Are you a real estate investor? You have to deal with renovation costs and other high prices. A long-term rehab loan will benefit you. Here's your guide to getting one.
Mortgage Note: Is it Time to Refinance Your Home?
Mortgage note: Is it time for you to refinance your home? Find out here whether or not you should be considering a mortgage refinance.
A typical home loan term is 30 years and interest rates can fluctuate with the market. A borrower may feel tremendous stress underneath a mortgage note.
Many people make payments on their home loans each month without asking whether a change needs to be made. We have no idea what turns our lives will take. The plan you have for you and your family may change each year.
This is why there are options if you want to change the conditions of a mortgage loan. Knowing what option is right for you is the first step. Refinancing your current loan could help change your financial future.
If you're unsure whether it's time to refinance your home, you need to speak to a mortgage lender. You also need to educate yourself on what options are available.
Reasons to Consider Refinancing a Mortgage Note
The two types of refinancing options are rate/term and cash-out refinances. A rate and term refinance lowers the monthly rate and changes the length of the loan term. In a cash-out refinance, the new loan is for a larger amount than the existing loan and the borrower receives the difference in cash.
The type of refinance option you choose depends on your situation. Making the decision between the two should be pretty clear. Asking yourself why you would choose to refinance is the first step.
Let's look at some of the primary reasons you should refinance your mortgage note.
Lower Interest Rate
One of the primary reasons people decide to refinance a mortgage note is to get a lower interest rate. A lower interest rate could significantly lower your monthly bill. 2017 has seen lower interest rates, so now may be a good time to consider refinancing.
As you become more financially stable and pay off debt, you increase your credit score. A better credit score will increase your chances of obtaining a loan with lower interest.
In the past, a borrower needed to reduce their loan by one percent in order to save money. Today home loan amounts are much higher than they used to be. As a result, even a small mortgage rate reduction will mean lower monthly payments.
Take advantage of tools like an online mortgage calculator to determine if you can get a lower rate. If you decide to move forward, you'll need to speak to an experienced mortgage lender.
Change the Term on Your Deed
Many mortgage notes are for 30 years. That may seem like a frightening amount of time to be under a loan. Refinancing a home loan can enable you to shorten the term of the loan. This will allow you to better plan for your future.
If you have been financially successful and are now able to take on larger monthly payments, you should consider refinancing. Shortening the term by making monthly payments will allow you to pay it off faster. Imagine paying off a 30 year loan in 15 years.
Many people who are planning for retirement or have children entering college may want to free themselves of their home mortgage debt. Refinancing the mortgage note in order to shorten the term is a great option.
On the other hand, if you need lower monthly payments you could refinance to increase the loan term. However, this could be a risky move. Extending the term will put you further away from owning the home.
Switch from an ARM to an FRM
Refinancing can provide an opportunity to convert an adjustable rate mortgage (ARM) to a fixed rate mortgage (FRM). This could allow you to secure a good interest rate for the duration of the loan term. Doing this will lock you into a lower monthly payment.
If your adjustable rate loan is going to readjust to a higher rate, you may try locking into a lower interest rate by refinancing. Your credit score will be a determining factor. If your credit score is high and you want to decrease your monthly payments, a fixed rate mortgage may be the perfect option for you.
In a cash-out refinance, equity that has built up on your home is taken and added to the loan principal. The new mortgage loan is higher than the original and you receive the difference in cash. This option will allow you to use the money from the refinance for debt consolidation or other expenses.
This approach is not for everyone. Keep in mind that a cash-out refinance often comes with higher interest rates. It may also result in a longer loan term.
This type of refinance can also be used during a divorce. If one spouse wants to keep the home, a cash-out will allow the couple to split the home equity. The person remaining in the home will then be on the new mortgage note.
Eliminate FHA Insurance
If you have an FHA loan, you likely pay a Mortgage Insurance Premium (MIP) each month. If you put less than 10% down on an FHA loan after June of 2013, mortgage insurance must be in place for the entirety of the loan. But you may not want to pay for insurance each month for many years.
Refinancing can be a way out of these insurance premiums. In these cases, once 20% equity is achieved on the home, you can refinance to a new loan. The new loan should not require a Mortgage Insurance Premium and you will now be free of the monthly insurance payments on the new mortgage note.
Find an Experienced Kansas City Mortgage Lender
You need to consider your reason for refinancing before making any moves.
If you've decided that refinancing is a smart decision, you need to speak to a knowledgeable mortgage lender in your area. The Kansas City Mortgage Guy will look at your situation and provide the best options for you.
