Homebuying

Refinancing

Mortgage News 

Tools

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

Affordable Lending

<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><h3>Affordability calculators are a tricky thing.</h3></p>

<p>When someone asks, “How much house can I afford?” what they really need to know is, “How much can I <i>actually get financing for</i>?” Unfortunately, online mortgage calculators are pretty bad at giving a reliable answer. Most home buyers often end up qualifying for less (or at least a different amount) 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><h3>Why most home affordability calculators aren’t completely reliable</h3></p>

<p>It isn’t the calculator’s fault that it’s not accurate. The problem is that not all calculators are created equal. 
This is because most of them work with only a partial or minimal amount of data and inputs based on ballpark estimates for income, debt, down payment, and credit scores. 

Calculators don’t know this information isn’t entirely accurate, nor how likely it is that you will receive a full loan approval. And, while some calculators do perform a “soft” credit inquiry (which has no effect on your credit score) to get an idea of your loan eligibility, their initial feedback must still be verified with a full loan application, credit review, and approval. 

Here’s a comparison of what information is reviewed when it comes to calculators, basic pre-approvals, and verified pre-approvals:
</p>
<br>

![HMH chart 2](//images.ctfassets.net/bxq7a6k69auc/7Z0DzCeWk1xZ42m1n3pqQ/fc72f6e3f62ddca654b7e6e134345b93/hmh_chart2.jpg)
<br>

<p>Now that you know the differences between the three, you can understand why the calculator is a great place to start, but the next best step is to secure a loan pre-approval — and even better a verified pre-approval — and here’s why. </p>

<p><h3>A pre-approval provides a better idea of how much house you can afford</h3></p>

<p>When you’re ready to start home shopping, rather than rely on a mortgage affordability calculator, consider obtaining a loan <a href="https://better.com/content/what-is-a-mortgage-pre-approval/">pre-approval</a> with a qualified lender. 
  
A pre-approval letter can provide a more accurate idea of the maximum loan amount you can borrow. And, because you may need to submit financial documentation before receiving a letter, you’ll have a more realistic idea of if you’ll be approved for a mortgage down the road. 
  
But basic pre-approvals are still not a full guarantee. That’s why it pays to consider a fully verified pre-approval, which goes a step further to confirm your financial documents, giving you complete confidence in exactly how much you can afford. Verified pre-approval is particularly important if your income or situation is not straightforward. 
</p>

<p><h3>A verified pre-approval is especially beneficial to certain borrowers</h3></p>

<p><strong>Self-employed or non-conventional income borrowers</strong></p>
<p>If you are a self-employed borrower or someone with non-conventional income streams a pre-approval will provide a much more realistic picture of what you can afford.

This is because home affordability calculators are based off the estimated net income you input, without true verification. But, with a pre-approval, your lender will verify your income and asset documents, which provides a better indication of what your purchasing power will be.  </p>

<p><strong>Borrowers looking at new construction homes</strong></p>
<p>If you are interested in purchasing a newly built home, a builder is not likely to begin building until you can guarantee loan approval — and a home affordability calculator won’t do. This is because builders know they won’t get paid until the house is built, and if you can’t get approved for your loan, then they won’t be paid at all. The verified pre-approval gives the builder peace of mind that you will, in fact, get the financing you need once your home is complete.

If your closing date is more than 75 days away (which is typical when you’re building a new home), you can only receive a verified pre-approval. But once closing is within 75 days, can you obtain a Loan Estimate and begin the underwriting process to secure the loan. </p>

<p><strong>Borrowers competing with all-cash offers</strong></p>
<p>If you want to make a stronger offer or are competing with cash bids, a verified pre-approval can provide you and sellers with the same confidence of an all-cash offer. With a Better Mortgage verified pre-approval, your financial documents are fully vetted with a hard credit check and have been underwritten.</p>

<p><h3>Lenders need detailed, verifiable information to tell you how much house can you afford</h3></p>

<p>There are many specific financial factors that lenders need to consider before they can give you a mortgage pre-approval, most of which you can’t easily enter into an online calculator.

