A Step-by-Step Guide to Getting Your Mortgage

Being familiar with the steps that you should take to prepare for the mortgage approval process will allow you to have the best loan option. You will also be able to better negotiate the purchase of a home as a preapproved buyer.

1. To get your credit mortgage ready, check your credit history and your credit score. The higher your credit score, the better loan terms you can get. FHA loans require a minimum credit score of 580. Conventional loans can be processed with a minimum score of 620. If you need to get your score up, work on paying down credit balances.

2. Before meeting with a lender, prepare a budget that includes a mortgage payment that you can comfortably afford. This will be easier once you figure your debt-to-income ratio, which ideally should be 43% or less.

3. Your partnering lender will help you get preapproved for a loan. The lender will review and verify all of the financial information and documents that you provide.

4. Once your creditworthiness has been determined by your lender and your loan options presented, you can choose which kind of mortgage works best for you. Conventional loans, FHA loans and VA loans will likely be what are available to you.

5. Once you are preapproved and you have an accepted offer on a home, it is time to apply for a loan for your purchase. The lender should have most of the documents needed for final approval. An appraisal verifying the purchase price will be part of the final approval.

6. The closing process now begins. The average time to finalize your loan and close on your home is 45 days.

Knowing these steps will make your loan process much easier. Please call me for an appointment so we can begin.

What to Consider in Co-Signing a Mortgage

There are several things to consider when you are asked or volunteer to co-sign a loan for a home purchase. You will want to make an informed decision, since you will be putting your creditworthiness on the line to guarantee a loan in order to help a primary borrower who can’t qualify on their own merits. Co-signing a mortgage could put you at financial risk and jeopardize your relationship with the borrower.

As a co-signer, you will assume responsibility for payment of the loan and any associated penalty fees in the event the primary signer defaults on the loan. There would be heavy consequences to your credit for not taking over payments.

The co-signer’s role is mostly that of enabling the primary borrower to qualify for the loan. It is important that the borrower be able to comfortably make the payments without the co-signer’s help. Otherwise, a more affordable home should be considered.

The primary borrower will usually seek a family member or friend to co-sign in order to add strength to the borrower’s mortgage application. A co-signer with a high credit score, good credit history and ample income to cover payments in the event the borrower defaults will be the best candidate for co-signing.

Conventional loans have less restrictive criteria than FHA loans for qualifying as a co-signer. With both types of loans, your name cannot be on the title. These conditions may influence your decision to co-sign or not. Contact me for more information on what needs to be considered when co-signing a loan.

Buying a House by Yourself? Here Are 5 Tips

Purchasing a home as a single buyer is a financially savvy move. Not only do you have the opportunity to make all of the home-buying decisions, but you will also be able to increase the value of your financial profile and build personal wealth. Here are a few pieces of advice to assist you.

1. Make sure your credit report is accurate, and check your credit score with all of the credit reporting agencies. If you need to increase your score, work on making all of your payments on time and eliminating some of your credit. Your creditworthiness will determine the optimum interest rate and terms that you will qualify for.

2. Look at your debt-to-income ratio. Your lender can help determine if you are carrying too much debt relative to your income. Start paying down your debt if your ratio is deemed too high.

3. Whether you are seeking an FHA or a conventional loan, you will need a down payment and closing cost funds. Commit to setting aside a percentage of your income to build the largest amount of down payment reserves that you can.

4. Home ownership typically costs more than renting. Determining your budget ahead of time will give you the cushion you will need for home repairs and maintenance.

5. Make a list of what you must have in a home. You should also decide what kind of home you want. For example, do you want a detached single-family residence or a condo? Your real estate agent can help you with these decisions.

The success of buying a home by yourself also lies in having the right lender to take you through the preapproval process. Please call or email me today so I can assist in making it happen for you.

Is a Preapproval Necessary to Buy a Home?

Your home-buying experience will only be successful if you start the process by getting a loan preapproval. A home loan preapproval will be a firm estimate of what your lender is willing to offer you once you find your perfect home. It enables you to narrow your property search to homes that you know you can afford. Many real estate agents will only work with buyers who have been preapproved.

