Spotlight

The majority of home buyers will need a mortgage when buying a home. Applying for a mortgage, unfortunately, is much more work than simply showing up at the bank with a checkbook in hand. Getting approved for a mortgage takes knowledge, planning, and organization. The following are three things potential buyers should know before applying for a mortgage.

1. What is considered a good credit score?

   The elusive credit score is often misunderstood, yet is a major determining factor in being approved for a mortgage. This three-digit number helps lenders assess whether or not borrowers are high- or low- risk. The higher the credit score, the better chance a borrower has of being approved – and at a better interest rate.

   What is a good credit score? While a perfect score is 850, few borrowers have scores this high. An “excellent” credit score is 760 or higher; a credit score this high means a borrower is likely to qualify for the best terms and interest rates. A “good” credit score is between 700 and 759, while a “fair” score is between 650 and 699.

   Consumers are eligible to check their own credit reports. This can ensure there are no problems such as late payments or overdue bills that need to be addressed. It’s recommended to first check your credit at least six months before applying for a mortgage; this gives borrowers the chance to fix or amend any issues their credit reports may have.

2. What amount should be put down?

   What is the right amount to put down on a house? Unfortunately, there is no simple answer; the right down payment amount varies from buyer to buyer and depends on a variety of factors.

   In a recent study by NerdWallet, 44% of respondents said they believe that a down payment of at least 20% (or more) is required to buy a home. While common, this amount is not set in stone. The reason a 20% down payment is considered the “gold standard” is because this is the amount that no longer requires PMI, or private mortgage insurance. Another advantage is putting this amount down is that it can help reduce monthly payments or even receive a better interest rate.

   Can’t afford 20% down? There are many lenders that still allow borrowers to make smaller down payments. FHA loans, for example, only require 3.5% down; loans by the Department of Veterans Affairs give military personnel the opportunity to purchase a home with $0 down and no PMI. USDA loans also have lower down payment requirements than traditional mortgages.

3. What is a DTI ratio?

   DTI, or debt-to-income, is the ratio of debts to income. For example, a couple who makes $6,000 per month and pays $500 towards outstanding loans has a DTI of 8.3%. After factoring in a mortgage payment of $1,000 per month, the couple’s DTI would increase to 25%.

   Lenders use DTI as evidence as to whether or not a borrower will be able to afford a monthly mortgage payment. Most lenders look for potential borrowers to have a DTI no more than 36%, while some will accept up to 43%. High DTI? Try to lower it before applying for a mortgage by paying down existing debt as much as possible.

by Author, December. 010, 2019

Purchasing a home is first and foremost a major investment – and can make or break your financial future. Many buyers unintentionally jeopardize their savings, children’s education, or even their own retirement by following the incorrect financial advice of others. Working with a financial planner helps buyers in two ways: it gets their finances in order before applying for a mortgage and prevents them from making financial unsound decisions.

Fine tune your budget before applying for a mortgage

A common mistake many first time buyers make is not fully investigating their own finances before applying for a mortgage. Unfortunately, this can result in high interest rates, the necessity of private mortgage insurance, or the loan application being altogether rejected.

Working with a financial planner before you start the house hunting process can ensure your finances are in order. The following five tips can ensure buyers are able to qualify for a mortgage when the time comes.

1. Make a list of monthly expenses: know what you’re making and where your money is going each month
2. Find ways to cut back: look for areas in the budget that can be scaled back, even if only temporarily
3. Pay off as much debt as possible: the more money you owe, the more a lender views you as high risk
4. Save for a down payment: try to get as close to 20% as possible to avoid paying PMI
5. Buy realistically: most financial planners agree buyers can afford a home about 2.5 times their annual salary

Things to discuss with a financial advisor

Mortgage officers are often only concerned with how much home you can afford; financial advisors can help buyers decide how much home they should buy. Financial advisors look at more than just your income and debts, helping buyers leverage their short- and long-term financial goals alongside their home purchase. This includes discussing topics such as:

- Will this monthly payment allow me to save at least 12% of my pretax income?