For example, lenders may request the following information: </p>

<ul>
  <li>Not just your current <a href="https://better.com/content/how-does-your-job-affect-your-mortgage/">salary</a>, but also proof of your earnings for the past two years via W2s and/or <a href="https://better.com/content/what-do-mortgage-lenders-look-for-on-your-tax-returns/">tax returns</a></li>
  <li>Not only your overall <a href="https://better.com/content/how-does-your-job-affect-your-mortgage/">income</a>, but also the specific components (bonuses, commissions, and more)</li>
  <li>Not just your <a href="https://better.com/content/how-your-credit-score-affects-your-mortgage/">credit score</a>, but also the types and amounts of your other debts, and any other information on bankruptcies, liens, and judgements, too</li>
  <li>Not just the size of your <a href="https://better.com/content/5-percent-down-payment/">down payment</a>, but also your bank and asset statements (particularly if the funds you’ll use appeared suddenly or only recently  in your account)</li>
  <li>Sensitive information, like alimony or child support payments (and legal documents to prove they exist)</li>
</ul>

<p><h3>Why mortgage lenders need detailed financial information
</h3></p>

<p>As a result of the 2008 housing crisis, lenders are much more conservative today. They want to ensure that when you take out a mortgage, you’ll be able to afford those payments for years to come. While a snapshot of your current finances is a start in determining how much you can afford,<a href="https://better.com/content/first-time-homebuyers-guide-applying-for-your-first-mortgage/"> additional documentation</a> can help lenders predict your future ability to pay. 

For example, lenders want to know that your earning potential is consistent. One year of big bonuses doesn’t count as steady, guaranteed income. Lenders are also looking for red flags. They want to make sure your down payment funds are truly yours, not money you may have borrowed, and that the amount of debt that you’re currently carrying isn’t going to interfere with your ability to make your mortgage payments. 

Anomalies or outliers in your financial profile won’t necessarily disqualify you from getting approved for a mortgage; however, they can impact the total amount you’ll end up qualifying for. Or, depending on the circumstances, it could mean that your lender would increase <a href="https://better.com/content/how-mortgage-rates-work/">interest rates</a>, require a higher down payment, or even require a <a href="https://better.com/content/should-you-add-a-co-borrower-to-your-mortgage/">co-signer</a> to help them assuage any risk associated with the loan.</p>

<p><h3>Beyond the mortgage affordability calculator: Ensuring you can afford your dream house</h3></p>

<p>The more personal, detailed, verifiable information you can provide a lender upfront, the more certainty they can give you when it comes to how much you’ll actually qualify to borrow. 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><h3>A Better Mortgage calculation: How much you’re really approved to borrow</h3></p>

<p>At Better Mortgage, we’ve been working around the clock to make getting that certainty as quick and painless as possible with our <a href="https://better.com/content/vpal/">verified pre-approval</a>. </p>

<p>How it works: </p>

<ol>
  <li>You securely submit your documents (such as W2s and pay stubs) to us online, at any time of the day. </li>
  <li>If you’re a qualified borrower, we can provide a verified pre-approval letter detailing how much of a mortgage you are actually approved to borrow.</li>
  <li>You can go house hunting with a document that lets sellers know that, barring any unforeseen issues during the appraisal process or property or loan verification, 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 received your verified pre-approval from us, you can also play with adjustments to your borrowing, down payment, and mortgage type to see more accurate, worthwhile calculations. 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 to the seller the full amount you can afford to borrow.</p>

<p>While Better Mortgage offers a <a href="https://better.com/content/a-better-home-affordability-calculator/">home affordability calculator</a>, a little extra effort to obtain a <a href="https://better.com/with/vpal/">verified pre-approval letter</a> can provide you with the reassurance that you can afford and get approved for a mortgage to purchase your dream home.</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 mortgage calculators may not be as reliable as you think. Find out how to get a Better idea of how much house you can really afford. 

