Will My Mortgage Payment Change Over Time?

This is a good question, and one you should consider before you start looking for a home; you don’t want to fall in love with a property that it turns out you can’t afford.

The simple answer to this question is that if you take out a fixed rate mortgage, your payment will stay the same for the life of the loan.

If you take out an adjustable rate mortgage, you should expect some fluctuation in both the interest rate and the payment.

The more in-depth answer is that, regardless of what type of mortgage you take out, you will always have fluctuations in your total housing expense, which is more than just the mortgage payment itself.

These additional items, mainly property taxes and property insurance, can go up over time (and most likely will). Whether they are included in your mortgage payment or you pay them separately, they are part of your monthly housing expense.

All of this points to the fact that when you are planning to purchase a home, you should expect some changes in these variable factors that make up your overall housing expense.

How can you get an idea of what property taxes and insurance will look like over time? To answer these questions, I can put you in touch with the experts.

A real estate agent can pull up historical tax records for properties in the area where you are looking.

As far as property insurance rates go, events such as severe weather, regardless of whether or not they impact your area, can affect the insurance rates of everyone involved in the larger insurance pool. One of my local insurance agent partners can provide a wealth of information on this and other insurance issues.

If you have questions about any of this, please give me a call. If I’m unable to answer any of your questions, I’ll put you in touch with someone who can.

Buyer Fears: Will I Even Qualify for a Mortgage?

This is the big question for buyers who believe they’re on shaky financial ground. One thing is for sure: unless you at least try, you’ll never know if you’ll qualify for a mortgage. It costs nothing to find out if you do, and you very well could qualify for more than you think.

If you are even remotely close to considering buying a home, it would be worth your time to give me a call and learn about your options.

There are three reasons for this. The first is interest rates. Currently, these are still at near historic lows. Low rates mean you’ll be able to obtain a higher loan amount than you would be able to in a higher interest rate environment.

The second is home prices. In many parts of the country, limited housing inventory is pushing prices higher. Why not shop before the prices go up even more?

The third is planning. If I review your financial details and determine that you aren’t in a ready-to-buy position, we can put a plan together to get you there.

This plan (which may be very simple) will normally focus on one of two areas: assets or credit. Assets refer to having enough funds for your home purchase, such as down payment, closing costs, and asset reserves.

Credit refers to paying down or paying off debt. Having high credit card balances, for example, increases your monthly obligations, which raises your debt ratios.

As straightforward as it may be, it could take time to see these plans through to their completion, so it’s good to get started as soon as possible.

Give me a call today to learn about your current and future home-buying options.

What If the Appraisal Is Too High or Too Low?

When you make an offer on a property, both you and your real estate agent should have a solid idea of what the appraised value will be.

If you’re surprised by the value the appraisal assigns to the house, your next steps will depend on whether the appraisal was high or low.

If the value from the appraiser comes back higher than what you agreed to pay for the property, then there would be no issue for you. Congrats! You have immediate equity.

However, if the value comes back lower than the agreed upon price, a few issues will come up. The first is a question as to whether the value that came back is correct.

Recent sales of similar homes in the area could drive down the value if they are lower than your contract price. You and your real estate agent can ask for a review of the appraisal through the appraisal management company who sent the appraiser.

You may also order a new appraisal with a different management company and appraiser, if your lender will allow it. In this case, you would have to pay for the second appraisal as well as for the first.

Since the lender will only lend money based on the lower value of the two (appraisal or contract price), one of two things must happen if the value remains low. Either the sale price must come down, or you must cover the difference between the appraised value and the sale price.

If the seller is unable or unwilling to lower the price, then you would either come up with the difference or move on to another property.

Would you like more information about this process? Feel free to contact me with any questions you may have.

What If the House Needs More Work than You Thought?

Every real estate contract should include wording that gives you the opportunity to conduct a home inspection. The time period for this allowance is typically five business days from the day the seller accepts the offer.

If this verbiage isn’t included, you have little protection or recourse if you discover the home needs significantly more work than you thought.

This is why you need to have a home buying team that includes both a real estate agent and an attorney who specializes in real estate transactions. These experienced professionals will ensure all your documents include appropriate stipulations to protect your interests.

When you complete a home inspection, you will review the items on the report with your attorney. At this point, you must decide which items are important to you. Keep in mind that older homes usually have items that are in need of repair or replacement. This is expected.

