Thinking of Buying a Home? Start Lining Up Financing Now

Your number one priority before you begin your new home search is to meet with a mortgage professional to determine what you are qualified to buy. In a competitive seller’s market and with rising interest rates, you want to be preapproved and know what price point you should target in your search.

Even if you feel that your credit score is high enough to get the loan of your choice, be prepared to provide documentation that attests to your creditworthiness. You will need to show us, your mortgage consultant, everything that verifies your income and assets. If you constantly stay on top of your personal documents, then lining up your financing at any given time should be much easier.

We will look at your debts and may recommend that you pay off or pay down some debts even though you have been timely in your payments. Lower debt will improve your debt ratios. Since this may take some months to accomplish, it is important to start the loan process as soon as you can.

By enduring this preapproval process, you can narrow your home search to homes that you can comfortably afford. A successful preapproval gives you a written letter that you can give to your real estate agent showing that you are a qualified buyer and in what price range. Many agents don’t want to spend time taking prospects around to homes unless they produce preapproval letters.

This information should help you make the decision as to whether or not you are ready to start house hunting. A call or email is all we need to get things in motion for you and get your financing in order so you can be a strong buyer. We’re always here to help.

The History of How 30-Year Mortgages Came to Be

The 30-year mortgage has roots as far back as the 1920s. During this era, a home purchase was financed as a five-year loan with a 50% down payment and a balloon payment at the end of the five years. Since most borrowers wanted to remain in their homes, they had to keep refinancing the loan balance into another five-year loan until it could ultimately be paid off.

These loan terms made it difficult for most people to buy homes because it was hard to come up with 50% down. Fortunately, the advent of the Great Depression in the 1930s motivated the creation of 30-year mortgages because it was felt that buyers could better afford the payments that 30-year mortgages created and that younger buyers could pay off the mortgages before they retired. The 30-year mortgage increased homeownership because more people could qualify to buy homes.

As time has evolved, so have mortgage offerings. Even though people move more often today, the 30-year mortgage is still the loan of choice because the payments are more affordable. For those seeking to pay off their mortgages in a shorter period of time, there are 15- and 20-year options. While the interest rates are lower over the life of these loans, the payments will be higher.

As your mortgage professionals, we can review your financial status and present to you your mortgage choices to determine which loan best fits your needs. Call or email us today.

4 Home-Buying Myths You Should Know About

There are several home-buying myths that have often dissuaded potential home buyers from looking for homes. Being aware of these myths will make you more confident in your ability to purchase a home.

1. You can get a loan with less than 20% down. FHA, VA, USDA and other government-sponsored programs will originate loans with as little as zero down. You can also receive gifted funds from relatives or friends to increase the amount of your down payment to help you qualify.

2. Having a low credit score doesn’t necessarily disqualify you from getting a loan. Increasing your down payment to 10% with a credit score as low as 500 may allow you to get an FHA loan. The larger the down payment, the less risky your loan will be for lenders. A cosigner will also reduce how risky the lender perceives you if your credit score is low. Be sure to check your credit report for any correctable errors that may be influencing your score.

3. You don’t get your loan just because you have been preapproved. Once you get an accepted offer, followed by an appraisal and more documents to your lender, you still won’t have the loan. The loan is yours when underwriting gives the final approval, you sign the loan documents and the sale closes.

4. It’s not all about the interest rate. Compare different rates with the loan terms and up-front fees. Big up-front fees may cost you more than the difference in interest between loans. The annual percentage rate (APR) will be the determining factor in what loan may be best.

You can be assured that your best interests will be first and foremost when it’s time to begin the loan process. Call or email us, and we will put together a loan program with the interest rate and terms that work best for you.

What Documents Do I Need for a Mortgage Preapproval?

The first step to home buying is to connect with a lender and get preapproved for a loan. It is a time-consuming and challenging process due to the amount of documentation that we will require to get you preapproved.

Your diligence in providing us what we will need will pay off when it comes time to submit a purchase offer. Real estate agents always encourage including a mortgage preapproval letter to add strength to the offer. Once you have an accepted offer on a home, satisfying your loan contingency will then be much easier.