How much house can you afford?

how much house thumb

So you’re wondering how much house you can afford


<p><img src="//images.ctfassets.net/bxq7a6k69auc/5dlxvAjnAzoYkwBhLeRLKI/dd75cc71f25e5f2de5862a6c8c6e2fbd/schooldistricts1.jpg"></p>

<br>

Buying a home marks a new beginning for you and your family — especially if your children will be attending new schools as a result of the move. 

The [National Association of Realtors](https://www.nar.realtor/sites/default/files/documents/2019-moving-with-kids-08-12-2019.pdf) found that 53% of home buyers with children under 18 consider neighborhoods based on the quality of the school districts, and 50% choose their new home based on proximity to schools. 

If purchasing a home in a quality school district takes priority over other buying criteria, you may want to know how this will impact your home search, the buying process, and your home’s future value. 

<h2>How to search for a home in a good school district</h2>

Your first step is to narrow your search by school district ranking. 

To start, sites like [GreatSchools.org](https://www.greatschools.org/) have compiled ratings of elementary, middle, and high schools in thousands of school districts by zip codes and cities across the U.S. Its [rating system](https://www.greatschools.org/gk/ratings/) incorporates common metrics for what defines higher- versus lesser-ranking schools like  college enrollment rates, academic rigor, and support for low-income and special needs students. 

You may also wish to broaden your criteria with [other metrics](http://realestate.boston.com/buying/2018/03/01/looking-to-buy-in-good-school-district/) such as class and district size, recess time, and even the quality of the local pre-kindergarten schools in your desired areas. And of course, nothing beats an onsite visit for a real gut-check to determine what’s best for your child.

It’s important to note that schools mere miles apart can have substantially different performance results. In Cleveland, Ohio, for instance, [Cuyahoga Heights High School](https://www.greatschools.org/ohio/cleveland/2197-Cuyahoga-Hts-High-School/) has average SAT scores of 1579. Meanwhile, the [Whitney Young School](https://www.greatschools.org/ohio/cleveland/480-Whitney-Young-School/), less than two miles away, has SATs reported to average 1410. 

<h2>Homes in good school districts are usually bigger and more expensive </h2>

Homes in areas of highly-rated public school districts are, on average, [49% more expensive](https://www.realtor.com/research/housing-insights-in-top-rated-school-districts/) — at around $400,000 — than the national median list price of $269,000. 

They are also 77% more costly than homes located within the boundaries of lower-ranked districts, which cost a median of $225,000. 

A [Brookings Institution](https://www.brookings.edu/wp-content/uploads/2016/06/0419_school_inequality_rothwell.pdf) study found that homes in highly-rated school districts also tended to be larger and more expensive as a result. For example, typical homes in high-scoring districts had 1.5 more rooms than homes in low-scoring ones. 

Because these larger homes and higher costs can price many families out of a good school zone, [some municipalities](https://www.jec.senate.gov/public/_cache/files/f4880936-8db9-4b77-a632-86e1728f33f0/jec-report-zoned-out.pdf) have turned to student selection based on open enrollment or a lottery system, rather than assignments by location. This process is intended to give children of lower-income families the opportunity to attend higher-rated schools in other areas and flatten the relationship between home value and school quality. 

Such changes aren’t made lightly, however, as school boards must weigh whether their attempts to balance socioeconomics [could backfire](https://www.pps.net/cms/lib/OR01913224/Centricity/Domain/207/Best_Practices_in_District_Rezoning_-_Portland_Public_Schools.pdf), with families opting for charter or private schools, or even resulting in more segregation, the exact opposites of the desired effect.

If buying a home in a good school district is your priority, then be sure to check that the homes in your desired areas and neighborhoods are routed to your desired school assignments. 