Once you’ve decided which issues are important to you, your attorney will let the seller know what the inspection turned up and which of those items you would like addressed. Keep this list as short as it needs to be to cover the big points. Going to the seller with a laundry list of items may make them less likely to want to work with you.

The level of interest in the property will also be a factor in how willing the sellers are to negotiate these items with you. If the sellers have multiple offers and need to move the property quickly, they may be less inclined to make concessions than if the property has been sitting for months with little or no interest.

The good news for you is that if you are unable to come to a satisfactory agreement with the seller, you are able to get your deposit back and move on to another property (provided this contingency was worded appropriately in your contract).

If you need a recommendation for a real estate agent or attorney who can help you with these issues, I can provide a list of reliable professionals. Just give me a call.

Pensions and Social Security in the Mortgage Process

With our aging population, more and more borrowers are in their later years and have sources of income that are, at least in part, passive. This means they have an income stream coming in without actively working for it. Two sources of passive income are Social Security benefits and pension income.

The important question regarding the mortgage process is how this income can be used to qualify for a home loan.

The first thing a lender like me will want to know is how long you expect the income stream to last. Both Social Security and pensions will most likely continue through your lifetime and potentially through that of your spouse, but this must be confirmed.

The second important thing to note is how the income will be entered on a mortgage application. Pension income will be entered as if it were earned at a job. On the other hand, Social Security income has no taxation, so it is referred to as “grossed up.”

This means that the amount you receive will be artificially inflated to a more realistic number. For example, if you are receiving $1,500 per month in Social Security benefits, the lender will take that amount and multiply it by 1.25.

In our example, the $1,500, after being multiplied by 1.25, works out to $1,875. This is the amount that would be used on your mortgage application.

Other passive income to be considered includes dividend income or some type of regular income stream you receive from a retirement account and use to fund your household budget. The lender will review what this has looked like over the past two years to get an idea of what to expect in the future.

One source of income that would be ineligible for a mortgage application is an unemployment benefit, due to the fact that this will eventually run out.

Do you have additional questions? Please feel free to contact me with any questions you may have.

What Employment History Do I Need to Purchase a Home?

With the possible exceptions of recent college grads and those who have been out of the workforce for an extended period to raise a family, the expectation is that everyone who applies for home financing will have some type of work history.

The formal guidelines on employment history state that you should have at least two years of work history in order to purchase a home. However, these are just that: guidelines, not hard-and-fast rules.

What lenders are looking for is consistency and a job history that makes sense. What does this mean?

If you have changed jobs in the past few years, but have done so to further your career, as in getting a higher salary or taking on more responsibility, that would make sense to lenders. Also, events such as medical conditions may keep people out of work for an extended but explainable period of time.

What lenders are leery of are gaps in employment without a reasonable explanation. In our current economy, events such as plant closings, layoffs, and other reductions in force are commonplace and can be easily explained.

What you do to put yourself in a buy-ready position after going through any of these situations is what interests lenders.

One employment scenario that might prove challenging for mortgage approval is a recent move from a salaried or hourly position to self-employment, as you may have little or no history of being in business for yourself.

If you have questions about how your employment history may affect your qualifications, please contact our office to discuss your options.

What Are Fixed, Adjustable, and Balloon Mortgages?

Of the three mortgage types – fixed, adjustable, and balloon (all of which I can offer you) – the most familiar is probably the fixed rate loan.

With a fixed rate loan, your mortgage payment is the same each month, excluding taxes and insurance, throughout the life of the loan.

The ARM, or adjustable rate mortgage, has an initial fixed rate period and then becomes subject to change based on whatever economic indicator it is tied to.

The third type, the balloon loan, is a little bit different from the fixed rate loan and the ARM. The rate is fixed through the balloon period, which can be between three and 10 years. That’s simple enough so far.

But there’s a twist: At the end of the balloon period, the entire remaining balance of the loan is due to the lender.

At this point, if you are still living in the property, one option is simply to refinance the loan.

So why would anybody ever want a balloon loan?

Let me explain.

Just as with other types of loans, there are pluses and minuses to a balloon mortgage.

The plus side is that you can get a balloon loan at a lower rate than you can get a traditional 30-year fixed rate loan, which means you’ll have lower payments.

