Read our collection of guides and articles about affordable lending to help you on your mortgage journey.

Affordable Lending

<p>Tell us a little about your finances and the type of property you’re looking to buy. This home affordability calculator will help you understand how much house you can afford.</p>

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<h2 id="getpreapprovedin3minutes">Get pre-approved in 3 minutes  </h2>

<p>The next step is to get a Better Mortgage <a href="https://better.com/preapprovals/purchase">basic pre-approval letter</a>. It takes just 3 minutes online and won’t affect your credit score. You can print it out and share it with your real estate agent, or go back and re-run the numbers at any time.</p>

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<h2 id="whatmakesourhomeaffordabilitycalculatorbetter">What makes our home affordability calculator better?  </h2>

<p>Other online calculators use various rules of thumb to estimate how much house you can afford, such as "you should never spend more than 43% of your income on a mortgage". We take a different approach. Our home affordability calculator takes your information, checks the latest interest rates, and runs a quick automated underwriting process based on the thousands of combinations of loan products and rates that are available to our borrowers.</p>

<h2 id="goinghousehuntinggetcertainty">Going house hunting? Get certainty.  </h2>

<p>If you’re ready to go house hunting in earnest, we strongly recommend getting our <a href="https://better.com/preapprovals/purchase">basic pre-approval</a>. You’ll provide us with a few pieces of information, and we'll give you a quote for how much you can get approved to borrow from Better Mortgage. If you’re house hunting in a competitive market, this can give your offer an edge over other bidders. But don’t take our word for it.</p>

<blockquote>
  <p>“Being able to get pre-approved through Better Mortgage really gave us a significant advantage over other buyers, the seller felt much more confident working with us.”</p>
  
  <p><strong>Bruno &amp; Sabrina, home buyers in San Francisco, CA</strong></p>
</blockquote>

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<p><em>Disclaimer: This home affordability calculator is made for illustrative purposes only. Accuracy is not guaranteed.</em></p>

This home affordability calculator can help you understand how much house you can afford before you start the shopping process.

Home Affordability Calculator - How Much House Can I Afford?

blog HMH update

Home affordability calculator – how much house can I afford?

<p><a href="https://better.com/start/thinking-of-buying"><img src="https://media.better.com/content/prod/2018/09/What-is-PMI9.jpg"></a></p>

<p><br> <br />
If you’re planning to buy with a down payment lower than 20%, you might’ve heard of “private mortgage insurance,” or PMI. If you clicked on this article, you’re probably still not sure what PMI means and how it will affect the total cost of your mortgage. Let’s clear that up now. </p>

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<h4>What is private mortgage insurance?</h4>

<p>To offer affordable mortgage options, lenders often require PMI for borrowers putting down less than 20%. This insurance lowers lenders’ financial risk and allows them to make homeownership an option for people without the cash for a traditional down payment. </p>

<p>Most borrowers choose to include PMI as part of their monthly payments; although, homeowners often have the option to pay up front instead. Some lenders also offer “lender-paid” mortgage insurance, meaning they pay for your mortgage insurance up front, and you repay them every month with a slightly higher interest rate.</p>

<p>Your PMI payments will automatically end when you reach 22% equity in your home or on your request at 20% equity. Keep in mind that FHA loans require a different mortgage insurance that cannot be removed, so it’s often paid for the life of the loan. If you’re looking to avoid potential long-term costs of FHA mortgage insurance, the HomeReady program may be the right option for you. If you’re still unsure, we <a href="https://better.com/content/fha-homeready/">break down the differences</a> between these two affordable loan options.
</p>

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<h4> How much does PMI cost? </h4>

<p>Your PMI pricing is determined by your total loan amount and your mortgage insurance rate. Your unique rate depends on multiple factors, but here are a few to keep in mind:</p>

<ul>  
<li> <strong>Down payment percentage:</strong> The higher your down payment, the lower your mortgage insurance payment. This works in tiers, so your PMI will be the lowest when you put 15% down, then 10%, then 5%, then 3%. </li>

<li> <strong>Credit score:</strong> The higher your credit score, the lower your mortgage insurance payment. Again, this works in tiers — your PMI will be the lowest if you have a credit score above 760, and the pricing will increase with every 20-point drop in your credit score. <a href="https://better.com/content/how-your-credit-score-affects-your-mortgage/">Interested in improving your credit score? Find out how here.</a>  
</li>

<li> <strong>Debt-to-income (DTI) ratio:</strong> Your DTI ratio is your total monthly debt payments divided by your gross monthly income. If your DTI is above the 45% threshold, your PMI may cost significantly more. <a href="https://better.com/content/improving-your-debt-to-income-ratio-dti-when-applying-for-a-mortgage/">Calculate your DTI here.</a>  
 </li>

<li> <strong>Property occupancy:</strong> When you apply for a mortgage, you’ll be asked how your property will be used. PMI will be lowest if your property is classified as a primary residence, slightly higher if it’s a second home, and highest if it’s an investment property. <a href="https://better.com/content/primary-residence-second-home-or-investment-property-whats-the-difference/">Learn more about the requirements for each of these property categories here.</a>  
</li>

<li> <strong>Number of borrowers: </strong>A borrower is anyone listed on your mortgage whose income, assets, and credit history are used to qualify for the loan. If you have more than one borrower on your mortgage, your PMI will be cheaper. That’s because lenders feel safer knowing that at least two people are responsible for the loan.

<a href="https://better.com/content/should-you-add-a-co-borrower-to-your-mortgage/">See if you should add a co-borrower to your mortgage here.</a>

 </li>

</ul>

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<h4> Is PMI worth it? </h4>  

<p>While low down payment loans can make it easier or faster to get your dream home, you might be worried about the additional cost that comes with private mortgage insurance. So should you wait until you have that magic 20% down payment?</p>

<p>If you’re a renter and the only thing in your way of buying is the down payment, consider this: by the time you save enough to make that 20% down payment, there’s a good chance you’ve already spent the money you “saved” on PMI on your rent.<sup>1</sup> There are, however, certain scenarios where it might make sense to wait to buy and lower your PMI costs.</p>

<h4>How to save on PMI </h4>  

<p>Often, a boost to your financial profile can only slightly improve your PMI pricing. However, there are still some cases in which you may save a significant amount on mortgage insurance by improving a few of your numbers. Your credit score and DTI are two of the most influential factors of your pricing. If you have a flexible timeline, it might make sense to hold off on buying a house until you can get both of those numbers in good shape. Here are some tips for <a href="https://better.com/content/how-your-credit-score-affects-your-mortgage/">increasing your credit score,</a> and here are some best practices to <a href="https://better.com/content/improving-your-debt-to-income-ratio-dti-when-applying-for-a-mortgage/">get your DTI under the 45% threshold.</a></p>

<p><i>Tip: Some homebuyers choose to lower their down payment percentage if it only slightly increases their PMI payment. That way, they have some spending room for the other upfront costs of buying a home, such as renovations or furnishings.</i></p>

<p>You can also save by shortening your payment period, so you can reach the 20% equity needed to remove PMI sooner. Consider shopping for homes with a lower purchase price while still using your intended down payment savings. Doing so will boost your equity relative to your home’s value, so you’ll be closer to 20% without having to save up additional down payment funds. Lowering your price range isn’t always possible, especially in competitive housing markets. Instead, you might opt to make larger monthly mortgage payments than required for your loan to build equity faster and reduce your PMI timeline. </p>