Enrollment and residential and commercial zoning policies and school board decisions can have a significant impact on your home price and your school district, so it’s important to stay abreast of regulations and changes that can impact both.
<br>

![schooldistricts2](//images.ctfassets.net/bxq7a6k69auc/51YM0E2DOj3axR6YngK3XG/bf2aeb004016c5a5bfb1798be76011f5/schooldistricts2.jpg)

<h2>Home property taxes may not be higher in a good school district</h2>

It may come as a surprise that property taxes aren’t always higher in districts with highly-ranked schools. 

Property owners in the majority of the U.S. pay some type of property tax, but how much varies widely from state to state and even county to county. Taxes are the main source of local government funding but how they are allocated (whether for services or school districts) depends entirely on city and state leadership.

In metropolitan areas, large businesses and highly-valued properties share the burden of educating children across a large tax base. 

In contrast, more rural or outlying suburban areas with fewer corporate taxpayers may have higher rates to cover school costs. 

A [Syracuse University study](https://www.syracuse.com/schools/2019/04/how-does-your-school-property-tax-rate-compare-to-other-districts-in-new-york-state.html) found that in Central New York, the highly-rated, wealthier [Skaneateles school district](https://www.niche.com/k12/d/skaneateles-central-school-district-ny/) has a property tax rate of 1.5% or around $15 of tax per $1,000 of property value. 

On the other hand, the lower-rated, less affluent [Fulton City school](https://www.niche.com/k12/d/fulton-city-school-district-ny/) district has a property tax rate of 2.7% or around $27 of tax per $1,000 of property value.  

For example, a home valued at $200,000 would have property taxes of:
Skaneateles: $200,000 x 0.015 (1.5%) = $3,000
Fulton City: $200,000 x 0.027 (2.7%) = $5,400

Note - lenders incorporate [real estate taxes](https://better.com/content/how-to-choose-the-right-neighborhood-when-buying-a-house/) when determining [how much](https://better.com/content/a-better-home-affordability-calculator/) you can borrow. So, explore local tax rates during your home search to see how they can affect your total affordability.       

<h2>The benefits of buying a home in a good school district</h2>

<strong>Good school districts may help you sell your home faster 
</strong>

Houses in good school districts are usually in strong demand and may be easier to sell. 

[Realtor.com](https://www.realtor.com/research/housing-insights-in-top-rated-school-districts/) found that homes in above-average school districts sell in an average of just 58 days. This is eight days faster than those in below-average districts, and four days faster than the national median of 62 days on the market. 

<strong>Buying a home in a good school district may be cheaper than sending kids to private school</strong>

Purchasing a home near good schools can be expensive — but it may still be cheaper than sending your children to private schools. [The Private School Review](https://www.privateschoolreview.com/tuition-stats/private-school-cost-by-state) reports that the average annual private school tuition and fees in 2020 were $11,021 — with private elementary costing an average of $9,946 and private high school $14,711. Costs can be dramatically higher, too, for top-rated institutions and boarding schools. 

Depending on how many children you have and how many years remain before high school graduation, high-quality public schools can be a bargain, even if your home costs more than similar ones in lower-rated districts. 
<br>

![schooldistricts3](//images.ctfassets.net/bxq7a6k69auc/6C4wps1ik2zl4lYz0Bb71j/3ad73f44dca778aa380c6f94b21e12a2/schooldistricts3.jpg)

<h2>How to get a good deal on a home in a quality school district</h2> 

<strong>Consider areas further from city centers </strong>

In 2017, [The New York Times](https://www.nytimes.com/interactive/2017/03/30/upshot/good-schools-affordable-homes-suburban-sweet-spots.html) compared school results with home costs and found significant disparities in districts closer to city centers versus ones further out. 

For example, in Cambridge, Massachusetts, where the average resident’s commute is just 25 minutes, homes cost approximately $574 per square foot. Students in this school district were found to be one grade level above their peers. 

But in Sharon, Massachusetts, where the average commute is 38 minutes, homes cost just $235 per square foot. And in this school district, students were found to be 2.9 grade levels above average. 