The minus side is that at the end of the balloon period, when you are in the position of having to refinance, you are subject to whatever interest rates are available at that time.

The new rates could be lower or higher than what you were previously paying. Nobody knows, especially three to 10 years out.

For this reason, this is a great option to explore if you’re planning to finance a home and are absolutely sure that you are going to be out of the property before the balloon period ends.

Is this a good choice for you? Give me a call, and we can review your options.

Do Lenders Know Where Interest Rates Are Going?

The short answer to this question is that nobody, including mortgage professionals like me, can predict where interest rates are going. Any lenders who tell you that they can predict this are misinforming you and should be avoided at all costs.

The fact is, in our age of instant information, consumers and mortgage professionals typically have access to the same market information.

What factors should we consider as we review this information? Interest rate fluctuations can occur due to both domestic and foreign activity. US sources of rate changes may include the revelation of some key economic statistic such as job reports, or changes made to interest rates by the Federal Reserve Board.

Foreign influences may include wartime events such as invasions, or other destabilizing events such as impacts on oil supplies.

Part of the challenge in all of this is that buyers who are in the process of purchasing a home only have a short window in which to lock in a rate. Buyers want to know, on a daily basis, what rates are doing, and they can look to their lender for direction. But at the end of the day, this is the buyer’s decision alone. Since no one can say for certain where rates are headed, if buyers have access to a good rate, it could be a good time to jump on the opportunity.

It’s also important to note that many lenders allow buyers to lock in a rate only once they are approved. Why? It’s costly for lenders to lock in a rate for buyers when there is still some question as to their ability to qualify.

To lock in a rate as soon as possible, buyers should submit any requested information and documents as quickly as they can. By working with us to keep things moving, buyers can enjoy a smoother transaction.

Can I Pay My Own Taxes and Insurance?

Escrow accounts are a common aspect of mortgage terms and agreements. These accounts hold the funds that will be used to pay the taxes and insurance on a home.

Each month, the buyers pay a portion of these fees with their regular mortgage payment. The lender then holds these funds until the insurance or taxes are due and disburses the payments appropriately.

In many cases, these escrow arrangements are required by the lender as part of the terms of the mortgage.

But what if you want to pay your own taxes and insurance? You may or may not be able to do this. The answer depends on a couple of factors.

First is your loan type. FHA requires that you keep an escrow account. With conventional mortgages, you may have the option of paying your taxes and insurance on your own, but there are usually stipulations. The lender may add a premium to your interest rate, which your payment will reflect. They may also ask for a higher down payment or require a higher credit score for you to qualify for a loan without an escrow account.

Why are lenders so concerned with these payments?

In many cases, the taxing body (county, city, state, or other entity) has the right to take possession of your home if you get behind on your taxes. They may be able to do so even if you are current on your regular mortgage payments. This is the last thing you and your lender want.

Keeping insurance current is also important. If your coverage lapses and a disaster occurs, the lender may be left holding the note on a pile of rubble.

With these situations in mind, it’s easy to see why a lender wouldn’t be willing to take the risk of allowing buyers to control their tax and insurance payments.

Still, lenders allow buyers to do so in some situations. Each lender has guidelines on what they will accept.

Contact our office to review the escrow and tax payment options available to you.

When Should You Refinance Your Home?

Mortgage interest rates are at near-record lows. If you think you may want to refinance your home, now is a good time to at least look at your options.

You might want to refinance for one of several reasons. The first is to lower your monthly housing payment. The second could be to pull cash out of your home. Last, you may want to change the type of mortgage you have.

Moving from an FHA loan to a conventional loan could lower or eliminate your mortgage insurance premium, thereby saving you money each month. You may also want to consider switching from a 30-year mortgage to a 15-year term. With this option, your monthly payment could actually increase, but looking at the big picture, your interest savings over the life of the loan could make the move worth it.

The HARP program, which allowed refinance transactions for borrowers with little or no equity, ended at the end of 2018. However, you still have options. The good news is that both Fannie Mae and Freddie Mac have programs that can address some of the concerns that HARP loans addressed.

Another important point to keep in mind is that, unlike with purchase transactions, you can finance your closing costs in the course of a refinance transaction.

Do these options sound appealing? Are you wondering whether your home’s value would qualify your mortgage for a refinance?

Contact our office with any questions. We can discuss your options to see whether you could start saving money by refinancing your home.