I provide personal care when dealing with your finances and value long-term relationships with my clients. Contact me to discuss your options.
If you're a first-time homebuyer, then don't miss out on these common home buying mistakes. Click here to learn more about how you can avoid them.
Do you dream about owning your first home?
Your first home marks a major milestone in your life. The last thing you want is to regret it. Before you sign on the dotted line, make sure you've got all of the right boxes checked.
Keep in mind these common first-time homebuyer mistakes. Learn how to avoid them to make sure your first home purchase is the one of your dreams!
1. Skipping the Pre-Approval for a Mortgage
When getting ready to take out a mortgage, you'll have to submit financial information to your lender for pre-approval.
During the pre-approval process, your lender will take a close look at your finances and employment status. He'll also check your credit to make sure you have enough to take out a mortgage.
You must get pre-approved for your mortgage. It enables the lender to determine what you qualify for, and it will give you an idea of how much you have to pay.
If you skip this process, you forgo valuable knowledge that can help you plan your budget and anticipate monthly payments.
2. Compromising Personal Credit Before the Loan is Finalized
Once the loan is almost final, you might not think to worry about your credit. You'd be wrong.
Take care of all your credit issues before your mortgage is finalized. A drop in your credit score can lead your lender to reject your loan or drastically change the terms.
Check your credit before you begin the home buying process and adjust accordingly. Start a conversation with potential lenders about the credit score they look for in a traditional mortgage.
Maintain good credit habits like paying bills on time, carrying little to no balance on your credit cards, and taking care of any other lingering issues.
Your credit is the baseline for your entire mortgage approval. Make sure it's on par before you start searching.
3. Working With the First Real Estate Agent You Find
It's easy to let emotions dominate you during the buying process. You're taking a big step. Unfortunately, emotions often get in the way.
Many first-time homebuyers will go with the first real estate agent they find, without pausing to make sure they're the right fit.
When it comes to real estate agents, first-time homebuyers should find a knowledgeable agent with an extensive background in the field. This agent should be honest, realistic, and prepared to work with your needs and interests.
The best way to find this real estate agent is to do your homework. Ask the potential agent about his/her qualifications and certifications. Don't be afraid to meet with several agents to decide on a good fit.
Choose an agent who knows the current market and its trends and can show you areas of opportunity you may have otherwise missed.
4. Making Assumptions About Mortgages and Their Terms
The world of mortgages is as intimidating as it is unclear. Often, a first-time homebuyer will make assumptions about home loans and get discouraged. But most of what they assume isn't true. Let's clear up a few of those mortgage myths, shall we?
Most people assume they don't qualify for a mortgage, period. This is a hasty assumption to make. Many people can take out mortgages with good to fair credit. Pre-approval will show you what mortgage you qualify for.
Many homebuyers also assume that they'll have to come up with a hefty down payment. This may not actually be the case. Every loan situation is different, which is why you need to get pre-approved to understand the terms.
Ask as many questions as possible when buying a home for the first time. Make sure you are clear on everything.
5. Choosing a Lender Who Sounds Good
This goes right up there with choosing a real estate agent right off the bat.
Your lender will play a crucial role in your first home buying experience, which is why you want to choose one that won't steer you wrong.
But what does an excellent fit look like?
You'll want a lender well-versed in mortgages and their terms and can work with your income and home aspirations. Search for lenders who have genuine relationships with their clients and a good understanding of market and interest trends.
Above all, first-time homebuyers should choose a mortgage lender who works with honesty and integrity. Do your research to find the lender who will work with your financial situation and home buying goals.
Avoid These Common Homebuyer Mistakes
It's easy to fall into traps when buying a home for the first time. However, you can avoid these first-time homebuyer blunders.
The most common pitfall is to not get pre-approved for a loan, which will jeopardize the entire home buying process the start. Get pre-approved first and the keys of your new home will be that much closer.
Second, Don't blindly pick real estate agents or lenders without researching them first and be clear on their terms.
Lastly, do your homework on mortgages and their terms. Maintain your credit throughout the mortgage process. Avoid these mistakes and you take your first step toward your dream home.
I know it sounds like a lot, but don't worry. You don't have to go it alone.
As the Kansas City Mortgage Guy, I believe in giving every homebuyer the best possible lending experience. I pride myself on nurturing long-term relationships with my clients and get genuine satisfaction in assisting first-time buyers.
I can't wait to help you transition into a new and exciting life. Contact me today to get started
Imagine the day you pay off your housing loan. Won't that be a happy occasion?
