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How does a USDA loan work, and do I qualify for one?

A rural home with the text "How Does a USDA Loan Work" superimposed over it.

It’s no secret that purchasing a home is an expensive and time-consuming process. There are costs at nearly every step of the way—not to mention the fact that homes are simply not cheap. That’s why it is so important to get an affordable loan.

A USDA loan could be your ticket to an affordable loan and the home of your dreams—if you and the home you’re interested in qualify, that is. What is a USDA loan? How do you qualify for it? What are its benefits? And how do you apply? Here at Landmark National Bank, we’ve got all these answers for you and more.

What is a USDA Loan?

A USDA loan is a home loan guaranteed by the United States Department of Agriculture. Being backed by the government allows USDA loans to have lower interest rates and lower down payment requirements than conventional loans.

Other government-backed loans include VA loans and FHA loans, which are backed by Veterans Affairs and the Federal Housing Administration, respectively.

USDA loans are available to fewer people than other government-backed loans due to relatively stringent restrictions. Borrowers and the homes they are purchasing must qualify for the loan separately.

Additionally, since USDA loans are intended to assist those in more rural areas, they are not eligible in most urban and suburban areas. You can view location eligibility on the USDA website.

What are the Benefits of a USDA Loan?

The USDA loan enjoys multiple benefits over other loan types thanks to its stringent requirements and government backing, which allow lenders to offer highly competitive loans and terms that can’t be matched with other loans. Some of the main benefits include:

  • Little or no down payment—Guaranteed USDA loans do not require a down payment. While this results in higher monthly payments, it lowers the initial bar for homeownership.
  • Low credit score requirements—Applicants with a credit score of 640 or higher qualify for automatic approval via the USDA’s automated underwriting system.
  • Refinancing eligibility—Loans can be refinanced into a USDA loan, thereby potentially lowering your monthly payment.
  • Low and fixed interest rates—USDA loans are available with low and fixed interest rates that vary by lender.

Do USDA Loans Have PMI?

No, USDA loans do not require private mortgage insurance, or PMI, as PMI only applies to conventional loans. However, USDA loans do have two types of fees that function similarly to PMI.

The first is called an upfront guarantee fee, which equals 1 percent of the total loan amount. The second fee is called the annual fee, which equals 0.35 percent of the loan amount. The upfront fee is paid at closing and is rolled into the loan amount, while the annual fee is calculated once per year and then divided into monthly payments along with other monthly costs.

These fees are levied no matter if you pay 0 percent down or 20 percent down. However, these fees are usually cheaper than PMI attached to a conventional loan.

How to Qualify for a USDA Loan

Should your would-be home reside in a rural area that is eligible for a USDA loan, you’ll still have to meet other requirements in order to qualify for a USDA loan. There are requirements for both applicants and the property itself. Additional requirements may also be implemented by each lender that offers USDA loans.

USDA Loan Requirements for Borrowers

  • Income—Applicants will not be considered if they exceed 115 percent of the home location’s median household income.
  • Citizenship—Applicants must be a U.S. Citizen, non-citizen national, or Qualified Alien.
  • Creditworthiness and Income—Applicants must be creditworthy and have the ability to pay the mortgage, and must supply evidence (IE employment history, payment history, etc.).

USDA Loan Requirements for the Property

  • Purpose—Properties purchased via USDA loans must be used as a primary residence.
  • Accessibility—Properties purchased via USDA loans must have direct access to a street, road, or driveway.
  • Utilities—Properties purchased via USDA loans must have functioning utilities, including wastewater disposal.

How to Apply for a USDA Loan

Applying for a USDA loan is easy. To find out additional information about the USDA loan and to see if you can qualify, you can contact your local USDA Rural Development field office for more information.

Additionally, for residents of Kansas and Missouri interested in securing a USDA loan for a purchase of a rural home, you can simply contact your local Landmark National Bank location. Our dedicated loan and mortgage officers will work directly with you to help you determine if you and the home of your dreams qualify for a USDA loan. Even if that’s not the case, we can help you with other home loans at competitive rates.

Homeownership is the American dream, and it’s achievable with the help of the right financial institution. Landmark National Bank is here to help.

I’m Self-Employed: Can I Get Approved for a Mortgage?

If you’re self-employed, you may be wondering how you can get approved for a mortgage. While it is easier to get approved for a mortgage as a W-2 employee, you can get approved for a mortgage—you just might need a little extra paperwork.