<p>Another way to save on mortgage insurance is through <a href="https://better.com/content/fha-homeready/">HomeReady, an affordable lending program</a> similar to the government's FHA loan program. As mentioned earlier, HomeReady comes with cancellable private mortgage insurance, while FHA mortgage insurance is often required for the life of the loan. And if you plan on making a down payment below 10%, HomeReady will reduce the standard PMI coverage requirements, so you’ll receive better PMI pricing as well. <a href="https://better.com/content/fha-homeready/">See if you qualify for HomeReady here.</a></p>

<h4> Understanding your options </h4>

<p>Deciding if it’s the right time to buy? Planning your down payment strategy? A great way to understand your options is by exploring each scenario with a Mortgage Expert. They can help you understand your numbers, their impact on your PMI and overall monthly payment, and what makes the most sense for your unique circumstances. Schedule a free consultation with one of our non-commissioned Mortgage Experts today for honest guidance and support. <br />
<br>  </p>

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<div class="footnotes"><ol><li class="footnote" id="fn:1"><p><a href="https://host.visualcalc.com/mgiccalcs/buywait.jsp">https://host.visualcalc.com/mgiccalcs/buywait.jsp</a> <a href="#fnref:1" title="return to article">↩</a></p></li></ol></div>

PMI, or private mortgage insurance, is required for low down payment mortgage loans. Learn about how it can affect the final cost of your mortgage.



PMI aka mortgage insurance: Here’s what you need to know

What-is-PMI9-1

What is PMI or Private Mortgage Insurance?

<p><a href="https://better.com/start-purchase"><img src="https://media.better.com/content/prod/2018/03/First_time_homebuyermainimage2.jpg"></a></p>

<p>What do you do when there are multiple offers on the homes you want and you can never win the bid? Navigating the homebuying process in a seller’s market can be daunting – especially if you’re a first-time homebuyer. That’s why we created the <a href="https://better.com/content/could-you-make-a-better-offer/">Better Offer</a> to help our customers compete and win. </p>

<p>The Better Offer allows buyers in select markets to not only underwrite their finances, but also get the appraised value of their home before they submit an offer. That means they have the option to waive both financing and appraisal contingencies to make their offer as competitive as cash. The certainty they get about their financing and home value is simply the cherry on top. <br />
<br></p>

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<p><br> <br />
Better recently talked to a customer who beat out multiple offers by using the Better Offer, putting just 12.5% down on a home in Mill Creek (Seattle metro area).</p>

<p><br>  </p>

<h4 id="canyoudescribeyourhomebuyingprocesshowdidshoppinginacompetitivemarketimpactyou">Can you describe your home buying process? How did shopping in a competitive market impact you?</h4>

<p><span style="color: #00c397"><strong>First-time Homebuyer:</strong></span> We had a steep learning curve as first-time buyers in a super competitive market. After casually touring open houses in the first few weeks, we learned that any reasonable homes were flying off the market and we'd need a good strategy to win an offer. We did not get outbid by an all-cash offer, but we did lose out on multiple offers that were competitive. <br />
<br></p>

<h4 id="whydidyouchoosetoworkwithbetter">Why did you choose to work with Bette Mortgage?</h4>

<p><span style="color: #00c397"><strong>FH:</strong></span> We were introduced to Better Mortgage from our agent at FlyHomes and heard about the Better Offer. It seemed like a good strategy without having to engage in a pricing war. Better Mortgage was quick and transparent with all communication and we enjoyed the efficient use of dashboards for submitting and receiving critical documents. <br />
<br></p>

<h4 id="canyoutellusmoreaboutyouroffer">Can you tell us more about your offer?</h4>

<p><span style="color: #00c397"><strong>FH:</strong></span> We waived all contingencies before submitting our offer. The fact that we had lending clearance and estimated appraisal BEFORE submitting our offer ensured how much we could escalate without having to stress over the possibility of overbidding. Waiving the contingencies plus the short closing period definitely helped us win this bid, despite another competing offer with a higher escalation price than ours. </p>

<p>The pre-approval and appraisal is without a doubt a very competitive move for any buyer. First-time buyers may deal with plenty of anxiety and uncertainty. This strategy can enhance their chances of winning a bid without sacrificing on their end!</p>

<p><em>Answers edited lightly for clarity.</em></p>

<p>Want to learn more about making a Better Offer? <a href="https://better.com/schedule-call?loanType=purchase&TRACKINGLOCATION=qahafthbtcwlt2d&TRACKINGBRANDING=purchase">Schedule a call</a> with one of our licensed Mortgage Experts. 
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<p><br> <br />
Get <a href="https://better.com/content/7-ways-to-make-your-offer-stand-out/">tips on how to make a competitive offer here</a>.</p>

What do you do when there are multiple offers on your dream home? We asked a first-time homebuyer in Seattle who beat the competition with just 12.5% down.

How a first-time homebuyer won the bidding war with a low down payment

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Q&A: How a first-time homebuyer beat the competition with less than 20% down

<p><a href="https://better.com/preapprovals/refinance"><img src="https://media.better.com/content/prod/2018/03/RidofMortgageInsurance-MainImage-1.jpg"></a></p>

<p>If you’re a homeowner, you might be familiar with (or currently paying) mortgage insurance. To offer affordable options, lenders often require mortgage insurance for certain types of loans. This insurance lowers lenders’ financial risk and makes homeownership accessible even if you don’t have a ton of cash to pay up front. While these loans can make it easier or faster to get your dream home, paying mortgage insurance every month can add up over time. The good news? We’ve outlined several easy paths to removing your mortgage insurance below. <br />
<br>  </p>

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<p><br>  </p>

<h4 id="understandingltv">Understanding LTV</h4>

<p>Your path to removing mortgage insurance depends on the type of loan you have and its mortgage insurance LTV requirements. Your LTV, or loan-to-value ratio, basically measures how much equity you have in your home. You can calculate your LTV by dividing your current loan balance by the original value of your property and multiplying that by 100. So if you put 10% down on a 200,000 home, your initial loan balance would be $180,000 and your LTV would be 90%. The more payments you make, the lower your LTV will be. </p>

<p><br>  </p>

<h4 id="typesofmortgageinsurance">Types of mortgage insurance</h4>

<p><span style="color: #00c397">Conventional loans: PMI</span> <br />
Mortgage insurance for conventional loans is called <strong>private mortgage insurance</strong> or <strong>PMI</strong> (conventional loans are loans that are not part of government programs like FHA). </p>

<ul>
<li>PMI is required if your LTV is above 80% (meaning your down payment was less than 20%). </li>
<li>PMI cancels automatically when you pay off enough of your loan that your LTV reaches 78%, or if you’ve reached the midpoint of your loan term (i.e. 15 years into a 30-year fixed loan).</li>
<li>PMI can also be canceled slightly earlier, at 80% LTV, upon your request, given that you’ve met your lender’s criteria.</li>
</ul>

<p><span style="color: #00c397">FHA Loans: MIP</span> <br />
On the other hand, mortgage insurance for FHA loans, called <strong>mortgage insurance premium</strong> or <strong>MIP</strong>, is required for all borrowers – regardless of their LTV. </p>

<ul>
<li>If your LTV was greater than 90% when you bought your home (meaning you put less than 10% down), you’ll have to pay MIP for the entire life of the loan</li>
<li>If your LTV was 90% or less (meaning you put more than 10% down, or even more than 20% down), you’ll be required to pay FHA MIP for 11 years or for the life of the loan, whichever happens first.</li>
</ul>