Want to get there quicker?
Check out these 5 tips that will help you sprint toward the finish line -- and without a lot of stress.
1. Increase Your Payment
I know what you're thinking you're thinking: "Increase payments? I'm already struggling to make the ones I have now!" Consider this: any payment above what's required by the terms of the loan goes directly to the principal.
Your regular payments have two parts. One part goes to pay interest and another part goes to the principal or the amount you owe.
At the beginning of a loan term, payments go almost entirely to interest. This is a result of amortization, which is one of the terms you should know when you have a housing loan.
When you look at the amortization of your loan, you'll see that with each payment you pay a little less interest and a little more principal. In other words, it takes a while to make a dent in your loan.
But if you add a little extra to each payment, you'll see the principal come down faster. That's because extra payments go directly to principal.
It doesn't take a lot to make a difference. Let's say you have a $200,000 loan at 5% annual interest for a 30-year term. The overall interest costs would be just over $186,000.
But if you increase your monthly payments by even a small amount and interest costs drop. Using the example above, if you increased your regular payments by one-twelfth (so that by the end of the year you've paid the equivalent of 13 payments instead of 12), you will pay the housing loan off nearly 4 years ahead of schedule and save about $32,000.
Most people find increasing their payment by even $40 a month won't break their budget.
2. Pay Bi-Weekly Housing Loan Payments
Another stress-free way to reduce the principal faster: pay more frequently.
Most housing loan payments are calculated monthly by default. Arrange for bi-weekly payments instead. This plan works well for people who are paid by their employer every two weeks.
Bi-weekly payments reduce your overall interest cost and duration of the home loan in two ways. First, the more frequent the payments, the less time interest can accrue on the outstanding balance.
Second, bi-weekly payments allow you to make 26 payments in a year as opposed to 12. It's a painless way to chip away at the principal.
3. Make Lump Sum Payments 4 Times a Year
Get into the habit of making regular lump sum payments. This simple act can save you thousands of dollars in interest and close your housing loan sooner.
Provided the terms of your loan agreement allow for lump sum payments without penalty, plan for a modest payment throughout the year.
Again, it doesn't have to be a large amount to make a difference. One idea is to put $100 toward your mortgage with the change of seasons. That routine can help free you from your housing loan years ahead of schedule.
4. Use Half of Windfalls
Make a promise to yourself as soon as you take out a housing loan. If you get a bonus at work, receive an inheritance, or have the good fortune of winning the Powerball, you will put half of it toward your mortgage.
How to handle windfalls often involves philosophy and practicality.
Many financial planners recommend using half because it allows you to enjoy half of the money now and benefit from the other half later. Once again, it links back to using lump sum payments to reduce the principal. In turn, those payments shorten the duration of the loan and reduce interest.
A different way to pay off your housing loan ahead of schedule is to refinance. But this option is only true under certain conditions.
If you can get a new loan at a lower interest rate than your current loan, refinancing would reduce your interest cost. And if you don't change the payment amount, refinancing can shorten the duration of the loan.
This scenario often applies to people whose bad credit or poor financial standing prompted a lender to impose a high-interest rate for the initial loan. A track record of making payments without incident for a few years often makes it easy to refinance at a lower rate.
Another way to pay your loan off faster through refinancing is to shorten the amortization period. This can work even if the interest rate is a little higher than what you're currently paying.
By getting a 15- or 20-year amortization instead of 25 or 30 years, monthly payments are higher but the pay down rate is faster. If you can afford higher monthly or bi-monthly payments, a shorter amortization period might be right for you.
Finally, don't increase the amount of the loan. When you refinance, look at the amount of principal outstanding on your current loan. That's the number you should shoot for.
If your goal is to be free of a home loan, resist the temptation to get "money in your pocket" by increasing your overall obligation.
But take note: if your current loan is due, you could face penalties for refinancing. Always know the terms and conditions of your loan before seeking to refinance.
Every Dollar Helps
The most important thing to remember when trying to pay off any loan: every dollar helps. Don't get stressed out thinking you have to make huge payments to get ahead. Small and steady is often a more sustainable approach.
You only have to find a few dollars a week and put them toward the principal of your loan. Just think, for the cost of one lunch from a restaurant each week, you could save tens of thousands of dollars in interest and be free of your housing loan sooner than your lender would like!
If you're in the Kansas City metro area and are interested in refinancing your home loan, we can help! Get in touch with us today and we'll help you get your home loan paid in full.
