The good news is that if you have student loans, it is possible to buy a home. But student loans can affect what you are eligible to borrow and do have an impact on the mortgage application process. Here’s the scoop.
Credit scores are key factors in loan origination. Whether your student loan debt is $10,000 or $100,000, it will not negatively affect your credit score if you have a proven history of making payments on time. A good credit score helps assure lenders that you are not high-risk and will give you access to the best loan options. Work on building up your credit score to 760 or higher.
Lenders will give strong consideration to the amount of your total debt and how it compares to your income. This is your debt-to-income (DTI) ratio. A 43% ratio may qualify you for a federally insured loan. FHA and VA loans have more lenient lending requirements with minimum down payments needed. There are also some down payment assistance programs available for first-time buyers.
To qualify for a conventional loan, lenders prefer a DTI less than 36% so you have more flexibility in paying your mortgage. Paying down or consolidating your debt and raising your available income by cutting back on spending will lower your DTI.
When you have student loans, it is often more difficult to have any substantial down payment funds. The best rate and terms will be found with conventional loans by putting 20% down. With strong credit, you can put as little as 3% down.
Refinancing your student loans may be an option for improving your debt-to-income ratio. Refinancing can reduce how much you will be spending over the loan term for your student debt.
If you have student loan debt, call or email me, and I can help you navigate the available opportunities.
The best way to understand what happens during the mortgage process is to familiarize yourself with these common terms and definitions.
Adjustable-rate mortgage (ARM): a loan with a low start rate, adjusting every six months along with a monthly payment change.
Affordability: the amount of money you can comfortably afford to spend after factoring in your income, debts and down payment.
Debt-to-income ratio (DTI): a ratio comparing debt against income.
Down payment: the amount of the purchase price that the buyer must put down, often dictated by the loan type.
Fixed-rate mortgage: principal and interest payments are the same for the life of the loan. Interest rate is fixed.
Housing ratio: total housing costs of paying principal, insurance, taxes and mortgage insurance compared to borrower’s gross income.
Loan estimate: loan terms, monthly payment and loan costs in a lender-provided document three days after loan application is signed.
Loan-to-value (LTV): loan amount divided by the property value.
Preapproval: full verification of a borrower’s income, debt and assets to determine how much can be borrowed. Recommended prior to looking for a home.
Call or email me to further your understanding of the mortgage application process. I am always here to help.
When it comes to who pays for closing costs in a real estate transaction, there will be closing costs that are unique to both buyer and seller. The buyer can incur costs that are equal to 3% to 6% of the sales price of the property. Each party is responsible for paying their own costs at closing. However, if the market is in the buyer’s or seller’s favor, it may determine if either party negotiates paying some of the other’s fees and costs in order to make a deal.
Most of the buyer’s costs are associated with the loan. The biggest costs incurred for a loan will be the loan origination fee and any discount points paid to buy down the interest rate. Other costs may include those for an appraisal, HOA assessments, prorated insurance and taxes.
The seller’s biggest closing cost liability is paying the real estate commission. Other fees would include paying the title insurance, transfer taxes and prorated property taxes.
In a buyer’s market, it may have been negotiated that the seller pay for some of the buyer’s closing costs, called seller concessions. In a seller’s market, a buyer may offer to pay for some of the seller’s closing cost liability, such as the title insurance or the home warranty plan. If a buyer does this, it increases the seller’s net proceeds and gives the buyer an advantage in a seller’s market.
Whether you are a buyer or seller, I can help you use the anticipated closing costs to help complete a sale to your advantage. Call or email me today and we can go over your specific goals and circumstances. I am always here for you to provide guidance and help you navigate all aspects of the sale.
A mortgage preapproval is most valuable when you can get it prior to your home search. Provided by a lender, it determines how much of a mortgage you can afford. Your credit history, income, assets and debts will be reviewed in order to arrive at a price point for homes you can comfortably consider buying.