<p><br>  </p>

<h4 id="howtostoppayingmortgageinsurance">How to stop paying mortgage insurance…</h4>

<p><span style="color: #00c397">...if you have an FHA Loan:</span> <br />
Because there is no option to cancel FHA mortgage insurance, it’s likely that your best option is to switch to a conventional loan by refinancing. You may be able to do this once your LTV ratio is lower, or if you’ve improved your credit score. There are a variety of conventional loan options out there, including affordable loans like HomeReady. (<a href="https://better.com/content/fha-homeready/">You can learn more about HomeReady here.</a>) By switching into a conventional loan, you’ll be eligible to cancel mortgage insurance when you reach 80% LTV (or if you’ve already hit 80% LTV, you won’t have to pay it at all). Another potential benefit: PMI rates are generally cheaper than FHA rates for borrowers with good credit, according to the CFPB.<sup id="fnref:1"><a href="#fn:1" rel="footnote">1</a></sup></p>

<p><span style="color: #00c397">…if you have lender-paid mortgage insurance:</span> <br />
While some loans advertise “lender-paid” mortgage insurance, the reality is you’re still paying for it. In this instance, the mortgage insurance was paid in full when your loan was issued, and you repay it every month in the form of a slightly higher interest rate. This might have been the best decision for you when you first got your loan, but you may want to consider refinancing out of this loan if you qualify for a new loan with no mortgage insurance, a lower interest rate, or even both. <br />
<br>  </p>

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<p><br> <br />
<span style="color: #00c397">...if your home has increased in value:</span> <br />
If home values in your area have gone up or if you’ve made significant home improvements, there’s a chance the value of your home (and your equity) has increased since buying. That means you might be closer to an 80% LTV (and a loan without mortgage insurance) than you think. Here again, refinancing may be the right option. If your home value has increased enough, your new lender won’t require mortgage insurance after you refinance. In some situations, you may not need to refinance to take advantage of an increased home value: your current lender may be willing to remove your mortgage insurance if a new appraisal confirms the lowered LTV.</p>

<p><span style="color: #00c397">…if your finances have improved:</span> <br />
If you’ve built up savings or if your income has increased since you first got your loan, you could use that money to gradually prepay your mortgage principal until you reach 80% LTV and are eligible for PMI cancellation. Or if you’d like to pay off a chunk of your mortgage and refinance to take advantage of lower rates in one go, a “cash-in refinance” might be the answer. In this scenario, you’ll bring cash to the closing of your refinance and pay down your loan amount to get a new, PMI-free loan.</p>

<p><a href="https://better.com/preapprovals/refinance"><img src="https://media.better.com/content/prod/2018/03/MortgageInsurance_Pull_quote2x.png"></a> <br />
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<h4 id="whatsyourbestbet">What’s your best bet?</h4>

<p>You’ve probably noticed that refinancing can often be used as a way to remove mortgage insurance. If mortgage rates are lower than when you originally got your mortgage, refinancing may not only remove your mortgage insurance, but also reduce your monthly interest payments. Just make sure that your refinance costs don't exceed the money you save by eliminating mortgage insurance. The easy way to determine that is by dividing the cost of refinancing by the monthly reduction in payment. (Remember that you may be able to roll the closing costs into your loan for a <a href="https://better.com/content/no-cost-mortgage/">“no cost” refinance.</a>) If you’d like to talk through your mortgage insurance removal options, our non-commissioned Mortgage Experts are here to help. Schedule a free call today. <br />
<br>  </p>

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<p><br></p>

<div class="footnotes"><ol><li class="footnote" id="fn:1"><p><a href="https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-122/">https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-122/</a> <a href="#fnref:1" title="return to article">↩</a></p></li></ol></div>

Are you currently paying for mortgage insurance? Here are some ways you might be able to get rid of it and save in the long run.

How to get rid of mortgage insurance

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<p><em>Emanuel Santa-Donato, Director of the Capital Markets team at Better Mortgage, explains how we make it easy for our customers to access affordable lending discounts.</em></p>

<p><a href="https://better.com/discount"><img src="https://media.better.com/content/prod/2018/01/Mortgage_discounts-headerimage1.png"></a></p>

<p>If you’re a savvy borrower looking to get a new mortgage or refinance your current loan, chances are you’re spending a lot of time talking to different lenders to make sure you get the best deal. So here’s a pro-tip to help you advocate for yourself: Ask the lender if you qualify for any discounts based on your financial profile or where you’re looking to buy. </p>

<p>Many borrowers, especially first-time homeowners, might be able to take advantage of lending programs designed to help make this big financial decision a little cheaper, but often traditional lenders won’t surface that information to you. At best, they haven’t done their homework to find these programs and evaluate your eligibility. At worst, they might not be incentivized to offer the discount because passing these on to you means less money for them.</p>

<p>We decided it was time someone did it <em>better</em>. <br />
<br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/discount">See if you qualify for a mortgage discount</a>  
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<p><br></p>

<h3 id="theaffordablelendinglandscape">The affordable lending landscape</h3>

<p>We believe homeownership can be an important path toward financial security, community investment, and a stronger middle class. Federal programs and other government-sponsored entities like Fannie Mae agree. That’s why they’ve created a variety of affordable lending products, designed to help more people get access to loan options that are safe and financially sound. </p>

<p>Better offers our customers access to a few mortgage discounts. The first are Fannie Mae’s HomeReady loan and an FHA loan. (Read more about <a href="https://better.com/content/fha-homeready/">the pros and cons of both options</a>. We generally recommend a HomeReady loan if your credit score is at least 620, since it offers the option to cancel mortgage insurance once your home equity reaches 20%.) There's also a loan discount subsidized by community banks and branches of national banks in your community. Essentially, these programs can offer discounts in the form of credits, which allow you to qualify for more attractive mortgage pricing. That means it could cost you less money upfront to be able to get the rate on the loan you want. <br />
<br> <br />
<a href="https://better.com/discount"><img src="https://media.better.com/content/prod/2018/03/4People-04.png"></a></p>

<h3 id="morepeopleareeligiblethanyoumaythink">More people are eligible than you may think</h3>

<p>One in four of our borrowers is eligible for an affordable lending discount, and that number is growing every day. Eligibility for discounts can be based on things like your location, income, or the median income in the area where your home is. Better has done the work to identify these discounts county-by-county so we can assess your eligibility accurately. And discounts aren’t just for first-time homebuyers — they’re often available to experienced homebuyers and refinancers, too. </p>

<p>In fact, we worked with one refinance customer who was eligible for a HomeReady discount but wasn’t told about it when they got their first mortgage. Later, when they were looking to refinance, another lender mistakenly told them they weren’t eligible. Better Mortgage was able to help them refinance with the discount, so they paid only $137 in closing costs and saved $280 on their first mortgage payment alone.</p>

<p><br></p>

<p><a href="https://better.com/discount"><img src="https://media.better.com/content/prod/2018/01/IphoneMock2--1-.png"></a></p>

<p><br></p>

<h3 id="wevebuilttoolstohelpyousaveautomatically">We’ve built tools to help you save automatically</h3>

<p>At Better Mortgage, our technology automatically looks for mortgage discounts you may be eligible for, so we can pass the savings directly to you. </p>

<p>In addition to finding customers discounts instantly, Better also doesn’t charge any lender, application, underwriting, or origination fees. And we’re  confident that we can get you the best deal. </p>

<h3 id="wanttoseehowmuchyoucouldsavebygettingyourloanwithbetter">Want to see how much you could save by getting your loan with Better Mortgage?</h3>

<p>Instantly check to see if you’re eligible for a discount by giving us an address and some basic financial information. <a href="https://better.com/discount">Start here if you’re refinancing or if you have an address of a property you’d like to buy</a>.</p>

<p>Questions? <a href="hhttps://better.com/schedule-call?TRACKINGLOCATION=hbfmdaptoty&amp;TRACKINGBRANDING=general">Schedule a call</a> with one of our Mortgage Experts.</p>

<p><br></p>

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Make sure you’re getting the best deal on your mortgage. Instantly check to see if you qualify for any mortgage discounts.