The Times’ database also found similar differences in schools around New York, San Francisco, and Chicago, with many of the most affordable high-quality districts located in suburbs further out from the city center. 

Parents who shop around, especially in outlying areas, may be able to find housing in good quality school districts at a reasonable price while maintaining a short commute. 

<strong>Deals in good school districts can exist in off-seasons</strong>

It’s not only where you buy that can make a big difference, but also when you’re looking. If you hope to purchase a home in a good school district, you might have more luck if you’re willing to move during the school year.

Home buyers typically pay the highest premiums in July, August, and September, and obtain the [steepest discounts from November through February](https://www.bankrate.com/real-estate/how-to-get-a-better-deal-on-a-home-after-school-starts/).

<h2>Preparing to buy your dream home</h2>

Tools like GreatSchools.org, [Niche rankings](https://www.niche.com/k12/rankings/), and [SchoolDigger.com](https://www.schooldigger.com/) can help you make decisions that balance your needs for educational quality and affordability. 

If you’re ready to start your home shopping journey, [Schedule a call](https://better-real-estate.youcanbook.me/?PROMO=SchoolBlog) to get matched with a top agent in your area.


Better Mortgage can help determine [how much house you can afford](https://better.com/content/so-youre-wondering-how-much-house-can-you-actually-afford/) and provide you with a [pre-approval](https://better.com/content/what-is-a-mortgage-pre-approval/) letter to kick off your home buying journey! 

<br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="http://better.com/start">Get Started</a>  
 </div>



  <style>
    p.legal{
    font-size:12px;
      font-style: italic; 
    }
  .ctabottom{
    font-size:25.629px !important;
    font-weight:700 !important;
    text-align:center;
  }
   


 
  
.learn {

  padding-left:25px;
  padding-top: 5px;
  padding-bottom: 5px;
  border-style: solid;
  border-width: 0px 0px 0px 3px;
  border-color: #291842;
  }
  .learnfont {
  font-size:16px !important;
  line-height: 20px !important;
  }
.footnote{
  font-size:14px !important;
  color: #767676;
  text-align:center;
  }
.charttitle{
    font-size:24px !important;
  text-align:center;
  }
  
  
  p.chartsmall {
    font-size:12px!important;
  }
  


  
    #img1 {display:block;}
#img2 {display:none}
  
  
  
  
  
  @media all and (max-width: 600px) {
    
      .mobilehide{ display: none;
  }
    #img1 {display: none;}
    #img2 {display: block;}
    
    
    p.chartsmall {
    font-size:9px!important;
  }
 

  .headshot{
  width:150px;

  }


}
  .equation{
    padding-top:40px;
    padding-bottom:50px;
    padding-left:30px;
    padding-right:30px;
  text-align:center !important;
    background:#291842;
  }
  
  p.equationtop{
font-weight:300!important;  
    color:#ffffff;
  }
  p.equationbottom{
    font-weight:700!important;   
   font-size:28px;
    color:#ffffff;
  }
  .headshot{
    padding-bottom:15px;
  width:150px;

  }
  .centerqa{
  text-align:center!important;
  }
  
  </style>

When financing looks questionable, mortgage contingencies come into play. Find out how Better can provide assurances with funding.

How do school districts affect homebuying?

schooldistricts1


<p><img src="//images.ctfassets.net/bxq7a6k69auc/4Iu60yag1hbllv6KuKHE9S/8f897ba0af207b84c83f9aeb10d55fe7/Originationfee.jpg"></p>
<br>

When you apply for a mortgage, you may notice several fees are included in your total cost of borrowing. While some [third-party fees](https://better.com/faq/home-purchase-loan-costs/which-third-party-fees-will-i-be-charged), such as those for appraisals, credit reports, or title insurance, are charged no matter where you get your mortgage, there’s one fee that can vary or not be charged at all: the loan origination fee. 

<h2>What is loan origination, anyway?</h2>

Before we dive into the fee itself, let’s take a look at what loan origination is in the first place. 