A mortgage preapproval should be part of any purchase offer that you submit to a seller. Having a preapproval letter in hand allows you to act immediately when you locate your ideal property. It adds strength to your offer and assures the seller that you are a qualified buyer. In a competitive market, it will increase your chances of getting your offer accepted. Knowing you are preapproved for a certain price point of home will also lessen the stress that comes with the home-buying process.

The preapproval process will be very thorough in gathering and evaluating your debt-to-income ratio, income and assets. Once you have shown that you have a good credit score and the lender has verified all of your financial information, a preapproval will be generated. Generally, the preapproval letter will state what amount you are qualified to borrow and will be subject to the selected property appraising at the contract price.

If you are ready to look for a home, please give me a call so I can get the preapproval process started for you.

Here’s How Your Credit Score Is Calculated

Your credit score is the most important factor in determining if you qualify for a loan. It is also crucial in shaping the terms of your loan. A credit score is a three-digit number that a lender uses to decide how trustworthy you are when it comes to managing your finances and your ability to repay a loan. The higher your score, the less risk you are to the lender and the more optimal the terms of your loan will be. Credit reporting agencies use seven primary factors in calculating your score.

1. Your payment history is the most important because it reflects on-time payments, missed payments and those that were late.

2. The ratio of the amount of credit you are using against your available credit is factored in. Try to keep credit balances no more than 30% of the available credit.

3. Total debt will be part of the credit score calculation. Loans, collections, credit cards and other credit accounts are part of the equation.

4. The credit score will reflect what the mix of your credit accounts are. It looks at auto loans, mortgages, store credit and credit cards.

5. The age of your credit accounts are an element of your credit score. Older histories have less impact on your score than more recent credit histories. Lenders want to see established histories of on-time payments.

6. Inquiries into your credit by various entities are known as hard inquiries. Too many inquiries will lower your score.

7. Credit scores are impacted by debts that show up in public records. These include tax liens, civil judgments and bankruptcies. Paying off any of these liabilities will increase your credit score.

Call or email me and I will help you navigate what impacts your credit score so you can have the best loan options.

4 Tips to Help You Save for a Home

Saving for a down payment for a home doesn’t have to be a big challenge, nor does it have to have a big impact on your everyday budget. If you can build up a big enough savings account without having to drastically change your spending habits, then you can be motivated to do what you need to do to make homeownership a reality.

1. The easiest way to start your savings plan is to have a portion of your paycheck directly deposited into your savings account. If your employer will agree to make a split deposit on your behalf, this is the perfect way to not spend your entire income on everyday incidentals. If what goes into your savings is a reasonable amount, you likely won’t miss it, and you can still meet your essential monthly spending obligations.

2. Analyze where you spend small amounts of money on a daily basis. Money spent on coffee and snacks or drinks after work can add up to as much as $50 a day. Cut back on these nonessential items and direct those funds to your savings.

3. Small change adds up. Supplement your larger checking account transfers with periodic smaller amounts that don’t impact your budget.

4. Reduce your overhead by downgrading your living space and monthly rent. Live small, and you will find that the money saved can quickly increase your savings balance.

Call or email me today, and we can evaluate your financial situation and come up with a custom plan to help you save.

How to Ensure Your Mortgage Will Be Approved

In these days of ever-watchful lenders, you, as a consumer, can put yourself in the best possible position to be approved for a mortgage by taking a few simple common-sense steps before you start your home search.

The first step is ensuring you are paying your bills on time. As simple as this sounds, lenders find it extremely important to know that you’re capable of paying on your current debt before they permit you to saddle yourself with even more debt–perhaps more than you can handle.

Second, if you aren’t doing so already, control the amount of your current debt, particularly revolving debt such as credit card balances. Pay special attention to the ratio of your balance to your limit and try to keep this below 30%.

For example, if you have a credit card with a $500 limit, try to keep the balance under $150. If the ratio goes too high, even on lower-limit cards, it looks to the credit bureaus as though you are about to reach the full limit of the card, which tends to drive down your credit score.

Having multiple cards that are at or close to their limits may start impacting the number of mortgage programs as well as the dollar amount you are able to qualify for.