How to Get Discounts on Your Mortgage

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How Better finds mortgage discounts and passes them on to you

<p><em>Vishal Garg, Founder and CEO of Better Mortgage, shares advice on how customers can make sure they’re getting the best mortgage for them.</em></p>

<p><a href="https://better.com/start"><img src="https://media.better.com/content/prod/2017/11/FindMortgage-headerimage.png"></a></p>

<p>Hear me out: getting a mortgage is a lot like booking a flight. When people shop for flights, there are things that they’re willing to negotiate on (like a layover, leaving from a different airport, or flying a certain airline). They do this in order to help them save money, get airline miles, or keep them on schedule. Flight shoppers can go to each airline’s website one by one to find flights that fit their requirements. Or, they can go to an aggregator like Kayak, apply a few filters, and pick the option that works best for them. Finding the right mortgage product is sort of like that. It’s not one-size-fits-all -- at Better Mortgage, customers figure out exactly what they want, make sure they’ve looked through all of the options available, and then select their perfect mortgage.</p>

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<h2 id="sowhydoeschoosingthebestmortgagesometimesfeeldifficult">So why does choosing the best mortgage sometimes feel difficult?</h2>

<p>People often don’t pick the right mortgage product for many different reasons:</p>

<ul>
<li>They aren’t aware of what’s actually available to them.</li>
<li>They got bad advice from someone (like a parent, real estate agent, or lender).</li>
<li>They’re still a little uncertain after the 2008 financial crisis (for good reason).</li>
</ul>

<p>Most people think they need to put 20% down on a 30-year fixed mortgage to buy a home safely. Often, that misconception prevents people from even considering homeownership in the first place. A 2015 survey by Fannie Mae found that 40% of consumers said they didn’t know what size down payment mortgage lenders would require from them.<sup id="fnref:1"><a href="#fn:1" rel="footnote">1</a></sup> Seventy-six percent didn’t know that lower 3-5% down payment options even existed. These stats were even higher among lower-income consumers. However, the reality is that there are many more financing options out there to meet homebuyers’ needs.</p>

<p><br></p>

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<h2 id="whatmortgageproductsareoutthere">What mortgage products are out there?</h2>

<p>There are mortgages available for many different situations. It’s critical to understand what’s out there in order to make the best choice. Your options range anywhere from shorter terms on fixed rates to adjustable rate mortgages, as well as affordable lending products like FHA (Federal Housing Administration) loans, CRA (Community Reinvestment Act) loans, and <a href="https://better.com/content/fha-homeready/">Fannie Mae’s HomeReady</a>. These loans are designed to help creditworthy borrowers, including first-time homebuyers, get access to financing by offering competitive rates with down payments <strong>as low as 3%</strong>.</p>

<p>At Better Mortgage, 72% of our homebuyers put less than 20% down on their homes. We also find that when our Better Mortgage customers are buying a home, they tend to pick a 30-year fixed rate mortgage, but that percentage falls with our refinance customers. In other words, the more comfortable and educated a borrower, the more open they are to shopping for the product that works best for them.</p>

<p><a href="https://better.com/start-purchase"><img src="https://media.better.com/content/prod/2017/11/Chart1.png"></a></p>

<h2 id="howdoyouchoosethebestmortgageforyou">How do you choose the best mortgage for you?</h2>

<p>Whether you're a first-time homebuyer or seasoned mortgage shopper, at Better Mortgage we recommend starting off by considering these three things:</p>

<ul>
<li>How long will you be in your home?</li>
<li>How much can you comfortably put down up front (including down payment and closing costs)?</li>
<li>How much can you afford to pay each month?</li>
</ul>

<p>Your answers to these questions will help you understand exactly what kind of mortgage you should be looking for. So if you’re going to be in your home for less than 7 years, prefer to limit your upfront costs, but are willing to pay more each month, you might pick a different loan than if you decide to stay in your home forever, would rather pay less each month, and put more down up front.</p>

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<p>Once you know your preferences and how much you can afford, it’s important to line up all your options. Often, lenders won’t mention certain loan products to you because:</p>

<ul>
<li>They lack the ability or would prefer not to do the extra work to assess your eligibility for affordable options.</li>
<li>Some loan products may come with lower profit and commissions, so lenders aren’t incentivized to make them available to their customers.</li>
<li>They just don’t offer a variety of loan products that suit the full range of homebuyer needs.</li>
</ul>

<h2 id="bettermakesiteasytofindyourperfectmortgage">Better makes it easy to find your perfect mortgage</h2>

<p>Because our matching engine calculates eligibility on the fly, we’re able to highlight these affordable products for our customers in near real-time. And we’ve eliminated all unnecessary fees, including commission for loan officers, which means we’re incentivized to help you find the product that works best for you. At Better Mortgage, we believe in letting technology do what it’s good at, so humans can focus on what they're good at. Combined, that adds up to significant savings for homeowners across the country.</p>

<p>We’re more than happy to help walk you through your mortgage options and find the right choice for you. You can <a href="https://better.com/schedule-call?TRACKINGSOURCE=blog_ftmtrfy">schedule a free call</a> with one of our licensed Mortgage Experts, or you can <a href="https://better.com/start">get started on your mortgage journey here</a>.</p>

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<div class="footnotes"><ol><li class="footnote" id="fn:1"><p><a href="http://www.fanniemae.com/resources/file/research/housingsurvey/pdf/consumer-study-121015.pdf#page=14">http://www.fanniemae.com/resources/file/research/housingsurvey/pdf/consumer-study-121015.pdf#page=14</a> <a href="#fnref:1" title="return to article">↩</a></p></li></ol></div>

Mortgages aren’t one-size-fits-all. Here’s how to make sure you’re getting the best mortgage for you.

How to find the mortgage that’s right for you

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<p><em>Michael McGinniss, a non-commissioned Mortgage Expert at Better Mortgage, highlights what homebuyers should look for when comparing FHA and HomeReady.</em></p>

<p>Trying to figure out how to buy a home while you're still paying off student loans? Still recovering from a blip on your credit report and wondering if you can qualify for a mortgage? Looking to buy a home for the first time, but sky-high rent has drained your savings?</p>

<p>Many of us face these types of financial obstacles in our journeys to homeownership. Maybe you’ve looked into <a href="https://better.com/content/find-the-mortgage-thats-right-for-you/">affordable home financing options</a> to help you overcome these hurdles. At Better Mortgage, we offer two loan options that provide more financial flexibility: FHA loans and HomeReady. </p>

<p><a href="https://better.com/start/thinking-of-buying"><img src="https://media.better.com/content/prod/2017/08/blog_FHAHomeReady_graphics-01.png"></a></p>

<p>HomeReady and FHA loans are comparable in that they are both designed to make homeownership more accessible to those who face financial challenges like <a href="https://better.com/content/5-percent-down-payment/">low down payment funds</a> and limited income. While both loan products may appeal to homebuyers looking for affordable financing, there are some clear differences between the two. In this post, we'll break down HomeReady and FHA loans to help you determine which one is right for you.</p>