At Landmark National Bank, we recognize how popular freelance work has become in recent years. Prior to the start of the pandemic, 34% of the workforce was somehow involved in the gig economy and 67% of employees said they intended to leave their full-time job for freelance work. No matter if you are or are thinking about making the transition to self-employment, this article will help you prepare the documents you need to get a mortgage for the home of your dreams.

What do lenders look at when you’re self-employed?

Generally, when you are looking to get approved for a mortgage, lenders look at your income, credit history, and debt-to-income ratio, or DTI, to determine what amount you are approved for. When you’re self-employed, lenders will look at these factors, but they will also look at income stability, the nature of your self-employment, the financial strength of your business, and your business’s ability to generate sufficient income in the future.

To determine these factors, you’ll need to provide a history of uninterrupted self-employment income going back at least two years. To further prove your income lenders might ask for additional information, such as:

  • A letter from your certified personal accountant (CPA)
  • A copy of any state or business license that you hold
  • Evidence of insurance for your business

What if I don’t have two years of self-employment history?

If all or part of your income for qualifying for a loan comes from self-employment, your business must be active for a minimum of 24 consecutive months, otherwise, it might be best to hold off on seeking approval for a mortgage until your business hits that benchmark.

How can I improve my application?

When you’re self-employed, it’s important to make your application as strong as possible. Keeping a close eye on these factors will help make you a better candidate for a mortgage:

Pay close attention to your credit score

When lenders look at your application, they’re not just searching for a steady income; they also look at your credit score and use it to indicate your ability to make your payments and make them on time. So the higher your score, the better position you’ll be in to get approved for a mortgage.

Lenders also look at your credit utilization, which can boost your credit score if you opt to pay it down prior to submitting your application for approval.

Keep an eye on your debt-to-income ratio

Like any W-2 employee, keeping your DTI ratio below 38% is crucial for lenders to see. They use this information to determine your ability to make your mortgage payments. The more monthly debt you have coming out, the less money you have in your budget to make your mortgage payments. If your DTI is above 38%, however, start looking at what debt you can pay off to lower your DTI.

Pay off as much debt as possible

Paying off debt not only improves your DTI, but it can also improve your credit score. If you have outstanding debt that can easily be paid off, do it! Paying off your outstanding debts can also improve your credit score, or get you approved for a larger mortgage loan.

Offer a large down payment

When you put at least 20% down on a house, you’re not only avoiding paying the PMI, but you’re also putting equity into your house. Putting money down on a house also makes you a less risky candidate to mortgage lenders. A larger down payment helps mortgage lenders take your application more seriously, as you’re less likely from the equity you’ve put into your home.

Have significant cash reserves

In addition to making a larger down payment, it’s also good to have a significant emergency fund. You should be able to assure lenders that even if business revenue drops, you can continue making your mortgage payments.

Provide documentation of your income

Along with your two years of tax returns from your business, lenders may also ask for the following:

  • In-depth documentation of your business’s write-off expenses
  • Profit and loss statements
  • Balance sheets, bank statements
  • Other financial documentation

By having this documentation in order, you can improve your chances of getting approved for a mortgage.

Keep your business expenses separate

When you need to make business-related purchases, it’s best to charge those purchases to your business accounts; you can lower your personal accounts’ credit utilization and paint a clearer picture of your financial profile.

Choose Landmark to Help You Get Approved for a Mortgage

Following these steps will give you an advantage in the mortgage approval process and prove you are a reliable candidate for a mortgage.

Need help with this process, or looking for tools to manage your expenses? Visit one of our business banking experts at Landmark National Bank. Sweep services and online cash management are just a few of the robust products you’ll find among our full suite of business banking tools. Our business banking experts can also help you develop a roadmap as you prepare to submit your mortgage application.

If you’re self-employed and eager to buy your first home, reach out to one of our mortgage lenders, or visit one at a branch near you.

Is a cash-out refinance a good idea? Here’s what you should know.

Is a cash-out refinance a good idea? Here's what you should know from Landmark National Bank.

When it comes to refinancing your home, a cash-out refinance loan can be an alluring option—especially if you are looking to make home improvements or consolidate high-interest debt. At Landmark National Bank, our mortgage specialists are here to detail the fundamentals of a cash-out refinance loan. In this guide, we will explain just exactly what a cash-out refinance loan is, as well as its benefits and risks to help you make a more informed decision when choosing a home loan that meets your needs.

What is a cash-out refinance loan?

 A cash-out refinance loan (sometimes referred to as a debt consolidation refinance loan) replaces your existing mortgage loan with a new loan that is worth more than what you owe on your home. Then, this extra amount is transferred to you in cash to use on home renovations, debt consolidation, or other major purchases.