Simply put, loan origination is the multi-step process of getting a home loan. The process begins when you submit your financial information to a bank, broker, or lender to obtain financing for the purchase or refinance of real estate. The process ends when your loan is funded, and the funds are distributed. 

In other words, loan origination is how a new mortgage is created.

<h2>Why some lenders charge origination fees — and why they shouldn’t</h2>

In the late 1970s, many non-banks and brokers [began to compete](https://www.fdic.gov/bank/analytical/quarterly/2019-vol13-4/fdic-v13n4-3q2019-article3.pdf) with large banks to originate and service mortgages, the process of opening, billing, and collecting mortgage payments. 

Some lenders began charging origination fees as a way to get paid upfront for processing a new loan application — and many still do today.  This fee is used to make  lenders more money and turn a higher profit per loan. But, the fee is just one way lenders are compensated.

<h2>How to spot origination fees</h2>

To find or compare loan origination charges, take a look at your [Loan Estimate](https://better.com/content/loan-estimate-101) (LE). The LE is the three-page form that explains your total cost of borrowing. You should receive one from each mortgage lender after providing your personal and financial documents. 

Origination fees are listed on page 2, section A, which looks like this:

<br>

![loan estimate ](//images.ctfassets.net/bxq7a6k69auc/19KLWP6hHwKtxh4MAtGOaB/7bcdf0ea0b7a775bc915071b732e4aeb/LE_blog_highlight3.jpg)
<p class="legal">The Loan Estimate displayed above is for illustrative purposes only</p>
<br>

If there’s no origination fee, don’t assume that you have a no-closing-cost mortgage, or that your mortgage is free of costs. 

Lenders may try to compensate for not charging an origination fee by charging other fees, which will be listed on your Loan Estimate in the same section. These may be called different names such as Application Fee, Administration Fee, Processing Fee, Underwriting Fee, or [Commission](https://better.com/content/5-reasons-why-loan-officer-commission-is-bulls-t). But if they appear in this section, they are lender fees. 

Make sure to ask about each fee that appears on your Loan Estimate, why they are being charged, and which third-parties will be paid. 

Some common unavoidable fees, charged by most lenders, include:

<ul>
  <li>Appraisal</li>
  <li>Credit report</li>
  <li>Wire transfer</li>
  <li>Tax service</li>
  <li>Flood certification</li>
  <li>Title insurance</li>
  <li>Escrow/signing fee</li>
  <li>Courier fee</li>
  <li>Recording
</li>
  </ul>

<h2>What is an origination point</h2>

The origination fee may also be referred to as an origination “point.”

A point is simply mortgage jargon to express a percent of your loan amount. For example, 1 point equals 1% of the total loan, a half point equals 0.50%, and so on. On Wall Street, this terminology is much more common and points are broken down into even smaller increments known as basis points, where 100 basis points would equal 1%, 50 basis points (or bps) would equal .50%, and so on.

<h2>Origination points are not the same as discount points</h2>

You may notice an additional fee charged on your loan estimate, which closely resembles an origination fee. 

Called a “discount point” or “discount fee,” it is also  a prepaid fee on your loan. But a discount point is different from the loan origination point in Section A because it is charged with the sole purpose of reducing or “buying down,” your interest rate

You will only see a discount fee on your loan estimate if your loan provider has indicated that it is charging you an upfront fee to lower the lifetime interest of your loan. Whether you should [pay discount points](https://better.com/content/points-credits-and-how-to-decide-if-theyre-right-for-you) requires careful consideration and is dependent on your situation.

<br>

![Originationfee2](//images.ctfassets.net/bxq7a6k69auc/1sRl1GiWNb29DuFijLXGhX/742494d86b8501d4c67699e47805350a/Originationfee2.jpg)



<h2>How to spot discount fees</h2>

You will only see a discount fee on your loan estimate if your loan provider has indicated that it is charging you an upfront fee to lower the lifetime interest of your loan. 