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<h2 id="creditscore">Credit Score</h2>

<p>Our borrowers often have questions about how their credit score may affect the loans that they are eligible for, especially if their score is on the lower end. If you’d like to learn about credit score basics and how to improve it, <a href="https://better.com/content/how-your-credit-score-affects-your-mortgage/">this post</a> walks you through it all. In general, lenders use your credit score (and the borrowing history that it’s based on) in order to determine your ability to pay back your loans. Having a higher credit score means that you may receive more favorable rates that can save you a considerable amount of money over the life of your loan. Credit score guidelines also apply to affordable lending products like HomeReady and FHA loans.</p>

<p><a href="https://better.com/start/thinking-of-buying"><img src="https://media.better.com/content/prod/2017/08/blog_FHAHomeReady_graphics-02.png"></a></p>

<p>In order to qualify for HomeReady, your credit score can be <strong>as low as 620</strong>, depending on the details of your loan and financial history. In order to qualify for the most competitive rates possible, you may need a credit score above 680.<sup id="fnref:1"><a href="#fn:1" rel="footnote">1</a></sup></p>

<p>With FHA, your credit score can be <strong>as low as 580</strong> if your down payment is at least 3.5% or <strong>as low as 500</strong> if your down payment is at least 10%.<sup id="fnref:2"><a href="#fn:2" rel="footnote">2</a></sup> </p>

<h2 id="downpayment">Down Payment</h2>

<p>Saving up for a down payment is no easy feat for many homebuyers, but it can seem even more daunting for people with tighter budgets. In fact, having enough money for a down payment is an obstacle for more than half of millennial renters.<sup id="fnref:3"><a href="#fn:3" rel="footnote">3</a></sup> While you may have heard that 20% is the “magic number” for a down payment, HomeReady and FHA loans offer much lower down payment options.</p>

<p><a href="https://better.com/start/thinking-of-buying"><img src="https://media.better.com/content/prod/2017/08/blog_FHAHomeReady_graphics-03.png"></a></p>

<p>Depending on the specifics of your financial history, HomeReady can allow for down payments <strong>as low as 3%</strong> of the property’s purchase price.<sup id="fnref:4"><a href="#fn:4" rel="footnote">4</a></sup> As we previously mentioned, FHA loans accept down payments <strong>as low as 10%</strong> if your credit score is between 500 and 579 or <strong>as low as 3.5%</strong> if your credit score is greater than 580.</p>

<h2 id="debttoincomedtiratio">Debt-to-Income (DTI) Ratio</h2>

<p>Your <a href="https://better.com/content/improving-your-debt-to-income-ratio-dti-when-applying-for-a-mortgage/">debt-to-income (DTI) ratio</a> is the number you get when you divide all your monthly debt payments by your gross monthly income. In general, the lower your DTI, the more financing options will be available to you.</p>

<p><a href="https://better.com/start/thinking-of-buying"><img src="https://media.better.com/content/prod/2017/09/blog_FHAHomeReady_graphics-04.png"></a></p>

<p>The maximum allowable DTI with HomeReady can be <strong>as high as 50%</strong>.<sup id="fnref:5"><a href="#fn:5" rel="footnote">5</a></sup> If your new home has an accessory unit, HomeReady may also consider your future rental income, which may boost your qualifying income and improve your DTI.</p>

<p>The FHA limit for DTI is currently <strong>43%</strong>, but your DTI can go <strong>up to 50%</strong> if your lender provides justification for the added risk of the loan.<sup id="fnref:6"><a href="#fn:6" rel="footnote">6</a></sup></p>

<p><br></p>

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<h2 id="mortgageinsurance">Mortgage Insurance</h2>

<p>Across the mortgage industry, borrowers are required to pay <strong>mortgage insurance</strong> for any loan in which their down payment is less than 20%. Mortgage insurance protects the lender in case the borrower defaults and is unable to make their loan payments. The exact amount you’ll pay is based on the type of loan you choose, as well as factors like your <strong>loan-to-value (LTV) ratio</strong>, which is the number you get when you divide your loan amount by the value of your property. For example, if you put 3% down, your LTV would start at 97%.</p>

<p>Any form of mortgage insurance will increase the amount you’ll pay over the life of your loan, but the big difference between FHA and HomeReady is how mortgage insurance is calculated — and whether or not you can cancel it later on. Let’s take a closer look:</p>

<p><strong><em>FHA Mortgage Insurance</em></strong></p>

<p><a href="https://better.com/start/thinking-of-buying"><img src="https://media.better.com/content/prod/2017/08/blog_FHAHomeReady_graphics-05.png"></a></p>

<p>Mortgage insurance with FHA consists of two parts: <strong>an annual mortgage insurance premium (MIP)</strong> and an <strong>upfront mortgage insurance premium (UFMIP)</strong>.<sup id="fnref:7"><a href="#fn:7" rel="footnote">7</a></sup> The <strong>MIP</strong> is a monthly fee built into your mortgage payment. If your LTV is greater than 90% when your loan is originated, you’ll be required to pay mortgage insurance for the life of the loan — there is no option to cancel.</p>

<p>Oftentimes, this means you’ll be paying mortgage insurance even after any real financial risk to the lender has disappeared, which can cost you over the life of your loan.<sup id="fnref:5"><a href="#fn:5" rel="footnote">5</a></sup> If your LTV is 90% or less (and even if you put more than 20% down), you’ll be required to pay mortgage insurance for 11 years or the life of the loan, whichever happens first.</p>

<p>In addition to the MIP, you also pay a <strong>UFMIP</strong>. This is an additional one-time premium payment equal to 1.75% of your loan amount, regardless of your LTV. You’ll pay the UFMIP in addition to your down payment, and you can choose to pay the UFMIP upfront, as the name suggests, or finance it into your monthly mortgage payments.</p>

<p><strong><em>HomeReady Mortgage Insurance</em></strong></p>

<p><a href="https://better.com/start/thinking-of-buying"><img src="https://media.better.com/content/prod/2017/08/blog_FHAHomeReady_graphics-06.png"></a></p>

<p>Like most loans where borrowers put less than 20% down, HomeReady’s <strong>private mortgage insurance (PMI)</strong> consists of monthly payments that are included in your mortgage bill — there is no additional upfront fee.<sup id="fnref:8"><a href="#fn:8" rel="footnote">8</a></sup> A benefit of HomeReady is that if your LTV is above 90%, the standard PMI coverage requirements will be reduced. And when your LTV reaches 80%, you can request to have your mortgage insurance canceled. It will automatically be canceled when your LTV drops below 78%. </p>

<p>Together, these HomeReady benefits often result in lower mortgage insurance costs compared to FHA. But there are pros and cons to both based on your financial situation. At Better Mortgage, we’re happy to help you explore your options. </p>

<h2 id="additionalrequirements">Additional Requirements</h2>

<p>Both FHA and HomeReady programs are available to borrowers regardless of whether or not they are first-time homebuyers. However, they are only available for a primary residence, so you can’t use these loans to fund a second home. If you’re looking to buy a condo, FHA has stricter requirements.<sup id="fnref:9"><a href="#fn:9" rel="footnote">9</a></sup> Many condo developments are ineligible for FHA but may still qualify for HomeReady.</p>

