfect credit can still get USDA loans. They also allow borrower to use companies like cell phone or utility companies as proof of credit or payment history.
  4. Lower Private Mortgage Insurance – The premiums for PMI are lower with USDA loans. Once borrowers have paid two percent of the loan amount as the initial PMI, they only have to pay 0.5 percent of the remaining balance over 12 months.
  5. PMI Can Be Financed Upfront – Unlike other loans that require you to pay this amount at the loan closing, USDA loans allow borrowers to add this amount into their loan.
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Seller Concessions When Buying a Home – What Are They?

What Are Seller Concessions When Buying a HomeBuying a home is probably one of the largest transactions you’ll make in your lifetime.

Seller concessions is one way that buyers can save some money. In some cases, this can be a substantial savings.

In most cases, you’ll not only be paying for the home but will also be paying interest and many additional closing costs. Because of this, you’re going to want to save as much money as possible in the transaction.

Here is some helpful information on about it and how you may benefit from them.

What Are Seller Concessions?

Seller concessions are also referred to as seller contributions because that’s exactly what they are. They’re contributions the seller agrees to pay during the closing of the mortgage loan.

Home buyers often forget, or may not even be aware of, the many closing fees involved in the home buying process. As the loan closing approaches, they’re reminded that there are many additional fees many of which must be paid at the closing.

In some cases, these fees may be added into the loan. However, if they can’t be added in, it can result in the buyer being forced to cancel the sale if he or she can’t afford to pay the fees. Seller concessions can help the buyer complete the transaction because the seller will pay some or all of the extra fees.

What Type of Fees Are Included in Seller Concessions?

Sometimes, buyers have their finances stretched to the limit after they’ve put down a down payment. As stated above, loan closing costs can add up to thousands of dollars.

It’s seldom the same in every transaction. Some of it may depend on state laws regarding real estate purchases, and some of it may depend on the value of the home.

Closing costs may include any or all of the following:

  • Title insurance costs
  • Transfer fees
  • Inspection fees
  • Attorney fees
  • Loan processing fees
  • Appraisal fees
  • Fees for credit reports

Is There a Limit on Seller Concessions?

State laws, as well as geographic location, may also dictate the amount or type of fees that may be included in a seller concession.

There are limits as to how much a seller can pay in concessions. The limits are usually between 2 and 9% of the home’s appraised value.

Although the amount can be negotiated between the mortgage broker and real estate agent, these factors can also play a role in determining the amount of the concessions:

  • Type of mortgage
  • How the home or property will be occupied
  • Amount buyer borrows

Advantages of Seller Concessions

The main advantage to seller concessions is that the buyer is going to save money and may be able to purchase a home that he or she might not otherwise be able to afford.

While it appears that this may benefit just the buyer, they can also benefit the seller.

If the seller is eager to sell the real estate, paying for all or some of the closing costs can speed the process along. If the seller is planning to buy a different home, the seller is probably going to be eager to sell.

Paying the concessions can make the original sale go quicker, which will make it possible to purchase the second property quicker.

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