Do I qualify for a cash-out refinance loan?

To qualify for a cash-out refinance loan, you must have at least 20% equity in your home, which means a maximum of 80% loan-to-value (LTV) ratio of your home’s current value.

How to Calculate Your LTV and Home Equity Amount

To calculate your LTV, simply take the amount of your existing loan and divide it by the appraised value of your home. For example, if your mortgage balance is $100,000 and your home’s appraised value is $250,000, your LTV would be 40%. This means you would have 60% equity in your home.

Cash-Out Limitations

It’s important to note that most cash-out refinance loans limit cash-out amounts to 80% of your home’s value. Using our above example, if your home is appraised at $250,000 and your mortgage balance is $100,000, you could borrow 80% of your home’s value and get a cash-out refinance loan for $200,000. This new loan accounts for your existing loan amount while giving you $100,000 for home improvements or to pay off other debts.

The Benefits of a Cash-Out Refinance Loan

Just like other home refinancing options, cash-out refinance loans could give you a lower interest rate than what you received when you originally purchased your home. However, the real benefits of a cash-out refinance loan lie with your ability to receive the difference of your new loan in the form of cash. Many people use this cash difference to do things like:

  • Remodel a Property – One of the most common reasons people tap into the equity of their home is to remodel or renovate. For example, a buyer could take a short-term construction loan and then use a cash-out refinance loan on their property’s new, higher value to repay the costs. Additionally, mortgage interest deductions may be available for a cash-out refinance if you use your money to significantly improve your home.
  • Pay Off or Consolidate Debt – Using the money from a cash-out refinance loan, you can pay off debt or consolidate debt, especially if you are paying high-interest rates on credit cards or personal loans. Typically, cash-out refi loans provide lower interest rates than other lending products. As an extra bonus, paying off your credit card debt with this type of loan can help boost your credit scores.
  • Make a Large Purchase – Many people use cash-out refinance loans to make large purchases, such as paying for college tuition. This type of loan is especially helpful if student loan interest rates are higher than the rate of a new mortgage loan.

The Risks of a Cash-Out Refinance Loan

While a cash-out refinance loan could get you a lower interest rate, this type of loan increases the amount you are borrowing—and this could result in higher monthly mortgage payments or a longer loan term. Additionally, you will likely have to pay closing costs and other associated fees with the new loan. Other major risks of a cash-out refinance loan include:

  • Higher Interest Rates – If you are considering a cash-out refinance loan while interest rates are high, it may not be a wise choice to move forward. Higher interest rates could tack on extra costs to your monthly payments, which dramatically increases the amount you pay in the long run.
  • Foreclosure – Just like other mortgage loans, taking out a cash-out refinance loan means your home is the collateral for the loan. However, because you are borrowing more than a standard home loan (while possibly increasing your monthly payments), you could be at a higher risk for not making your payments and foreclosing on your property.
  • Increasing Debt – While paying off credit card or private loan debt with a cash-out refi could leave you with lower interest rates, it could also put you at risk for going further into debt. Once your credit cards or private loans are paid off, you could be tempted to use these lending products to rack up more debt. This could leave you in a worse place than where you started.

Discover If a Cash-Out Refinance is Right For You with Landmark

Cash-out refinance loans can be a solid option if you’re able to obtain a lower mortgage loan interest rate, consolidate debt at a lower interest rate, or if you plan to put money back into your home with renovations or a remodel. On the flip side, these types of loans can be risky, and they aren’t recommended for doing things like going on luxury vacations or buying a new car.

Want to find out if a cash-out refinance loan is a solid option for your current situation? At Landmark National Bank, our mortgage specialists are standing by to help you find the perfect refinance loan for your needs. Find a lender near you today to learn more!

 

Should I Refinance My Home?

Person using calculator to discover if they should refinance their home.

Whether you’ve changed jobs or your family has grown since you first purchased your home, you may discover that your mortgage no longer fits your financial needs. Instead of tackling the lengthy process of selling your home and finding a new one, consider refinancing it.

Refinancing sounds fairly simple: You apply for a new home loan, which pays off your original one and leaves you with just one loan and payment. However, much like buying a home, refinancing one is a big decision—and it depends on a lot of different factors that could cause you to lose money if you don’t make the right refi decisions.

Wondering if you should refinance your home? Discover if it’s the right choice for you and your family with Landmark National Bank.

Benefits of Refinancing

While there’s a wide variety of factors that go into refinancing, there are many benefits to choosing this option for your home. By refinancing, you can make certain adjustments to your mortgage that fit your budget, such as lower interest rates or shortening the term of your mortgage.