<p><a href="https://better.com/start/thinking-of-buying"><img src="https://media.better.com/content/prod/2017/08/blog_FHAHomeReady_graphics-07.png"></a></p>

<p>While there are no income limits to be eligible for an FHA loan, HomeReady may have income limits depending on the location of your property. In order to qualify for a HomeReady loan, you must either purchase a property in a neighborhood with no income limit OR have an income below the median income of the neighborhood, as established by census data.<sup id="fnref:4"><a href="#fn:4" rel="footnote">4</a></sup> Our team can help you determine if your income or your property location qualifies you for the program.</p>

<p><a href="https://better.com/start/thinking-of-buying"><img src="https://media.better.com/content/prod/2017/09/blog_FHAHomeReady_graphics-08.png"></a></p>

<p>HomeReady also requires borrowers to take an online course that will teach them the principles of homeownership. The course, available in English and Spanish, is designed to help you gain essential knowledge to make you a well-informed homebuyer. Our customers have found the homebuying course valuable and have even recommended it to their friends and family. Better Mortgage pays the $75 course fee for you and sets up your account, so it’s easy to get started.</p>

<h2 id="whatsthebetterloanoptionforyou">What’s the Better Mortgage Loan Option for You?</h2>

<p>It’s our goal to make homeownership accessible to as many people as possible. If you’re interested in exploring your home loan options, including both FHA and HomeReady, <a href="https://better.com/schedule-call?loanType=purchase&amp;TRACKINGLOCATION=fh&amp;TRACKINGBRANDING=purchase">schedule a call</a> with one of our non-commissioned Mortgage Experts.</p>

<p><a href="https://better.com/start/thinking-of-buying"><img src="https://media.better.com/content/prod/2017/09/blog_FHAHomeReady_graphics-09.png"></a></p>

<div class="footnotes"><ol><li class="footnote" id="fn:1"><p><a href="https://www.fanniemae.com/content/fact_sheet/homeready-product-matrix.pdf">https://www.fanniemae.com/content/fact_sheet/homeready-product-matrix.pdf</a> <a href="#fnref:1" title="return to article">↩</a></p></li>
<li class="footnote" id="fn:2"><p><a href="https://www.nerdwallet.com/blog/mortgages/fha-loan-requirements-for-2017/">https://www.nerdwallet.com/blog/mortgages/fha-loan-requirements-for-2017/</a> <a href="#fnref:2" title="return to article">↩</a></p></li>
<li class="footnote" id="fn:3"><p><a href="https://www.apartmentlist.com/rentonomics/american-dream-homeownership-delayed-millennial-generation/">https://www.apartmentlist.com/rentonomics/american-dream-homeownership-delayed-millennial-generation/</a> <a href="#fnref:3" title="return to article">↩</a></p></li>
<li class="footnote" id="fn:4"><p><a href="https://www.fanniemae.com/content/fact_sheet/homeready-overview.pdf">https://www.fanniemae.com/content/fact_sheet/homeready-overview.pdf</a> <a href="#fnref:4" title="return to article">↩</a></p></li>
<li class="footnote" id="fn:5"><p><a href="https://www.washingtonpost.com/realestate/fannie-mae-will-ease-financial-standards-for-mortgage-applicants-next-month/2017/06/05/9b391866-4a0b-11e7-9669-250d0b15f83b">https://www.washingtonpost.com/realestate/fannie-mae-will-ease-financial-standards-for-mortgage-applicants-next-month/2017/06/05/9b391866-4a0b-11e7-9669-250d0b15f83b</a> <a href="#fnref:5" title="return to article">↩</a></p></li>
<li class="footnote" id="fn:6"><p><a href="https://www.zillow.com/mortgage-learning/debt-to-income-ratio/">https://www.zillow.com/mortgage-learning/debt-to-income-ratio/</a> <a href="#fnref:6" title="return to article">↩</a></p></li>
<li class="footnote" id="fn:7"><p><a href="https://portal.hud.gov/hudportal/HUDsrc=/program_offices/housing/fhahistory">https://portal.hud.gov/hudportal/HUDsrc=/program_offices/housing/fhahistory</a> <a href="#fnref:7" title="return to article">↩</a></p></li>
<li class="footnote" id="fn:8"><p><a href="https://www.fanniemae.com/content/fact_sheet/why-choose-homeready-mortgage.pdf">https://www.fanniemae.com/content/fact_sheet/why-choose-homeready-mortgage.pdf</a> <a href="#fnref:8" title="return to article">↩</a></p></li>
<li class="footnote" id="fn:9"><p><a href="https://www.zillow.com/mortgage-learning/fha-approved-condos/">https://www.zillow.com/mortgage-learning/fha-approved-condos/</a> <a href="#fnref:9" title="return to article">↩</a></p></li></ol></div>

HomeReady is an affordable home financing program that offers low down payment options. Here's how it stacks up against FHA loans.

FHA vs. HomeReady

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FHA vs. HomeReady: Breaking down different affordable loan options

<p><em>Vishal Garg, Better Mortgage Founder and CEO, demystifies the low down payment mortgage.</em></p>

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<p><a href="https://better.com/preapprovals/purchase"><img src="https://media.better.com/content/prod/2017/06/blog_5percentdown.jpg"></a></p>

<p>Becoming a homeowner is a huge milestone in many people’s lives, but it can be hard to know when you’re ready. At Better Mortgage, we've found that many people don't take the next step because of how daunting it can seem to save up for a large down payment. </p>

<p>We want to help you see yourself as a homebuyer by giving you accurate, transparent information about your financing options. In addition to eliminating unfair <a href="https://better.com/content/5-reasons-why-loan-officer-commission-is-bulls-t/">commission structures</a>, lender fees, and <a href="https://better.com/content/dont-take-the-bait-heres-the-reality-of-refi-rates/">bait-and-switch</a> quotes, we work with government-backed investors like Fannie Mae and other reputable banks to offer a variety of loan types, to help people chose the best financing option for them.</p>

<p><br></p>

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<h2 id="consideringa35downpayment">Considering a 3-5% down payment</h2>

<p>For example, we can offer qualified borrowers financing options with as little as 3% down. Now, I know what you’re thinking. That sounds risky. But it’s not – anymore. Before the housing crisis, these types of loans were often offered to people who were at a high risk of defaulting, such as people with extremely high <a href="https://better.com/content/improving-your-debt-to-income-ratio-dti-when-applying-for-a-mortgage/">debt-to-income ratios</a>. Since then, the mortgage industry has been regulated to protect people from those kinds of predatory loans. </p>

<p>For borrowers with great credit and a steady income, a 3-5% down loan can be a financially sound option, allowing you to start investing and building equity sooner.</p>

<h3 id="thedifferencebetweenwhatyoucanaffordandthesizeofyourdownpayment">The difference between what you can afford and the size of your down payment</h3>

<p>Essentially, you pay for your home with:</p>

<ul>
<li>An initial large payment (your down payment)</li>
<li>Ongoing installments, with interest (your monthly mortgage payment)</li>
</ul>

<p>Many potential homeowners focus on the first part, which is their down payment. But lenders are also looking at your <em>future</em> ability to pay, which is indicated by a steady income and a great <a href="https://better.com/content/how-your-credit-score-affects-your-mortgage/">credit score</a>. </p>

<h3 id="letslookatanexample">Let’s look at an example</h3>

<p>Let’s say you have high student loan debt, but a stable career with steady income (and the tax returns and pay stubs to prove it). And you live in a city where your monthly rent is high – even higher than what a monthly mortgage payment might be. </p>

