The Loan I would ABSOLUTELY Pick Today

When I'm reviewing mortgage options with prospective home buyers, they often ask me which one I would choose. Typically the answer isn't obvious because the different options have different strengths and weaknesses. The final decision really depends on what matters most to each person and that will vary buyer to buyer.

There is currently a mortgage loan available that blows most of the other options out of the water, though. 

It is Fannie Mae's Home Ready Mortgage.

Why Home Ready ROCKS

There are multiple reasons why this program is exceptional.  They include:

• Conventional loan - Home Ready is a conventional loan with all of the positive features of a conventional loan including no upfront mortgage insurance/funding fees, more flexible property standards, and the ability to eventually get the private mortgage insurance (PMI) dropped from the payment.
• Only 3% down needed - This program only requires a 3% down payment and that down payment can be gifted from a family member if needed.
• Not limited to first-time homebuyer - You used to have to be a first-time buyer to use this loan but they changed that in July. This is a BIG win. Huge.
• Can own another property - If a person owns a house already and wants to buy another one that they'll live in, they can do that with this loan without having to sell the current house first.
• Cheaper PMI - The private mortgage insurance rate is cheaper on this loan than on the typical 3% down mortgage.  
• Better interest rates for lower credit scores - this loan program doesn't charge a higher interest rate for 680-740 credit scores like most conventional mortgages do. This lack of a credit score adjustment is a big win that can save a buyer thousands of dollars over the life of their loan.  

See what I mean?  This mortgage loan has some major benefits for a broad range of buyers.

The One Potential Snag 

There's got to be a downside though, right? Well, there is one but it's not nearly as big of a snag as it used to be.


This program was created to help low to moderate income borrowers and they enforced that by having income limits. In July they rezoned the map for this and a significant chunk of our market now has no income limit at all. That means a person could make a bazillion dollars per year and still only put 3% down and get the cheaper PMI if they were buying in one of these newly-expanded areas (although, with a bazillion dollar income, they really should just pay cash).

Some areas still have an income limit though. It's determined by census tract and the map can be easily accessed here - Home Ready Map.  For those areas with a limit, it's currently $52,900.

This is the maximum income for the borrower, not the household. This is significant because it gives us a workaround when someone wants to buy in an area with this cap. If there are multiple borrowers, we often can do the loan in just one of their names to stay under the limit while putting them both on the deed to the house.

It's SO Worth It

A first time home buyer will also have to take an online home buyer education class but that and the income limit in some areas are really the only negatives. If a person can work around those, it is SO worth it to get the lower down payment, lower PMI costs and lower interest rate.

So are you interested?  Do you want to learn more?  Just email me at lori.hiscock@ruoff.com to see if this program is a fit for you.

To learn more about the products covered here or any other aspects of home financing, contact Lori Hiscock at lori.hiscock@ruoff.com.  

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here. NMLS#404320.

Ruoff Mortgage Company, Inc. is an Indiana corporation licensed by the Indiana Department of Financial Institutions (DFI) and operates with the following licenses:

Indiana-DFI First Lien Mortgage Lending License #10994;
IL Residential Mortgage Licensee #MB.6760734;
Michigan 1st Mortgage Broker/Lender License #FL0017496.

Ohio Mortgage Broker Act License #MBMB.850220.000

The Florida Office of Financial Regulation License #MLD1182

Why Flipping is so Flipping Hard

A past client emailed me this weekend asking for my help with a new property she wants to purchase. I love working with previous clients and was initially delighted by her message. As I read on though, that delight faded a bit.

She was wanting to buy a house to flip it. Now please don't get me wrong. I have nothing against people flipping homes. I've flipped a few myself (with the hugely important help of my contractor husband that is). I truly love when people take a home that is neglected and improve it. The whole community benefits from better houses so I'm a big fan.

That being said, flipping a house is just so flippin' hard to do. And I'm not talking about the actual work involved, although I think most first time flippers grossly underestimate that. I'm talking about the financing part of a house flip. Let me share why getting a mortgage for a flip home is so challenging for most buyers.

The Undervalued House

The way to make money on a house flip is to find one that is undervalued, normally because of condition, fix it and resell it for a fair market value. The challenge is that you need to cover the costs of your financing, repairs and your profit in that new 'fair market value' which means the initial price needs to be quite low when compared to the houses around it.

That does happen, but when it happens, it's often because the problems with the current condition are significant. They're things like missing plumbing or visible mold or significant damage (floors torn up, toilets missing, etc.). The issues that exist are often things that make the house uninhabitable and an uninhabitable house is not a financeable house.

What does that mean for a flipper? It means that most of the houses that will make the best flips have to be bought with cash. If you don't have the cash to buy and fix them, you're not going to be able to buy a lot of the more profitable flip houses.

Down Payment and Reserves

Maybe a person finds a house that could be a profitable flip that is actually in good enough condition to get financed. Yea! The next hurdle then is the down payment and repair costs. When you're purchasing an investment property, you need to invest more upfront than you do on a home you intend to live in. An owner occupant home can often be purchased for as little as 3% down (even 0% down for USDA eligible homes) but an investment property typically takes at least a 20% down payment.

To make it more challenging, a lender will need you to have additional funds in savings AFTER the down payment and loan approval costs are covered (called 'reserves'). You often don't need to have any additional savings with an owner-occupied home purchase but an investment property purchase typically requires you to have savings equal to six months of payments on your existing mortgage(s) and the new mortgage combined. That savings can often be in the form of retirement savings if needed (IRA, 401k), which helps. For many would be flippers though, they're stretching all their savings to just buy and fix the house and the requirement to have additional savings is just too much.

Debt/Income

So....maybe just maybe you find a house that is financeable and maybe you have the money for the down payment, reserves and repair costs. Do you have the room in your budget for the new loan though? Even if your intent is to sell the house fairly quickly, the lender has to see that you can afford the payment on it on top of your current payments. This means your income has to be enough to cover your current bills (mortgage, car loans, credit cards, student loans, etc.) and the new mortgage payment with enough cushion above these for the lender to be comfortable. Some people have that kind of space in their budget but, if you don't, this could stop your flipping plans in their tracks.

All to say...

So does all this mean that only cash buyers can flip houses? No, not really. A person can potentially flip with a mortgage but there are so many 'ifs' to it. You could potentially flip with a mortgage if the house meets minimum property conditions, if you have the 20% down payment, if you have the required reserves, if your debt/income ratio isn't too high (plus a few more minor 'ifs' not covered here). Add on top of all of this that most sellers will prefer a cash offer on their distressed property over a financed one and it's just really, really flippin' hard for people to get into home flipping if they need a mortgage to do it. 

My best advice - if this is something you really want to do, find a property that meets minimum property standards and buy it to live in while you're fixing it. If you make it your home and live there, repairing it over time, and selling it down the road, a lender will view it as your primary home and a lot of these tighter requirements go away.

If that's not an option, try to save the money and become a cash flipper. It may take longer to get to your goal, but it's do-able if you're willing to put effort and time to save upfront.

To learn more about the products covered here or any other aspects of home financing, contact Lori Hiscock at lori.hiscock@ruoff.com.  

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here. NMLS#404320.

Ruoff Mortgage Company, Inc. is an Indiana corporation licensed by the Indiana Department of Financial Institutions (DFI) and operates with the following licenses:

Indiana-DFI First Lien Mortgage Lending License #10994;
IL Residential Mortgage Licensee #MB.6760734;
Michigan 1st Mortgage Broker/Lender License #FL0017496.

Ohio Mortgage Broker Act License #MBMB.850220.000

The Florida Office of Financial Regulation License #MLD1182