Buying a home and taking out your first mortgage can be an overwhelming process. It's a big leap, but it doesn't have to be into the unknown.
In fact, there are many things you can do before, during, and after the process to make life easier. Some people end up with mortgages that they're unhappy with, or can't afford later on.
Don't be like those people. Check out these ten mortgage tips and use them to help you navigate the home buying process.
1. Check Your Credit Score
Before you start the home buying process, you absolutely need to check your credit score. It's not enough to be pretty sure you have good credit. Errors can pop up at any time.
Check for any mistakes and do what you can to improve your score before you begin the process. Then use that score to estimate what your payments will likely be. Even a small change in your interest percentage can mean huge savings–or losses.
2. Take It Easy On Your Credit
What I mean is, now is not the time to be making big purchases on credit. That can impact your debt-to-income ratio negatively.
The same goes for opening new lines of credit. Now is the time to hit pause on anything that could hurt your credit score. You want to go all-in on making sure your first mortgage has an affordable interest rate.
3. Figure Out What You Can Afford
This is the time to be brutally honest with yourself. Don't try to make the numbers work by assuming a rosy future. Just take a hard look at your current finances and what you're on track to achieve.
It's also wise not to overextend yourself. You probably don't max out your credit card each month, even though you potentially could. It can also be a bad idea to max out your budget just because you've qualified for a mortgage.
If it is your first mortgage, then there's a good chance this isn't your dream house. There will be time to upgrade down the road. Now is the time to focus on putting yourself on the sound financial footing to do that.
4. Get All Your Documents Together
You don't want to go marching into the lender's office, only to go marching right back out again five minutes later to gather documents.
It can be a pain, but you should have a number of documents on you when you head to the lender. Pay stubs, tax returns, bank statements, W-2s, and even a marriage license may all be necessary.
5. Think About Your Options
The 30-year, fixed-rate mortgage is what most people think about when they talk about mortgages. But there are plenty of other options available.
Can you afford larger monthly payments? Then a mortgage with a shorter time-span and lower interest may be a smarter choice. It will depend on your individual situation, but keep in mind that the faster you pay it off, the less you'll spend.
If you don't think you'll be in this house very long, then it might be worth it to look into adjustable-rate mortgages.
6. Save for a Down Payment
Speaking of paying it off quickly, do you know how large a down payment you can afford? The standard is 20% down but we have several programs that allow for significantly less. Sometimes as low as 3% or even zero in some cases.
Again, the caveat here is that you'll probably end up paying more, possibly including mortgage insurance.
Another tip–make sure the funds for the down payment are in your account 60-90 days ahead of time. This is called "seasoning" the funds, and it's often required for loan programs.
7. Look for Assistance for Your First Mortgage
Here's one that many people forget about. Both the federal government and many states offer assistance to first-time home buyers. For your first mortgage, you may be entitled to tax credits, interest-free loans up to a certain amount, and other perks.
It's up to you to take advantage of these programs, and you may be able to combine them for substantial savings.
8. Get Pre-Approved
Getting pre-approved before shopping for a home isn't strictly necessary. However, it is a major plus when you start shopping.
Getting pre-approved is basically the same as being approved for a mortgage, but it doesn't specify a certain house. It just shows that you've been approved for a certain type of mortgage.
This is great for shopping because it shows sellers that you're serious about buying their home. They can be confident that financial issues won't gum up the sale of the house once the process has begun.
9. Compare Rates
Many first-time home buyers accept the first mortgage they're offered. But contrary to what you might believe, it's won't hurt your credit score to get multiple mortgage applications. As long as they're all within the same short time period, that is.
It all comes back to that interest rate. Even the numbers way after the decimal point can have a major effect on how much you pay down the road.
10. Remember Closing And After-Closing Costs
There are a number of things to think about here. Closing costs–the cost of closing your mortgage–can run from 2-5%. Depending on the cost of the home, that can be significant.
But you'll also need homeowners insurance and home inspections. And don't forget that you'll likely need to buy furniture and all the other things that make your first house a home.
When piled on top of each other, these expenses can break a budget quickly. Add them all into your planning, and then budget a little extra just in case.
Buying a home and getting a mortgage can be quite overwhelming if you're not prepared for it. It can also be a difficult experience if you aren't working with the right lender.
But now you know some of the steps you'll need to take to make that mortgage work for you. All that's missing is a lender who understands your needs.
Here's the last tip–let the KC Mortgage Guy get you the mortgage you need for your new home. Contact me today and let's get you started on the path to the perfect mortgage.