<p>In this instance, you may not have a 20% down payment saved up, since most of your income has gone towards rent and paying off student loans. But your income profile, and the fact that you’re already making high rent payments, can be a signal to lenders that you’ll be able to make consistent mortgage payments.</p>

<p><br></p>

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<h3 id="thebiggerpicturebackedbydata">The bigger picture: backed by data</h3>

<p>An analysis of historical loan data by Laurie Goodman, Jun Zhu, and Taz George at the Urban Institute shows why government-backed investors like Fannie Mae see relatively little risk in qualifying mortgage loans with down payments as low as 3-5%:</p>

<p>Data shows that credit is a stronger indicator of default risk than down payment size. The percentage of defaults of 5-10% down loans versus 3-5% down is very similar.<sup id="fnref:1"><a href="#fn:1" rel="footnote">1</a></sup></p>

<p>“Of loans that originated in 2011 with a down payment between 3-5 percent, only 0.4 percent of borrowers have defaulted. For loans with slightly larger down payments – between 5-10 percent – the default rate was exactly the same. The story is similar for loans made in 2012, with 0.2 percent in the 3-5 percent down-payment group defaulting, versus 0.1 percent of loans in the 5-10 percent down-payment group.” – Urban Institute</p>

<p><a href="https://better.com/preapprovals/purchase"><img src="https://media.better.com/content/prod/2017/07/default_rates_FICO.jpg"></a></p>

<p>What does this mean for Americans with goals of homeownership? For a couple with $25,000 saved up for a down payment, it could be the difference between being able to put 10% down for a 1-bedroom home that costs $250,000, versus putting 5% down and getting for a 2-bedroom home for $500,000.</p>

<h2 id="thebottomline">The bottom line</h2>

<p>We think if you’re considering homeownership, you shouldn’t have to keep renting just to save up for a large down payment. Government-backed investors like Fannie Mae agree. They want to help more people build equity through homeownership, and they’re doing so by backing loans with as low as even a 3% down payment, for borrowers who fit the profile. </p>

<p>If you’re considering buying a home, we’re here to help you understand your options. Take a few minutes today to explore whether homeownership is a possibility with our <a href="https://better.com/preapprovals/purchase">3-minute basic pre-approval</a>. There is no fee, no obligation, and researching your financial options will not affect your credit score. You can also talk through your options by <a href="https://better.com/schedule-call?loanType=purchase&amp;TRACKINGLOCATION=5pdp&amp;TRACKINGBRANDING=purchase">scheduling a free call</a> with one of our non-commissioned Mortgage Experts.</p>

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<div class="footnotes"><ol><li class="footnote" id="fn:1"><p><a href="http://www.urban.org/urban-wire/why-government-sponsored-enterprises-support-low-down-payment-loans-again-no-big-deal">http://www.urban.org/urban-wire/why-government-sponsored-enterprises-support-low-down-payment-loans-again-no-big-deal</a> <a href="#fnref:1" title="return to article">↩</a></p></li></ol></div>

Considering a 5% down payment for your mortgage? We're here to help demystify the low down payment mortgage.

When a 5% down payment isn't a risk

blog 5percentdown

When a 3-5% down payment isn't a risk

<p><em>Sathi Roy (a non-commissioned Mortgage Expert at Better Mortgage) explains how home affordability calculators work – and an even better way to figure out how much you can borrow.</em></p>

<hr />

<p>Affordability calculators are a tricky thing. </p>

<p>That’s because when someone asks “how much house can I afford?” what they really need to know is “how much can I actually get financing for?” Unfortunately, online calculators are pretty bad at giving a reliable answer. And for most homebuyers, what they end up qualifying for is often less (or at least quite different) than what their calculator told them. </p>

<p><a href="https://better.com/preapprovals/purchase"><img src="https://media.better.com/content/prod/2017/05/Picture1.png"></a></p>

<p><strong>Home affordability calculators rely on basic, stated information</strong></p>

<p>It isn’t the calculator’s fault that it’s not accurate. Affordability calculators are designed to give you an approximate number, so you can get an idea for where to set the price slider when you’re browsing on your real estate app. But you’re giving the calculator some basic information about your income, credit score, debt, and down payment savings when the devil is really in the details.</p>

<p><strong>Lenders need detailed, verifiable information to tell you how much house can you afford</strong></p>

<p>There are a lot of specific financial factors that lenders need to consider before they can give you a loan, most of which can’t be easily put into an online calculator. </p>

<p>For example, lenders ultimately need to know:</p>

<ul>
  <li>Not just your current <a href="https://better.com/content/how-does-your-job-affect-your-mortgage/">salary</a>, but proof of your earnings for the past two years</li>
  <li>Not just your overall <a href="https://better.com/content/how-does-your-job-affect-your-mortgage/">income</a>, but the specific components (bonuses, commissions, etc)</li>
  <li>Not just your <a href="https://better.com/content/how-your-credit-score-affects-your-mortgage/">credit score</a>, but also the type and amount of your other debts</li>
  <li>Not just the size of your <a href="https://better.com/content/5-percent-down-payment/">down payment</a>, but also the source of your funds</li>
  <li>Sensitive information, like alimony payments (and legal documents to prove they exist)</li>
</ul>

<p>Why do lenders need all this stuff? Contrary to what the 2008 housing crisis might have suggested, lenders today are highly risk-averse. A mortgage means you are committing to years, if not decades of payments. While a snapshot of your current finances is a start, lenders want to predict your future ability to pay. For example, they want to know that your earning potential is consistent, so one year of big bonuses doesn’t count as much in their eyes as steady, guaranteed income. Lenders are also looking out for red flags. They want to make sure your down payment funds are truly yours, not money you may have borrowed from somewhere else.</p>

<p>Having anomalies or quirks in your financial profile doesn’t necessarily mean you won’t be able to get a mortgage. Most of us have a few! But the reality is that they can lower the total amount you’ll end up qualifying for.</p>

<p><strong>Ensuring you can afford (and get) your dream house</strong></p>

<p>The more personal, detailed, verifiable information you can give a lender up front, the more certainty they can give you when it comes to how much you can actually borrow. And when you’re competing with other homebuyers for your dream home, certainty matters. </p>

<p><a href="https://better.com/preapprovals/purchase"><img src="https://media.better.com/content/prod/2018/09/HMH_graphic.png"></a></p>

<p><strong>A Better calculation: how much you’re approved to borrow</strong></p>

<p>At Better Mortgage, we’ve been working around-the-clock to make getting that certainty as painlessly and quickly as possible with our <a href="https://better.com/content/vpal/">Verified Pre-Approval</a>. </p>

<p>How it works: </p>

<ol>
  <li>House hunters can submit their documents (things like W2s and pay stubs) to us online, at any time of the day.  </li>
  <li>For qualified borrowers, we can provide a Verified Pre-Approval Letter detailing how much house you are actually approved to borrow.  </li>
  <li>You can go house hunting with a document that lets your seller know that, barring any unforeseen issues like with the appraisal process, you’re all but guaranteed to secure funding for the house. This can make your offer really stand out in <a href="https://better.com/content/7-ways-to-make-your-offer-stand-out/">competitive markets</a>.</li>
</ol>

<p>There are no fees to get the letter, and no strings attached. Once you’ve gotten your Verified Pre-Approval from us, you can also play with adjustments to your borrowing, downpayment, and mortgage type – calculations that actually mean something. And, you can get a new letter at any time based on a lower maximum purchase price, in case you don’t want to disclose the full amount you can afford to the seller.</p>

<p>There are several <a href="https://better.com/content/a-better-home-affordability-calculator">home affordability calculators</a> out there that can give you a ballpark of how much you can afford. But if you spend a little extra time and effort to submit concrete details and get a <a href="https://better.com/content/vpal/">Verified Pre-Approval Letter</a>, you can shop for your dream home with the certainty that you can afford it.</p>

<p><a href="https://better.com/preapprovals/purchase"><img src="https://media.better.com/content/prod/2017/05/blog_HMHCYA_cta@2x.png"></a></p>

Online calculators are pretty bad at giving a reliable answer. Here's how to get an accurate idea of how much house you can afford.