For most conventional and FHA loans, here are several of the documents that you will need to submit for a preapproval: a state or federally issued ID, proof of income in the form of pay stubs or W-2s, your two most recent federal tax returns, the last two statements for bank and investment accounts, any settlement statement of a recent home sale, a gift letter for any down payment assistance, any marriage settlement agreements and a letter of explanation for any questionable items on your credit history.

For self-employed home buyers, we will also request two years of 1099s and company tax returns, two months of profit-and-loss statements, a balance sheet and your current business license.

As your lender, our goal is to keep the mortgage preapproval process as streamlined as possible. We can guide you in the document-gathering process to make sure you have what you need. Call or email us today. We are always here and ready to help.

Know What You Can Actually Afford Before You Shop

Before you jump in the car and begin your new home search, it is crucial to first determine what you can afford. Since a home purchase will likely be the biggest investment you will ever make, you will want to carefully evaluate what your needs really are and if your budget will comfortably cover those needs. Ask yourself these few key questions before you meet with a lender or a real estate agent.

Beyond just the bedroom and bathroom count, evaluate what you need in living spaces for the present and into the future. Is a formal dining room or a separate family room a necessity? Will additional bedrooms be a part of the future if your family is still growing? These extra living spaces add to the square footage and impact the purchase price you must budget for.

Consider what you can realistically afford for your monthly housing cost. Ask yourself if your anticipated budget will remain comfortable even as your family’s needs change. Along with this thought process, look ahead at your income projections to see if increasing monthly expenses will be offset by your ability to have higher income in the future.

It will also be important to have a good idea of how much you can save every month so you can cover any possible loss of income or gaps in employment during the time you own your home.

Once you have satisfied yourself with what you feel you can afford, the next step is to contact me so I can help you get started with a loan preapproval based on tangible numbers. With your preapproval, you can then begin your home search knowing that both your personal needs and budget will be met. Call or email me today and we can get you started.

Understanding the Appraisal Process and What It’s All About

A home appraisal is part of the loan approval. Your lender will need to determine if the home you are buying has the same value as the agreed-upon purchase price in the purchase agreement. An appraiser will be hired to determine the worth of the property.

To eliminate any undue influence on the appraisal process, the appraiser must be assigned by an independent third party and cannot have direct contact with the lender.

The task of the appraiser is to arrive at an indicated value of the property by researching comparable sales within the same geographical area. The sales should be recent and have closed within the last 90 to 180 days. Typically, the appraiser will pull the comparable sales from an online database prior to visiting the subject property.

In addition to obtaining the square footage and bedroom/bath count, the appraiser will note any adverse condition issues with the subject property that may affect the lender’s ability to lend on the property.

After visiting the property, the appraiser will make value adjustments to the comparables where they differ from the subject property: for example, in square footage, bedroom/bath count, condition or location. These adjustments help the appraiser arrive at a value.

Once a value is determined, the appraiser submits the report to the appraisal management company (AMC), so it can be given to the lender. Any questions about the appraisal must be directed to the AMC.

I can further explain this very important part of the underwriting process for your mortgage, and I am just a call or email away.

Buying a Home? Here Are Costs You Can Expect

Congratulations, you are ready to buy a home! The purchase price is easy to find, but there are other costs associated with a home purchase, especially if you are financing the transaction. These are some of the most common costs in a purchase transaction.

Lender Fees. These fees are paid directly to the lender at closing. Many of them will include origination charges (processing, underwriting and cost for the rate). Government loan programs also have additional fees, such as upfront mortgage insurance premiums for FHA loans and funding fees for VA loans.

Third-Party Fees. The fees are paid to nonaffiliated vendors in the transaction, and some, such as the appraisal fees, must be paid up front at the beginning of the transaction. Title and escrow companies also charge fees for their services.

Attorney Fees. These are also an associated cost in states that require attorneys to be present and review documents at closing.

Home Inspection Fees. These are often not mandatory but should be strongly considered for such a large investment. Paying for a home inspection will give you a much better idea of the condition of your home, such as the plumbing, foundation and sewage system.