When I was a kid, I remember building forts in my living room and thinking about how cool it would be when I got to buy my own real home.
I mean, how hard could it be?
Obviously, I've learned there are a few more steps to take in order to buy or refinance a home. It takes more than just gathering blankets and pillows from around the house.
Although there are a few mortgage terms that seem to really get confusing for first-time homebuyers, here's a quick guide to help grasp mortgage lingo:
Mortgage Terms 101 for First Time Homebuyers
Pre-Qualification vs. Pre-Approval
Both of these terms have that fantastic prefix pre-, noting that they will be done before something else, but these two terms are notorious for getting mixed up.
Getting pre-qualified is like taking a brief survey based on some basic financial information, as well as potential down-payment/initial investment information.
Lenders can provide a type of tentative green, yellow, or red light to determine your eligibility for a specific loan.
Pre-qualification gives a strong idea as to how much of a loan can be afforded and how expensive of a house can be purchased.
Here's what really needs to be secured before beginning any home search.
A pre-approval happens when your lender gives the a-okay or the not-gonna-happen for a potential loan based on a completed application, verification of income, assets, employment check, credit history, and other necessary information.
However, once pre-approved, the real home searching fun can begin!
Getting a pre-approval can make the home buying process go much smoother.
Debt to Income (DTI) Ratio
What fun would it be to find and buy a home without adding a few mathematical equations?!
A debt-to-income ratio is one of those basic equations used by your lender to determine whether enough money is made in order to afford the potential loan.
A simple recommendation for personal finance applies to first-time homebuyers trying to secure a home loan:
Earn more money than you spend.
When tracking a new home, I try to always remind my homebuyers that the amount of money they make must validate the amount of money they are asking to borrow.
I always recommend that anyone interested in purchasing a new home needs to have a strong idea of their DTI ratio.
Consider these financial obligations when calculating a personal DTI ratio:
- Car payments
- Credit card payments
- Student/personal loans
- Child support/alimony
- Any other monthly financial obligations
The goal is to have as low of a DTI number as possible. That way, there will be more money available to pay a monthly mortgage.
Fixed vs Arm vs Balloon
Just looking at these three mortgage loan terms together appear ridiculous. There doesn't seem to be any connection between how they could possibly be related.
However, these three terms are the bread and butter of the mortgage industry.
Knowing the differences between the three is a much-needed ingredient to deciding which mortgage is best for each homebuyers' needs.
Here's a quick overview of each:
Fixed Rate Mortgage
- The most popular
- Offered between 10-40 year mortgage options, where the interest rate remains the same for the life of the loan
- Payments are predictable
Adjustable Rate Mortgage
- The rate of interest only remains fixed for a specific period of time (usually 1, 3, or 5 years)
- Interest rate is lower in the beginning; adjusts at set intervals after initial period is over
- Interest rate adjusts to reflect market conditions (can rise or lower)
- Payments are not always predictable
- Cheaper for the first few years
- After initial period of time, the rest of the loan is due in one lump sum, known as the balloon
- Potentially good for buyers who are:
- looking to move after a few years (before needing to make the balloon or lump sum payment)
- commission-based or earners of large bonuses that can put the money towards the final balloon payment
Good Faith Estimate
Plain and simple - an estimate of the potential closing costs that a new homebuyer will pay.
This big, fancy word is just a term to schedule how the loan will get repaid.
This payment schedule includes how much money will go towards the principal and how much will go towards the interest.
Speaking of, here's the difference between these two terms:
The amount of money actually borrowed for the mortgage.
That percentage that the bank gets. Interest is usually the bulk of the monthly payment until it has been reached - it's the money that the bank or lender earns from the home purchase.
A type of sub-account that is set up during closing. The escrow will include money to pay homeowner's insurance and yearly taxes, which will be wrapped into the annual mortgage payment and divided among twelve monthly payments.
If taxes or homeowner's insurance rise, this can affect the annual and monthly payment each year.
Don't get overwhelmed!
Sure, these mortgage terms seem to be a bit confusing and at times intimidating. But, they don't have to be!
Doing a bit of homework before purchasing a new home is one of the best ways that new homebuyers can prepare for their exciting investment.
A quick checklist to remember before beginning the search for the perfect home:
- Try to pay off as much debt as possible so a debt-to-income ratio is not massive.
- Don't get excited about a home that cannot be afforded; don't spend more money than is earned.
- Get pre-approved to make the purchasing process smoother and quicker.
- Get a good idea of a personal DTI ratio.
- Use one of these mortgage calculators to get an idea of which type of mortgage works best for personal purchasing needs.