Want to learn more about the benefits of refinancing? Contact Landmark National Bank’s lending experts— they’d be happy to answer any questions you may have about refinancing.

 Lower Interest Rates and Smaller Payments

The most common benefit of a refi is receiving a lower interest rate for your loan payments, so you can stay in the home you love without hurting your finances. In addition to a lower interest rate, you may be able to shrink monthly payments for your mortgage. This can provide a much-needed break for your budget.

Shorter Term Length

If you’re considering moving to a new home in a few years, refinancing can also help you shorten the term for your mortgage. If you currently have a 30-year mortgage, you could refinance for a 15-year mortgage, which can lower your interest rate but increase your monthly payments.

Switching to an ARM or Fixed-Rate Mortgage

Whether you chose an adjustable-rate mortgage (ARM) or a fixed-rate mortgage when you first bought your house, it may no longer fit your plans for the future. If you’re rethinking your choice of mortgage, refinancing your home lets you switch to a more manageable option for your current lifestyle or situation.

Factors to Consider Before Refinancing

Before diving into refinancing your home, it’s crucial to calculate the factors of refinancing. If your credit score is less-than-thriving, for example, you may find yourself struggling to get your refinancing plans off of the ground.

Luckily, many factors of refinancing your home reflect the factors of buying a home. When you apply for a refi, these are some things you should consider:

  • Home Equity – If you have little to no home equity, refinancing with a conventional loan can be difficult. However, you can refinance with a federal housing administration (FHA) loan even if you have no equity. In addition, if you’re a veteran and your previous mortgage was a VA loan, you will also qualify for an Interest Rate Reduction Refinance Loan (IRRRL), or a VA streamline.
  • Credit Score – Credit score requirements vary by lender and your type of mortgage. In general, you’ll need a credit score of 640 or higher for a conventional mortgage refinance. Most lenders currently require a credit score of 660 or higher for government programs.
  • Refinancing Costs – Just like when you purchased your first home, refinancing includes closing costs. From appraisal fees to title fees, expect your home refinance to range from 2% to 6% of your loan amount. Prior to refinancing, it’s important to see how much you will owe in closing costs compared to how much the refinance will save you over time.

What to Expect During the Refinancing Process

Once you’ve looked over the financial factors of applying to refinance, it’s time to get the ball rolling. Refinancing shares some similarities with buying a home, but it’s typically far less complicated. When you’re ready to refinance, you can expect these general steps in the process:

Applying for a Refi

When you’re ready to start the process of refinancing, you’ll apply for a loan with your lender, who will review your income, assets, and other financial information before approving it.

Locking in Your Rate

You’ll have the option to lock your new interest rate to keep it from changing during the process. Rate locks can last between 15 to 90 days.

Beginning Underwriting with Your Lender

During the underwriting process, your lender will verify your provided financial information before taking the refinancing process further. Additionally, they will have a licensed appraiser visit your home to appraise its value.

Closing the Deal

After they’ve completed underwriting, your lender will send you an initial closing disclosure, which contains the numbers for your new loan. After reviewing the details, you’ll sign the document and return it to your lender. Generally, three business days later, you will sign all your official closing documents. Remember, when refinancing your primary residence, it is a federal law to allow you an additional three business days to ensure this loan is right for you. If not, you have the right to cancel the transaction during the three-day rescission period.

Landmark Can Help You Refinance Your Home

If you believe refinancing your home is the best option for you and your family, Landmark National Bank can help you chart this new territory. As one of the top lenders in Kansas, our team of home loan specialists is dedicated to helping you find the refinancing solution that best fits your needs.

We know how valuable your time and money is to you, which is why we always strive to keep costs low and make the refinancing process as easy as possible. Discover how Landmark can help you plan for the future of your home today.

Buying Your First Home? Here’s What You Need to Know.

Family sits on the front steps of their brand new home.

From landing your first job to the day you get to retire, there are a lot of important milestones in your life. One of the most exciting life events, however, is unlocking the door to your very first home. But, while house-hunting for the first time is a fun and exhilarating experience, there are many things first-time homebuyers should know to avoid financial frustration and unnecessary roadblocks in the future.

Discover what you should know as a first-time homebuyer with this helpful guide from Landmark National Bank.