Having a mortgage preapproval in hand when presenting an offer to a seller demonstrates to that seller your serious intent to purchase with the ability to close on the sale. Even though you have been through the process to get preapproved, the approval is not a guaranteed commitment to lend. The property you select will still have to appraise for the negotiated sales price, and you will have to qualify for whatever interest rate and terms you chose.
To obtain a loan preapproval, you need to meet with a lender, who will ask you about your financial history and pull a credit report. Your credit score will be the most important factor in determining preapproval qualification. The lender will also want to verify your income and assets. Be prepared to provide pay stubs, 1099s, evidence of any other sources of income and bank statements. This proof of income and assets adds strength to the preapproval letter the lender will generate for you. It also helps in deciding which kind of loan works best for you.
Please contact me. I am here to help you get the home-buying process started by guiding you through the loan preapproval process.
Before you contact a lender to buy or refinance a home, a smart move would be to take time to look at your financial status through the eyes of a lender. Give yourself as long as six months to get your financial house in order prior to applying for a loan. There are some things you can do in advance so that a lender will view your creditworthiness in a positive manner.
Even if your credit score is as high as 740, work on bolstering it to a higher number to assure the best rate and terms for your loan. The same holds true if your score is around 660. Control your credit balances and your payment record, both of which are the major influencers of your credit score.
Since your credit balances make up 30% of your credit score, it is important to pay them down as much as possible before you submit a loan application. Evaluate your budget and start reducing how much you spend on nonessential items. Direct those dollars towards reducing your credit balances. Ultimately, the amount of debt you have will factor into your debt-to-income ratio, a number that helps a lender determine how much new housing debt you can qualify for.
Since borrowers who exhibit the strongest financial standing get the best loan terms, you can further improve your position by increasing the amount of your savings. A lender will want to see that you have enough funds to cover your down payment and closing costs. You should also have enough savings to cover a few mortgage payments in the event your income stream gets interrupted.
You want to get yourself in the best financial shape possible before you buy or refinance. It’s never too early, so please contact me for further guidance. I am always here to help.
Whether you’re getting settled in a beautiful new home or you’re a longtime resident looking to make new friends, meeting your neighbors for the first time can be as daunting as making new friends in a new school. Here are four ways to help smooth out the process and make it as easy and natural as possible.
Get out of the house.
It sounds obvious, but if you spend plenty of time sprucing up your front yard or walking around the local area, you’re bound to cross paths with your neighbors eventually. Introduce yourself and be open about the fact that you’re new to the area; you’ll likely get some good tips on the neighborhood.
Look for online local community groups.
Many neighborhoods have Facebook groups, Nextdoor.com pages, WhatsApp groups and other online communities residents can join. Especially during the pandemic, these became important places for neighbors to cooperate, ask for help and share updates.
Offer a helping hand.
If you notice a neighbor pruning their garden or fixing a fence, offer to help them. Not only will your kindness be greatly appreciated, you’ll also be able to chat and get to know each other while you’re working on the task at hand.
Host a housewarming party.
Everyone loves being invited to a party, and what better way to make friends with your new neighbors than to host one of your own? Not only will it help you meet other residents, but it could also help others get to know each other too!
A letter that says you are preapproved for a mortgage is key to successful house hunting and negotiating with a seller. It demonstrates that you have gone through an extensive verification of your financial status and concludes how much you are qualified to borrow. A preapproval document helps you determine what price range of homes you can consider and the type of loan that best works for you. It also identifies any obstacles to approval such as having too much debt or credit issues that need to be remedied.
While a loan preapproval is not required prior to house hunting, it will help assure those you are engaged in the process with that you are a serious buyer. Your real estate agent will be better equipped to take you to listed properties that you have demonstrated you are qualified to buy. Agents are also more enthusiastic when they know they are spending time with a buyer who has gone through the process to get preapproved for a mortgage.