- Can I afford a 10-20% down payment?

- How will my finances change if I opt for a 15 year vs 30 year mortgage?

- What do I do if the value of my home changes? Could I still afford this home with a change in career or family situation?

- Will I still have an emergency fund to cover three to six months expenses after closing and moving costs are covered?

- Should I put down as much as possible or put down the minimum amount?

While there are no hard and fast answers for many of these financial questions, having these discussions with a certified financial planner can help buyers make sound financial – and real estate – decisions!

by Author, December. 010, 2019

One of the most common questions potential buyers ask their lenders is “what kind of loan is best?” Because no two homes and no two buyers are alike, there is no hard and fast answer. Instead, the answer is often “it depends.” The type of home being purchased, credit history, location, employment history, and the amount of the loan can all impact what will be the best mortgage option for a buyer. The following guide can help buyers decide which loan is right for their needs.

Conventional loans

Conventional loans are the most common type of mortgage and are the go-to loan for most home buyers. With good rates, flexible terms, and a variety of down payment options, conventional loans are offered by nearly every bank, credit union, and mortgage company in the country.

- Down payment as low as 3% with PMI - Available for primary residence, second home, or investment property - PMI is cancelable once 20% home equity is reached - Loan amounts up to $480,000 – or more in high cost countries

FHA loans

FHA loans are the favorite loan of first-time buyers, with about 40% of young buyers choosing this type of mortgage. The more flexible terms make homeownership a possibility for those with lower credit scores or less money for down payments.

- Minimum down payment of 3.5% with PMI - Credit scores as low as 580 when minimum down payment is met - Gift money from family or friends can account for 100% of the down payment or closing costs - More lenient income requirements

VA loans

Only available to those with a history of eligible military service, VA loans are backed by the US Department of Veterans affairs. With lower rates than most standard mortgages – and no down payment requirement – they are an extremely popular loan choice for those who have served in the military.

- Low interest rates - Both 15- and 30- year loans available - No down payment requirement - No PMI required for down payments under 20%

USDA mortgage

USDA mortgages may also be called Rural Development (RD) loans or the Single Family Housing Guaranteed program. These loans are for buyers who plan to live in rural areas and can offer zero down payment loans for moderate-income buyers in these areas.

- Applicants must meet minimum income - Lenient credit score requirements - Low mortgage insurance fees - Home must be within USDA-eligible areas (which covers around 97% of the country)

Jumbo loans

In expensive areas, loan amounts regularly exceed the standards Fannie Mae and Freddie Mac allow. In these cases, a non-conforming loan – also know as a jumbo loan – may be offered by the bank.

- Comparable rates to conforming loans - Fixed and adjustable rates available - Loan amounts in the millions can be offered

by Author, October. 05, 2019

One of the most commonly cited reasons to buy a home versus renting is to build equity. Equity is the difference between the market value of a home and the amount left of the mortgage. While equity naturally increases with each payment a homeowner makes, there are a number of benefits to increasing the equity in a home. The following are five ways to increase the equity in your home.

1. Make a large down payment

   If you are preparing to purchase a home, making a large down payment is the fastest – and easiest – way to build instant equity. In addition to building equity, making a large down payment can help reduce monthly mortgage costs or eliminate the need for costly mortgage insurance.

2. Prioritize paying off the mortgage

   Homeowners build equity every month simply by making their mortgage payments. Paying off the home faster, even if it’s by paying just a little extra each month, can build equity over time. Common tactics for paying off the mortgage even faster include putting any money from tax returns or other financial windfalls directly towards the mortgage, making an extra payment one to two times per year, refinancing to a loan with shorter terms, or increasing the monthly payment amount by a few hundred dollars.