It’s always a good idea to either pull your own credit, which you should be regularly doing anyway, or ask your mortgage professional to pull it.

If it turns out that there are unexpected items on your credit report that need to be addressed and/or removed, this action will give you the opportunity to take these steps before starting the approval process.

But don’t leave it too long; you can expect that any type of action to correct a credit report will take a minimum of 30 days to affect your report.

Should I Pay Off My Mortgage or Save for My Child’s Education?

The answer to this question will be different for everyone. It will be based on your personal situation and financial goals. Once you define and prioritize your goals, you can develop the plan that works best for you.

If you come into some extra cash from an inheritance or a bonus from work, you may be narrowing the choices to spending it on paying off your mortgage or directing it to your child’s education. Investing in a 529 college savings plan allows you to contribute to the savings account and withdraw funds tax-free to pay for college tuition and other educational expenses.

Deciding on the college expenses choice will be dependent on your child’s age. Paying off your mortgage will be the better option if your child is elementary school-age or younger. You can still open a 529 savings plan and gradually grow it over the next several years until college age comes.

Evaluate your home’s equity. If you have less than 20% equity in your home, then paying down your mortgage is a good choice. Doing so will help you get closer to eliminating private mortgage insurance.

If your mortgage interest rate is higher than 3%, you should favor paying off your mortgage. Typically, 529 plans do not pay a very high interest rate, so paying off your home would be a wiser move.

The desired liquidity of your assets and tax benefits will also contribute to your decision-making. Call me, and I can help you decide which option best fits your personal financial situation.

Save Money by Restructuring Your Mortgage

The cost of having a mortgage is the interest you pay on the principal over the life of the loan. If you are current on your mortgage, restructuring your loan can potentially save you thousands of dollars in mortgage interest.

An easy way to reduce the interest you pay is to add a little extra to your monthly mortgage payment. On a $200,000 loan with a 6% interest rate over 30 years, you could pay as little as $100 more per month and save more than $49,000 in interest over the duration of the loan. You would also be able to pay off the mortgage five months sooner than the due date.

You can accomplish the same interest savings if you simply split your monthly mortgage payment in half and pay it every two weeks. Think of it as a biweekly payment plan.

Another way you can have your loan restructured to better fit your budget is to request that the lender recast your mortgage to gain a lower monthly payment.

If you apply a minimum lump-sum payment of $5,000 towards your principal, your lender can reamortize the loan with the new reduced loan amount. The interest rate remains the same, but you will have lower monthly payments. The bank fees to recast your mortgage are just a few hundred dollars.

Refinancing is used most often to restructure a loan to save interest. A mortgage refinance replaces your existing loan with one that has a lower interest rate.

Using the example of a $200,000 loan with a 6% interest rate, a refinance to a 5% rate will reduce the monthly payments by $125. You will have to qualify for the new loan and expect to pay 3% to 6% of the new loan amount in closing costs.

Email or call me, and we can look at what restructuring option works best for you.

Tips for Creating a Financial Plan for Your Home

Your home is likely the biggest asset you own. Having a financial plan to manage it is recommended. If you have a plan, you will be better positioned to pay and plan for home improvements. A financial strategy will budget for paying the mortgage, taxes, insurance, upgrades and routine repairs and maintenance. The benefit to you will be that you know how much you have to spend and what you need to put aside for maintenance and any desired improvements.

By analyzing your cash flow, you may find that you can pay a little extra on your mortgage every month, enabling you to pay down your loan faster. If you have a loan, you will need to have insurance. Be sure your insurance portfolio includes not only basic coverage but also liability coverage to protect from lawsuits. Make sure your insurance planning includes additional policies for natural disasters.

Property taxes will always be part of your financial plan, so keep track of how much they have crept up over past years and budget accordingly. Be aware that your tax obligation can possibly be reduced if recent sales show diminished value. Challenge your assessment.

Budget for maintenance and improvements. Your best ally will be the home inspection report you received when you bought your home. Be prepared to spend 1% to 3% of your home’s value every year on maintenance. A successful plan may yield extra funds for improvements.

Give me a call, and I will help you look at the total picture of the cost of home ownership to help create your financial plan.