Make Sure You Can Afford a Home

Before you start scrolling through Zillow or setting up showings at your dream properties, make sure you can afford the unexpected costs associated with a home. While the idea of owning your own property is often more appealing than renting, it comes with a variety of extra expenses that rentership typically covers, such as utilities and home repairs. So, to ensure you have enough to cover homeownership, it is important to figure out dollar amounts for your:

  • Earnings after taxes
  • Total debt (i.e., car loan, student loans, credit cards, etc.)
  • Average monthly expenses (i.e., groceries, gas, cell phone bill, etc.)
  • The amount you would like to save each month

Once all these expenses are calculated, you are in a better position to tailor your budget to include a mortgage payment. While your current budget may be able to cover the cost of renting, it’s crucial to calculate how your current financial situation will cover owning a home. Typically, it is best to keep the combined cost of your mortgage, taxes, and insurance between 25 and 30 percent of your income.

Reduce Your Debt

Before buying your first home, go the extra mile to prepare financially by calculating how you can lower or eliminate your debt. By having little to no debt, you can show a lender that you are in a stable place to purchase a home. In addition to lowering your debt, it is also wise to create an emergency fund in case something happens during your home purchasing process.

Be Ready with a Down Payment

By having a down payment ready to go before you start house hunting, you can lower your monthly principal and reduce the amount you owe on the home. Typically, home purchasers are required to come to the table with 20% of the property’s value, but there are many first-time homebuyer programs that reduce the down payment cost. In fact, many first-time buyers can qualify with as little as 3% down. In addition, veterans applying for a Veterans Affairs (VA) loan or first-time buyers applying for a Rural Development (RD) loan can qualify for no down payment!

When choosing a way to cover your down payment, keep in mind that your home is an important investment. While properly saving money for the down payment may require more patience, it can save you financial frustration in the future.

Find the Best Mortgage Loan Type and Payment Options

Oftentimes, you will need a loan to purchase a home. In fact, getting pre-qualified for a mortgage loan is a key part of deciding if you are ready to buy a home. Your pre-qualification can help ballpark your house-shopping budget.

Mortgage Loan Types

Before choosing a mortgage, it is crucial to understand the differences between a fixed-rate mortgage and an adjustable-rate mortgage. Discover the following pros and cons of each mortgage type:

  • Fixed-rate Mortgage: Charges set interest rate that does not change.
    • Pro: Borrower is protected from spikes in mortgage payments
    • Pro: Easy to understand
    • Pro: Does not vary from lender to lender
    • Con: Difficult to qualify for when interest rates are high
  • Adjustable-rate mortgage: Charges interest rate that constantly changes.
    • Pro: Cheaper than a fixed-rate mortgage
    • Pro: Often easier to apply for a larger loan
    • Con: More complicated than fixed-rate
    • Con: Monthly payments can change frequently

Choosing a Realtor

After you have been pre-qualified for a mortgage and have a general home-hunting budget, it is important to choose a realtor who will consider your needs and wants while finding a home that is still affordable.

Additionally, a realtor can help you negotiate the contract terms of your new home and guide you through the complicated paperwork. A Realtor can also help you navigate through the final stages of closing the deal on your home.

Get Your New Home Inspected

When you have found the home that is right for you, schedule a thorough home inspection. While you do have to pay for a home inspection, it is worth the cost. The inspector may find hidden issues that an untrained eye may miss, such as termites, mold, and foundation issues.

In addition to saving you thousands of dollars in home repairs, a home inspection can help you renegotiate the asking price for the home, or help you leave a deal without losing money.

Avoid Major Life Changes During Escrow

After your offer for your new home is accepted, there is a stage called “escrow.” During this period before closing on your house, your lender will examine your documents, finances, and other information to see that are all are in order. To help your escrow period run smoothly, remember the following:

  • Do not buy or lease a car
  • Do not buy furniture on store credit
  • Do not change jobs
  • Do not change your marital status

Prepare For Your Move After Closing

When it is time to close on your home, you will sign your final papers and complete the sale. Before you move into your new home, be sure to change your address with your bank, utility providers, and other important parties. Taking care of your address change quickly can help you avoid missing important mail or bills.

Purchase Your First Home with Help from Landmark

If you’re not sure where to start when it comes to choosing a mortgage, Landmark National Bank offers a wide variety of mortgage services, including:

  • First-Time Homebuyer Programs
  • Conventional Fixed-Rate Mortgages
  • Adjustable Rate Mortgages (ARM)
  • VA, FHA, USDA Programs
  • Jumbo Loans

When you are ready to buy your first home, we are here for you. Our team of home loan specialists is available and happy to help you find the mortgage solution that is right for you. Take the first step toward your first home and find a Landmark National Bank branch near you today. Ready now? Reach out to a mortgage lender near your market area to begin the pre-qualification process.