   Before putting extra money towards the mortgage, however, ensure it’s going towards the principal – not the interest. In addition to building equity and helping pay off the mortgage faster, making extra payments can help homeowners save thousands in interest.

3. Make improvements inside

   Whether it is installing a new light fixture in the kitchen or entirely gutting and rebuilding a bathroom, home improvement projects help increase equity. Look for projects that have a high return on investment; this ensures that homeowners can maximize the equity they are getting without blowing the budget. Projects around the home with a high return on investment include minor kitchen remodels, new flooring, or updating bathroom fixtures.

4. Add curb appeal to exteriors

   Curb appeal is important; it’s the first impression people get of a home. Because of this, increasing curb appeal can help increase a home’s value – and add equity. Common exterior projects that can build equity quickly include building a deck, installing new vinyl siding or stone veneer, updating landscaping, or adding shutters.

5. Follow market trends

   Patience is a virtue – and is especially important when waiting for the equity in a home to increase. The value of most homes naturally increases over time; the equity in a home will likely increase over time as the home appreciates in value. Unfortunately, the opposite can be true – if the market trends downward, you may lose equity as well.

by Author, October. 05, 2019

While home prices may be steadily increasing, buying a house is still surprisingly affordable. Affordability in an area is determined by looking at home prices, wages, and mortgage interest rates. According to the Affordability Index by the National Association of Realtors, “All four regions saw an increase in affordability from a year ago. The South had the biggest gain in affordability of 6.9%, followed by the West with a gain of 6.0%. The Midwest had an increase of 5.8%, followed by the Northeast with the smallest gain of 1.8%.”

For many, homeownership is an important milestone of adulthood. However, it can be difficult to determine when is the best time to take the plunge and purchase a home. While it can be beneficial to some to wait and accrue additional savings, current market trends make it the perfect time to purchase a home. The following are five reasons to buy a home now.

1. Increase your investment

Home prices tend to increase slowly over time; this allows many homeowners to increase their investment, eventually selling their homes for more than the purchase price. Home prices in the United States tend to increase 3-6 percent per year, making homeownership a safe, secure way to increase wealth.

2. Save money

In most areas of the country, monthly mortgage payments are significantly lower than comparable rent amounts. Owning instead of renting can lead you to paying less each month. Likewise, there are many tax breaks that are available to homeowners; real estate taxes are often deductible, creating an even greater savings for homeowners.

3. Take advantage of low interest rates

Current economic trends have led to extremely low interest rates. With many predicting a downturn in the economy in several years, now is the perfect time to capitalize on low interest rates and purchase a home.

4. The home is yours

Owning a home has plenty of economic benefits – as well as many personal ones. Feel free to paint a room, replace flooring, or even punch a hole in the wall if you want. Likewise, homeowners can decide to get a pet – or more than one – without special approval, fees, or security deposits that a landlord may require.

5. Experience the peace of mind of financial security

Homeownership can equal long-term financial security. Instead of dealing with crazy landlords or unfair rent increases, you have a guaranteed, fixed payment every month. Likewise, the longer you own a home, the more equity it will build; home equity can help you refinance for better rates or take out a home equity loan to make other major purchases or improvements.

by Author, October. 05, 2019

Most homebuyers still mistakenly believe that every home purchase with a loan requires a 20% down payment. However, modern financing options are more diverse than ever before – and many require little to no down payment. The following guide can help potential buyers better understand down payments, how they work, and how to choose the right amount.

What is a down payment?

A down payment is the money that buyers pay at the origination of a loan – whether that is for a home, vehicle, or other large asset. Money for a down payment often comes from personal savings, while smaller loans may allow you to put the down payment amount on a credit card.

Down payments are sometimes – but not always – a part of a loan. The amount that is made in a down payment will affect the amount the loan is for, as well as what the monthly payments will be. A larger down payment equates to a smaller loan, which in turn leads to a lower monthly payment; a smaller down payment, however, can leave money in the bank to pay for immediate projects and improvements.