And my number one recommendation for anyone looking to buy a new home: Don't be afraid to ask for help!
Making the perfect move to the perfect home doesn't have to be overwhelming or confusing!
Looking to move to the Kansas City metro area? Looking to refinance?
Let's work together to buy that dream home!
There are few things that are more exciting than buying your first home.
When you buy a home, you get to have the pride of ownership. You can paint the walls whatever color you want, and or update hardware and appliances without having to consult a landlord.
Best of all, unlike rent, mortgage payments actually contribute to building personal equity. In fact, many finance experts consider home ownership the key to building wealth.
That said, while purchasing a home can be a great experience, it can also be a daunting process.
Buying a house is a huge investment. In fact, for many people, it will be the most expensive purchase they ever make in their life.
For this reason, most buyers cannot afford to buy a home in cash. Instead, they must apply for financing.
It can be very disheartening for would-be homeowners to get excited about a potential property, only to find that their mortgage application has been denied. The good news, however, is that there are often steps you can take to improve your home loan eligibility.
Let's take a look at how mortgage lenders determine your eligibility for a loan.
What is home loan eligibility?
Before we look at the factors that impact your home loan eligibility, let's take a moment to define what this term means.
Lending institutions make their profits off of the interest that borrowers pay when paying back their loans.
Whenever someone applies for a loan, the institution must decide how much money to lend that person. They also decide what interest rate to charge. They make these decisions based on how likely they believe the borrower is to make their payments on time.
Essentially, factors that lending institutions believe make you more or less likely to make your mortgage payments will impact your eligibility for a home loan.
So what are these factors? While there are several, let's take a look at six primary ones.
One of the ways lending institutions determine a potential borrower's trustworthiness is by their age. Age can factor into a lender's decision in a few ways.
First, let's consider if a borrower is 50 years old, and looking to take out a 20-year mortgage. By the end of that loan term, the borrower would be 70 years old.
Before approving a loan, the lender would want to know when the borrower plans to retire. Additionally, they would want to see how the borrower plans to pay back the loan during retirement.
By contrast, folks who are further from retirement are considered to have more working years ahead of them.
At the same time, young borrowers present other risks to lenders. Lenders may question whether a young person is sufficiently responsible for making consistent loan payments.
In order to make this determination, the lender will typically weigh age against other factors.
Income and Profession
Monthly income is one of the best indicators of whether a borrower will be able to make loan payments. If a borrower does not have money coming in consistently, they may struggle to pay a mortgage.
In addition to your current income, lenders also look at your profession and job history. Borrowers who are in traditional professions are considered less risky because their jobs are in high demand and provide a consistent salary.
Additionally, lenders prefer borrowers who have been in the same job or industry for two or more years. These borrowers are viewed as more stable, and more likely to continue making their current salary.
So, even if a borrower currently makes a great salary by running a start-up company, lenders might view them as a risk. For one, the borrower's income could vary significantly month to month. Or, the business could fail, and the borrower could be out of work while looking for another job.
Another factor affects home loan eligibility is the borrower's FICO Credit Score. Your credit score gives lenders an idea of your history of making loan payments on time.
If you are applying for conventional financing, a better credit score will get you a better interest rate on your loan.
If you are applying for a government-backed FHA loan, you'll likely need to meet a minimum credit score requirement. Once you meet that minimum, however, you typically won't qualify for a lower interest rate by having a great credit score.
Even if you make your loan payments on time, however, your total amount of existing debt could negatively impact your home loan eligibility.
Your total amount of income compared to your monthly debt obligations is called your debt-to-income ratio. Typically, it is recommended that your debt-to-income ratio should not be higher that 45%.
Or, put differently, you should not spend more than 45% of your monthly income on debt payments.
If your mortgage payment would put you over this threshold, lenders may be hesitant to approve the loan.
You've heard the expression "two heads are better than one."
Well, when it comes to home loan eligibility, two incomes are better than one. If you and your spouse both have solid incomes, lenders will view that positively.
Even if one of you loses your job, you will have the other spouse's income to fall back on.
That said, applying for a mortgage with a spouse can be a blessing or a curse. If your spouse has poor credit, for example, that could negatively impact you.
The condition of the property
Another factor that can affect home loan eligibility is the condition of the home itself.
If you apply for a loan on an older home with a lot of problems, it will be harder to get approved by a bank. That's because the bank sees the home as having a higher risk of becoming uninhabitable.
If you are no longer able to live in your home, but still owe money on it, that could put you in a difficult financial situation.