A preapproval letter is not necessary when you make an offer on a home. In a seller’s market, if you want to be more competitive when submitting offers, having a preapproval when other contending buyers do not, will give you a strong negotiating edge. Sellers want to be assured that a buyer will be able to close the sale. A loan preapproval gives them peace of mind and they will take you more seriously as a potential buyer.
House hunting can be a nerve-racking adventure, especially in a seller’s market. Having your loan preapproval letter in hand will better target suitable properties and lessen the stress of successfully negotiating with a seller.
If you are buying a new home, contact me for an appointment so we can start the preapproval process and ensure you’re in the best position when you find a house you love.
Your credit score is one of the prime factors in determining if you are qualified for a loan and the interest you will pay. Credit scores can fall into the range of 300 to 850.
There are a variety of loans to meet the needs of borrowers with credit scores as low as 580 to as high as 760 and above. The minimum credit score required will depend on the type of loan you get and what entity is insuring the loan.
Buyers with credit scores of 580 to 619 can qualify for an FHA or VA loan with minimum down payments. For a USDA loan, the minimum score is 640. Higher than the minimum credit scores and larger down payments will typically benefit the interest rate you will pay on the loan.
Since conventional loans are not insured by the government, credit scores of at least 620 or higher are required by most lenders. Larger loans will fall into the jumbo loan category, where a credit score of at least 700 is needed. As the loan amount increases so may the credit score requirement.
The best credit score to buy a house is 760 and higher according to the FICO credit bureau statistics. The higher the credit score, the more optimal the interest rate that you will pay.
Please give me a call or email me and we can see how your credit score and other qualifying factors affect what type of loan and interest rate best benefits you.
The costliest part of home buying is the amount you have to save for a down payment. Since the minimum down payment will have to be at least 3.5% of the purchase price, you need to start saving money well ahead of your projected home-buying time. These tips should help you build your down payment kitty.
1. Since down payment amounts are usually a percentage of the purchase price, establish a savings goal based on the price range of the kind of house you can afford. A home affordability calculator will help you determine your target price point.
2. Open a savings account to accumulate funds designated towards a down payment. A separate bank account will be less tempting for you to tap into for other purchases.
3. Have a budget based on your monthly income and expenses so you can determine the amount that you can comfortably put into your savings account.
4. Pay down your debt so those funds are free to become part of your monthly savings contributions. Try negotiating with your utility providers to reduce your monthly usage and costs. Apply those saved expenses to your down payment account.
5. Look at your budget and find where you can cut back on everyday spending, such as food, entertainment or travel. Suspend setting aside funds for travel until after you buy a home. Redirect your cut-back dollars to your savings.
6. When you can’t reduce any more of your spending, consider increasing your income by getting a small side job. Apply those earnings to your down payment fund.
Call or email to make an appointment with me so I can help determine what price range of home you qualify for and where you can make improvements and changes in your budget so you can start building up your down payment.
Your first-time home-buying experience can be a smoother process and less stressful if you heed these dos and don’ts. A home purchase is likely going to be your biggest lifetime investment, so getting and keeping your finances in order is crucial.
Check your credit score, be timely with all credit payments and keep your debt as low as possible. Preapproval for a home loan will evaluate your credit score and your ability to pay for a loan. The preapproval letter that you receive from a lender will define the price point of your home search and enable you to more successfully negotiate a new home purchase.
Find a real estate agent who understands your needs and can guide you through the home-buying process. Your agent will help you select a well-located home that not only fits your needs but also will give you good resale value.
Stay level-headed, and don’t let your buying decisions be influenced by emotion. Let practicality and financial comfort be your best guidance. Don’t criticize the small details of a home that can be easily remedied.
When figuring out your budget, don’t forget to factor in what your estimated closing costs will be in addition to your down payment. Be sure to keep your credit in check, and don’t make any large purchases prior to closing a deal.
Call or email me, and I can help you avoid any pitfalls that could get in the way of your first home purchase.