How much house can you afford?

how much house thumb

So you’re wondering how much house can you afford

<p><em>If you refinance or sell your home in the average time frame, taking lender credits to offset your closing costs (a.k.a. a no-cost mortgage) will save you money in comparison to paying points.</em></p>

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<iframe src="https://player.vimeo.com/video/231571022" width="100%" height="360" frameborder="0" webkitallowfullscreen mozallowfullscreen allowfullscreen></iframe>

<script src="https://fast.wistia.net/assets/external/E-v1.js" async></script>  

<p><br> <br />
“Taking credits” refers to the practice of accepting a higher interest rate (and therefore higher monthly payments) in exchange for cash to offset your closing costs. If you take enough credits to offset all closing costs, this results in a “no-cost mortgage.” </p>

<p>The flip side of taking credits is “paying points,” which means paying a percentage of your mortgage balance upfront in exchange for a lower interest rate and lower monthly payments. </p>

<p>The typical cost of changing your rate by 0.125% is 0.625% of your loan amount. So on a $400,000 loan, if you took a rate increase of 0.125%, you would receive $2,500 in credits. If you reduced the rate by 0.125%, you would pay $2,500 in points.</p>

<blockquote>
  <p>There are many factors that determine whether paying points or taking credits is right for you. However, perhaps the most important one is how long you keep your mortgage without fully repaying it by selling your home or refinancing.</p>
</blockquote>

<p>By taking credits, you will save money early on by reducing your closing costs. But there will be a time in the future when you will lose money (compared to paying points) by paying the higher interest rate. The gamble is whether you get out of your mortgage before the time when you break even.</p>

<h4 id="figureifyoutakecreditsyouwillsavemoneyearlyinyourmortgagetermbyoffsettingclosingcosts">Figure: If you take credits, you will save money early in your mortgage term by offsetting closing costs.</h4>

<p><a href="https://better.com/start"><img src="https://media.better.com/content/prod/2016/09/concept-take-credits.png"></a> <br />
<em><p style="font-size:1.4rem;">This graph illustrates the concept of taking credits.</p></em></p>

<p>By paying points, you will lose money at the start by paying the closing costs. But there will be a time in the future when you break even and start to save money by paying the lower interest rate. If you leave your mortgage before that time, you lose money. The gamble is whether you will stay in your mortgage long enough to reach the time when you break even. </p>

<h4 id="figureifyoupaypointsupfrontyouwilllosemoneyearlyinyourmortgageterm">Figure: If you pay points upfront, you will lose money early in your mortgage term.</h4>

<p><a href="https://better.com/start"><img src="https://media.better.com/content/prod/2016/09/concept-pay-points.png"></a> <br />
<em><p style="font-size:1.4rem;">This graph illustrates the concept of paying points.</p></em></p>

<h2 id="payingpointswasthewrongdecisionformostborrowers">Paying points was the wrong decision for most borrowers</h2>

<p>Historical data tells us that for most borrowers in the last 25 years, paying points has been a bad decision. Recent research using data from 1990-2015 found that on average, borrowers have kept their mortgages only five years (<em>Agarwal, Ben-David, and Yao (2016), Journal of Financial Economics</em>). </p>

<p>Historical data from Freddie Mac is consistent, showing the majority of borrowers have refinanced, sold, or otherwise closed their mortgage within six years.</p>

<h4 id="figurethemajorityofloansinthefreddiemacdatasethavebeenactivelessthansixyears">Figure: the majority of loans in the Freddie Mac dataset have been active less than six years</h4>

<p><a href="https://better.com/start"><img src="https://media.better.com/content/prod/2016/09/loans-active.png"></a> <br />
<em><p style="font-size:1.4rem;">Fraction of loans still active out of the cohort originated in any given year. For instance: out of the loans originated in 2008, less than 40% were still active four years later. The other 60+% had refinanced, foreclosed, or sold.</p></em></p>

<blockquote>
  <p>What this means is that those who paid points usually left their mortgages before the break-even line, and therefore lost money. Had they taken credits (or a no-cost mortgage) instead, they would have saved money.</p>
</blockquote>

<p>While you might think this finding is due to the time-period studied and interest rate trends over that time, the authors of the research also ran an ex-ante simulation. Given the break-even nature of paying points, those who paid points should have been less mobile on average (e.g., slower terminations for non-rate-based reasons) than those who did not pay points. However, the research concluded that points-payers did not keep their mortgages a statistically different amount of time than non-points-payers.  </p>

<h2 id="sowhenshouldyoupayforalowerrate">So, when should you pay for a lower rate?</h2>

<p>There are a few scenarios where it does make sense to pay out of pocket for points:</p>

<ul>
<li>You think it’s really unlikely that you will move or refinance for a very long time.</li>
<li>Your projected income is going down in the future, meaning you would not be able to qualify for a similar mortgage.</li>
<li>Your tax rate this year is much higher than what you expect in future years. You want to deduct as much as possible when your tax rate is high, and points are deductible against income in the year you get the mortgage.</li>
</ul>

<p><a href="https://better.com/content/the-guide"><img src="https://media.better.com/content/prod/2017/10/FTHB_adforblogB-1.png" width="800" border="0" align="middle"></a></p>

<h2 id="runyourownscenario">Run your own scenario</h2>

<p>In the end, whether to pay points or take credits is a complex question. Things you probably rarely consider (like your future marginal tax rate) affect whether you should pay points or take credits in your particular situation. To make it a bit easier, we’ve provided a calculator that will help you explore different scenarios and make your own determination.<sup id="fnref:1"><a href="#fn:1" rel="footnote">1</a></sup> </p>

<p>The projected break-even time will be your guide. If you are considering paying points, you should do so only if you have a high level of certainty that you’ll stay in the mortgage longer than that. You are confident you won’t move, sell your house, pre-pay your mortgage, refinance for a better rate, take cash out for renovations, etc.</p>

<p>If you think any of the above scenarios might happen sooner than that, taking credits is likely a better option.</p>

<div id="widget-element"></div>  

<script src="https://media.better.com/widgets/pay-points.js"></script>

<h2 id="getaratequote">Get a rate quote</h2>

<p>You can <a href="https://better.com/start">get a personalized rate quote</a> from Better Mortgage in minutes, without affecting your credit score. </p>

<p><a href="https://better.com/start"><img src="https://media.better.com/content/prod/2017/05/blog_nocostmortg_CTA@2x-1.png"></a></p>

<p>Every rate quote will provide options for paying points and taking credits, including a no-cost option. Try it and see which option is best for you.</p>

<div class="footnotes"><ol><li class="footnote" id="fn:1"><p>The calculator is provided for demonstrative purposes only. <a href="#fnref:1" title="return to article">↩</a></p></li></ol></div>

Historical data tells us that for most borrowers in the last 25 years, paying points has been a bad decision.