Reserve Requirement. Reserve requirements are not fees but are still costs in the home-buying process. If you are impounding (escrow) your taxes and insurance, there has to be enough in the account to pay your tax and insurance bills when they are due. Depending on the time of year your loan closes, this could be a significant cost. Your mortgage payment will take smaller portions monthly that will later be applied to your taxes and insurance, but you will still need to pay money at closing to ensure adequate funds.

To learn more about the specifics of these costs, call or email me, and I will go over the details.

Prepayment Penalties: Should You Be Concerned?

A prepayment penalty is a clause in a mortgage contract stating that a penalty will be applied if the borrower pays off or significantly pays down the mortgage before term, usually within the first three years of committing to the loan. Sometimes the penalty is a certain number of months’ worth of interest. Sometimes it is based on a percentage of the remaining mortgage.

Prepayment penalties were originally designed to protect the lender from people refinancing repeatedly when rates fluctuate. It is costly for lenders if you pay off or significantly reduce your mortgage balance. The income the lender makes is generally a payment stream over time, so if the loan is paid off early or reduced, this limits their income. This is especially true if the lender is also the servicer of the loan (who you make the payments to). In order to incur a penalty, buyers would usually have to pay off a significant portion of the loan very quickly.

A typical example is to pay 20 percent of the loan in one year. On a $100,000 loan, this would require paying down $20,000 in 12 months. A homeowner paying even $1,000 per month extra on the principal would fall well short of reaching that point.

Does your mortgage have a prepayment penalty? Most likely, it does not. After the mortgage reform bill (Dodd-Frank) in 2010, the penalties became illegal on most residential mortgages. Chances are if you started your loan after July 2010, you are most likely free of any worries about prepayment penalties. However, certain types of mortgages may still have them.

If you are worried that your mortgage might have one, a quick call to me is all it takes to find out. I am always here to help.

How Can I Get My Credit Scores Higher?

The credit situation for each person looking to purchase a home is unique. Let’s look at the basics of attaining and maintaining high credit scores.

If your credit needs further attention than what it would currently take to purchase a home, if needed, we can tap into other resources that may be able to help get you to that point. The first thing, and this can’t be overstated, is to start as early in the process as you are able to. This may mean when you are just thinking about purchasing a home.

The first thing to keep in mind is to pay your bills on time. This sounds overly basic, but it needs to be said. Lenders look for patterns in your ability to pay your monthly obligations on time, including rent payments, car payments, credit cards, etc. Late payments, especially recent ones, will drive down your credit scores.

The second thing to keep in mind is that even if you are paying your bills on time, you want to show lenders that you are living within your means. Credit scores favor those borrowers who have low debt and specifically low balance-to-limit ratios on credit cards. Maxed-out credit cards, especially multiple cards, will lower your credit scores.

Credit scores will adjust as these balances are paid off, but, as stated above, this may take time, and knowing what needs to be done earlier rather than later will make the process go more smoothly.

I am here to help you get into a buy-ready position, and if you have more questions about credit within the mortgage process, I am only an email or a phone call away. I would be happy to go over the options and help you determine what is right for you and your circumstances.

I Have Collections or Judgments Against Me – What Now?

Let’s look at the terms “collection” and “judgment.” A collection is a debt that the creditor has been unable to collect from the person to whom they have provided goods or a service. Often these are medical related. A judgment is a legal and public ruling that requires one person to pay another for something.

The mortgage program you choose to finance your home will have guidelines that will determine what happens with each type of credit item.

Conventional mortgages are those that use guidelines from Fannie Mae and Freddie Mac. In their March 3, 2021 guidelines, they state that typically, and there are exceptions, collections don’t need to be paid back, but judgments do, either before or at closing.

FHA has a different approach. Their guidelines, effective November 18, 2020, state that any derogatory credit accounts over $1,000 may need to be paid back. Judgments with FHA are either going to be paid off before closing, or if there is a preexisting agreement with the creditor and those payments have been made on time, that agreement may be able to stay in place.

Before paying off any collection, see how old it is. Some collection accounts, especially smaller and older ones, have less impact on your scores over time.

When you pay them off, you are “updating” them on your credit report, and they may temporarily drop your credit scores.

Let me help you review your collections and judgments, and let’s put together a plan to get you in a buy-ready position.