For example, a discount fee of 0.625% charged at closing may lower your loan interest rate by 0.125%. 

In this scenario, reducing the interest rate on a loan of $400,000 by 0.125% would cost $2,500 in discount points. ($400,000 x 0.00625 = $2,500) 

Whether you should [pay discount points](https://better.com/content/points-credits-and-how-to-decide-if-theyre-right-for-you) requires careful consideration. For example, if you plan to stay in your home (without refinancing) for a long time, paying discount points to reduce your mortgage payments could be worth the expense. 

But in many cases, you should be able to lock-in a great rate based on market conditions without paying any additional discount fees. 

To see if paying discount points works for your situation, [try our interactive tool](https://better.com/content/no-cost-mortgage). 

<h2>The high cost of origination fees</h2>

Though 1% of anything seems small, the amount it represents in the context of your mortgage loan is indeed significant. 


For example, a 1% origination fee on a $300,000 mortgage would result in an additional cost of $3,000 on top of your loan.

<h2>Don’t settle for a lender who charges origination fees</h2>

Both banks and non-bank originators have been extremely slow to adopt the [technology and processes](https://better.com/content/5-reasons-why-loan-officer-commission-is-bulls-t) that could cut significant costs to borrowers and make it easier for you to get a mortgage. 

At Better Mortgage, we don’t think that’s your problem to bear. You shouldn’t have to pay a premium to cover the inefficient and unfair way lenders do business- so we don’t charge them. 

Vishal Garg, the founder and CEO of Better.com, intentionally started Better Mortgage to be, well, better than the other lenders. “The reason we do not charge origination fees is because we believe these fees are simply a transaction tax passed to you and used to pay various commissioned mortgage brokers.

And, such fees are rarely disclosed in an easy to understand way. While most lenders have some costs related to processing mortgages, that is usually covered by the premium or interest rate they collect on the loan. 

You don’t benefit from additional services, quality, or features when you are charged origination fees on a loan versus a loan with no origination fees. And asking you to pay your hard earned money for nothing doesn’t make much sense to us. 

If it doesn’t make sense to us, we shouldn’t do it — or ask you to either.”

<h2>Get a Better Mortgage experience</h2>

We knew mortgage lending could be better. That’s why Better Mortgage took the pioneering steps to bring [technology and innovation](https://better.com/content/how-does-better-make-money) to the mortgage industry. As a result, we’ve been able to cut costs, streamline the process, and ditch those unnecessary fees. 

We never charge origination fees, application fees, or underwriting fees, and our loan officers don’t earn commissions. Instead, we get paid a one-time fee by our investors when they purchase the loan. We feel this is a better way of doing business because our borrowers deserve, well, better. 


<br><br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="http://better.com/start">Get A Better Mortgage</a>  
 </div>
<br><br><br><br>
<p class="legal">This publication is designed to provide general information. It is not intended to provide, and should not be relied upon, for tax, legal or other financial advice.</p>

  <style>
    p.legal{
    font-size:12px;
      font-style: italic; 
    }
  .ctabottom{
    font-size:25.629px !important;
    font-weight:700 !important;
    text-align:center;
  }
   


 
  
.learn {

  padding-left:25px;
  padding-top: 5px;
  padding-bottom: 5px;
  border-style: solid;
  border-width: 0px 0px 0px 3px;
  border-color: #291842;
  }
  .learnfont {
  font-size:16px !important;
  line-height: 20px !important;
  }
.footnote{
  font-size:14px !important;
  color: #767676;
  text-align:center;
  }
.charttitle{
    font-size:24px !important;
  text-align:center;
  }
  
  
  p.chartsmall {
    font-size:12px!important;
  }
  


  
    #img1 {display:block;}
#img2 {display:none}
  
  
  
  
  
  @media all and (max-width: 600px) {
    
      .mobilehide{ display: none;
  }
    #img1 {display: none;}
    #img2 {display: block;}
    
    
    p.chartsmall {
    font-size:9px!important;
  }
 

  .headshot{
  width:150px;