If you need help determining your home loan eligibility, contact us. Our mortgage lenders can work with you to find a financing option that will work for your situation.
Ready to take your hard earned money and hit the real estate market to find your dream home?
First, you're going to want to make sure you can afford that dream house. Enter: your first home mortgage.
A mortgage, by its nature, puts you in debt. It's also likely to be the largest debt load you'll carry.
This doesn't need to be intimidating but it does help build appreciation in what an undertaking having a mortgage is.
To qualify for a first home mortgage there are some steps you can take to ensure a smooth and relatively pain-free experience.
Know Your Credit Score
Before a lender approves you for a mortgage, it is important to know what your credit worthiness is. This is known as your credit score.
Credit scores typically range from 300-850 with 620-650 being the ideal number range to qualify. If you find yourself below this range, you'll want to address this first.
It's worth bearing in mind that the higher your credit score the better your rate will likely be.
Some ways to help better your credit score involve not carrying a balance on your credit cards or loans or having a large car loan. The sooner you can pay off your debts the more creditworthy you will get.
By addressing this first, you can save yourself the heartbreak of failing to obtain a mortgage while setting yourself up for future success.
Establish Your Capacity for Debt
Your capacity for debt is essentially how much you can realistically afford to pay toward your mortgage.
People often want the largest first home mortgage they qualify for. This can lead to some terrible financial situations. You do not want to over-leverage yourself by taking out a loan that exceeds your ability to pay it back. This is how people go bankrupt.
Be honest with yourself about your financial situation and ensure you're staying within your comfort zone.
A ballpark figure to help you understand where you sit financially is to have 41% or less of your income going toward debt. This tells lenders that you are in a solid position to pay off your debt.
Determine the Value of Your Assets
Obviously, the more money you have to go toward the purchase of your house, the larger the mortgage can be.
It's important to audit your assets to have a solid understanding of what your spending capacity is.
You'll also want to be mindful that you aren't looking at just the amount of your downpayment, but the associated costs as well. Closing costs, legal fees, and any prepaid insurance or escrow fees will need to be covered.
The better you understand your spending position, the more confidence you install in the mortgage lender. Be sure to show them that you have considered all costs and that you're able to cover them.
The more assured the mortgage lender is, the more favorable your mortgage will be.
Have an Understanding of the Market
You don't want to approach a mortgage lender without an idea of what you want to borrow. When applying for a first home mortgage you want to be very clear about what your needs are.
Determine what you want and what you need from your house. Set a list of priorities, what the must-haves are and what the ideals are. Gather a list of potential neighborhoods that are appealing and understand what the houses there are selling for.
The more information you have the better prepared you are. This creates the context for the value of your assets and your ability to carry debt.
Having a fine grasp of your first home mortgage needs allows you to position yourself where you are and where you need to be. This allows you to bring the mortgage lender the numbers that they need to establish your qualifications.
It's also an opportunity to understand what your price point really is. You may realize that you actually have a greater purchasing power than you originally thought.
The important thing is that you don't know until you do your homework!
When you're establishing all the above points make sure to gather and organize all relevant paperwork. The more prepared you are for the mortgage lender, the smoother things will go.
Have a full list of your current debts so that you are aware of what you owe. Have proof of your assets together so that there are no questions as to your value. Demonstrate how you can carry the debt load you're asking for without risk.
Keeping these items organized allows you to keep a clear view of your position. If you need to refer to any of this information, you'll have it easily accessible.
Circling back to the idea that a first home mortgage is likely to be the largest debt you'll carry, you want to make sure that you are getting a favorable quote.
The difference of a percentage point on hundreds of thousands of dollars makes a massive difference when compounded over decades.
Understand the terms of your mortgage, too. Know whether you can lock in the rate and what the terms are if you need to break the contract early. Having a mortgage is a huge responsibility. The more you know about the terms of your agreement the more power you have over it.
Closing Thoughts on Getting Your First Home Mortgage
Buying a first home is an incredibly exciting experience. It can be an emotional roller-coaster full of unpredictability and uncertainty. You'll be competing with other buyers for limited properties. You'll find homes you love and homes you can live with.
With so much of the buying process out of your hands be sure to be in absolute control of the aspects you can influence.
The biggest variable you can manage is your first home mortgage. By using the above steps as a road map, you can put yourself in control of your buying power.
If you have any questions or need some advice please reach out and let us know.
Owning a home comes with all sorts of benefits, but also with many expenses.
Home improvement is popular among homeowners both because of improved quality or design, but also because it can add value to your home.
In fact, 53% of U.S. adults have made some sort of home improvement in the past year.
But with many projects costing thousands of dollars, this can be difficult to finance.
Taking out a home improvement loan is the solution for many homeowners looking to start a new project.
Here are 7 things you need to know if you are thinking about taking out a loan for home improvement.
1) You Have Options
When we are talking about loans, there is never just one type: there are a variety of options for you to choose from.
The first option actually isn't a loan at all: just save up money.
While this might be possible for smaller improvements, 56% of people who do home improvements spend more than $1000.
Saving up a large quantity of money might not be feasible for you or your family.
Another option would be using a personal loan or credit card.
Lastly, you could borrow with a home equity loan, a HELOC, or a mortgage refinance.
2) How to Decide Between Loans
The route you choose should depend on what type of home improvement you are looking to do, your financial situation, and your credit.
Let's look at cost of the project you are looking to do.
For small projects, it would be best to just save and pay for it yourself.
For improvements that are $15,000 or less, like buying new appliances, for example, a credit card with low interest would likely be the best route.
As it gets a little more expensive, a personal loan would be appropriate.
If the project is $50,000 or more, you're better off going for a home equity loan, a HELOC, or refinancing.
FINANCES AND CREDIT
As I said before, your credit and financials can have an affect on whatever loan you take out.
With personal loans, the interest rate will be determined by your credit score and sometimes even your profession and your income.
It's important to look around and find which lender would have the lowest interest rate for you.
Home equity loans are usually cheaper than personal loans and have fixed interest, while a HELOC has an adjustable-rate interest.
Oftentimes a HELOC begins with a lower rate, and can thus be cheaper, but a home equity loan has the benefit of being given in a lump sum.
It's up to your needs and priorities which you choose.
If your renovation is large and costly, a mortgage refinance would be the way to go. This can be more expensive than the other options, so consider your financial situation carefully.
3) Know the Risks of a Home Improvement Loan
Obviously, all loans have a certain element of risk compared to just saving and spending your own money.
If you are using a credit card, be sure to get one with low or 0% interest otherwise you will end up paying extra in interest. You also need to be careful not to miss payments, as this can result in extra fees.
You also need to be wary of fees the credit card may charge you, as well as understanding that some low-interest rates eventually expire.
If you have a card that gives you a low interest for a certain amount of time, usually for around 1 year, then you should make sure to pay off the charge sooner rather than later.
As I mentioned earlier, the interest rate on a home improvement loan can depend on a variety of factors. If you have or come to have a bad credit score, you could suffer from a high-interest rate.
Finally, be wary of closing costs. Closing costs for certain loans can be quite high.
So what's the takeaway here? Do your research and understand your personal situation before committing to any of these loans. There are many apps and online calculators that can help you.
4) You Can Combine your Options
Taking out a home improvement loan is a big decision, so it is important to borrow only what you really need.
If you have a couple thousand dollars saved, you can use that money alongside a loan instead of borrowing the entire amount. This can reduce your interest and save you money.
5) Home Improvements Can Add Value to Your Home
If you're taking out a home improvement loan, chances are you know that it will do just that: improve your home.
But the improvements themselves can add value to a home.
So what does this mean? Let's say you spend $100,000 on your home and put $30,000 into renovations. If you then sell your home for $200,000, that means you made a $70,000 profit.
Spending money and taking out a home improvement loan can help you make money in the long run.
6) Know What you are Looking to Add or Remodel
In order to make a profit on resale, the home improvement you make should add substantial value to your home.
Some examples of popular renovations that add value include:
- Maintenance (gutters, furnace, septic system, etc.)
- Solar panels
- Efficient lighting, heating, and cooling
- Kitchen or bath remodel
If you're considering a home improvement loan, these renovations could be your best bet at making your money back (and hopefully, making a profit).
7) Tax Deductions
While the home improvements themselves are not tax-deductible, there are other things related to home improvement that are deductible.
Usually, the interest on home loans and HELOCs are eligible for deduction. The specifics of the tax deduction will depend on the loan itself, your tax bracket, and other related factors.
I talked earlier about specific types of home improvements that can add value to your home. Certain types of renovations can also lead to tax deductions.
If you have a home office for a business or rent out parts of your home, then renovations to those areas are eligible for a deduction.
Home improvements can be fun and exciting for homeowners, but they are a big decision with a lot to think about.
A lot of this information can be confusing, so please reach out to us if you have any questions or need any help deciding what is right for you.