  }


}
  .equation{
    padding-top:40px;
    padding-bottom:50px;
    padding-left:30px;
    padding-right:30px;
  text-align:center !important;
    background:#291842;
  }
  
  p.equationtop{
font-weight:300!important;  
    color:#ffffff;
  }
  p.equationbottom{
    font-weight:700!important;   
   font-size:28px;
    color:#ffffff;
  }
  .headshot{
    padding-bottom:15px;
  width:150px;

  }
  .centerqa{
  text-align:center!important;
  }
  
  </style>

Origination fees are common when purchasing a mortgage but we'll explain why they can vary between lenders and why better doesn't charge them.

What is a loan origination fee and can you avoid paying it?

origination fee

<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>

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

<script type="text/javascript" src="https://media.better.com/widgets/affordability-calculator.js"></script>

<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>

<p><br></p>

<div style="text-align:center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Get Pre-Approved</a>  
</div>

<p><br></p>

<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>

<p><a href="https://better.com/preapprovals/purchase"><img src="https://media.better.com/content/prod/2017/06/blog_betterMortgCalc_CTA-green@2x.png"></a></p>

<style>  
.cms-ContentPost img {
  max-width: 100%;
  }
</style>

<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>

<p><br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start/thinking-of-buying">See how much house you can afford</a>  
</div>

<p><br></p>

<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>

<p><br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start/thinking-of-buying">Get pre-approved in 3 minutes</a>  
</div>

<p><br></p>

<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>

<p><br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start/thinking-of-buying">Estimate your monthly payment</a>  
</div>

<p><br></p>

<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>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/schedule-call?loanType=purchase&TRACKINGLOCATION=wipopmi&TRACKINGBRANDING=purchase">Schedule a consultation</a>  
</div>  

<p><br></p>

<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>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start-purchase">Get started</a>  
</div>

<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. 
<br>  </p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/schedule-call?loanType=purchase  
&TRACKINGLOCATION=qahafthbtcwlt2d&TRACKINGBRANDING=purchase">Schedule a call</a>
</div>

<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

q-a-how-a-first-time-homebuyer-beat-the-competition-with-less-than-20-down-thumb-thumb

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>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/refinance">Get pre-approved</a>  
</div>  

<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>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/refinance">Check today's rates</a>  
</div>  

<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 />
<br>  </p>

<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>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/schedule-call?loanType=refinance&TRACKINGLOCATION=htgromi&TRACKINGBRANDING=refinance">Talk to a Mortgage Expert</a>  
</div>  

<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

how-to-get-rid-of-mortgage-insurance-thumb

<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>

<p><br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Start your mortgage journey today</a>  
</div>

<p><br></p>

<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>

<p><a href="https://better.com/start-purchase"><img src="https://media.better.com/content/prod/2017/11/Pull_quote1.png"></a></p>

<p><br></p>

<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>

<p><br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Discover your mortgage options</a>  
</div>

<p><br></p>

<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>

<p><br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/schedule-call?TRACKINGSOURCE=blog_ftmtrfy">Schedule a free call</a>  
</div>

<p><br></p>

<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

find-the-mortgage-thats-right-for-you-thumb

<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>

<p><br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start/thinking-of-buying">Get Pre-Approved</a>  
</div>

<p><br></p>

<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>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start/thinking-of-buying">Get Pre-Approved</a>  
</div>

<p><br></p>

<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

fha-homeready-thumb-1

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>

<hr />

![3-5% down](//images.ctfassets.net/bxq7a6k69auc/2A4exTrAqQCYbzeMZI8G1j/e99d7824bfd1bdb10f62394f30319d5f/blog_5percentdown.jpg)


<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>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Discover what you can afford</a>  
</div>

<p><br></p>

<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>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Get started today</a>  
</div>

<p><br></p>

<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>

<p><br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Discover what you can afford</a>  
</div>

<p><br></p>

<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>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>

<hr />

<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.