How much should I put down?

Some believe that a bigger down payment is always better; others prefer to make the down payment as small as possible. There are pros and cons to both methods, and buyers should evaluate their savings, future earnings, or plans for a home before making a decision on down payment amount.

Benefits of going small

Benefits of a small down payment include:

- Buy sooner. Saving 20 percent can take years – particularly in expensive markets. A small down payment can help buyers purchase a new home sooner. - Leave money in the bank. Many buyers eliminate the majority of their savings to make a down payment. A small down payment leaves plenty of money for emergency reserve funds. - Money for improvements. Instead of making a large down payment, money can instead be used to make immediate improvements or changes to a property. - Other opportunities. Money can be used for investments, retirements, or business opportunities instead of being tied up in a house.

Go big or go home

Benefits of a big down payment include:

- Lower rates. When buyers are prepared to put a large amount down, lenders may be willing to lower their interest rates. - No PMI. With a down payment of more than 20%, buyers are able to avoid mortgage insurance and other upfront payments. - Lower monthly payment. The bigger a down payment, the smaller the size of the loan – and the smaller the monthly payments. - Future borrowing power. A large down payment can improve a buyers debt-to-income ratio, making it easier to qualify for additional loans in the future. - Potential equity. A large down payment is in investment in the home; when buyers put down a large sum, they are immediately increasing the equity value of a home.

Lender Requirements

Down payment requirements vary from lender to lender – and from loan to loan. While conventional and FHA loans can have down payments as low as 3%, PMI is required. VA loans, however, are available to qualifying military members with no down payment. Check with individual lenders for more information about down payment requirements.

by Author, October. 05, 2019

The value of a home can fluctuate from year to year – and even from month to month. The median sales prices of homes in the United States are between $188,900 and $279,900, but there can be significant differences depending on the time of year, neighborhood, or the state of the economy. Whether you’re a buyer looking to get the most bang for your buck or a seller wanting to get the most money for your current home, understanding changing home prices can help you decide when to make a move in the real estate market. While there are a number of reasons home prices can change, the following are four common reasons home prices fluctuate.

1. The economy

Whether it is strong or weak, the economy has a significant impact on home prices. When the economy is strong, families feel more financially secure, are more willing to take out a larger mortgage, and home prices tend to increase. In an unstable economy, people can lose their jobs or fear getting laid off; this leads to fewer home purchases and, by extension, lower home prices.

2. Supply and demand

Real estate is subject to the economic laws of supply and demand; when there are more buyers than sellers, home prices go up. When there are more sellers than buyers, home prices go down. Spring tends to be the most popular season to buy a home. Because of this, sellers can expect higher home prices, ensuing bidding wars, and even paying over asking price. In colder months, demand goes down; with fewer people shopping for homes, sellers may list for a lower price tag.

3. Location, location, location

Real estate is all about location, location, location; what neighborhood, school district, city, or even state a home is located in can have a major impact on its price. In San Francisco, for example, the median sale price was $1.6 million in 2018; in Kansas City, the average home sells for $236,000. If you aren’t willing to move across the country to a less expensive area, homes in up and coming or traditionally less popular neighborhoods tend to have lower pricing.

4. Interest rates

Changing interest rates can impact housing prices. When interest rates are low, home prices tend to be higher; this is because lower rates encourage more families to buy homes, increasing competition and therefore prices as well. Interest rates tend to go up when the economy is down as banks are less willing to take risks on mortgages. Because higher interest rates make higher monthly payments, potential buyers can afford less; this leads to home prices decreasing.

by Author, August. 27, 2019

Innovations in smart technology have made being a homeowner easier than ever. We can now lock and unlock doors, adjust the thermostat, change the lighting, or even turn on music from our smart phones and devices. The following are a number of the best smart technology devices for your home.

The Amazon Echo remains the most popular smart speaker on the market. This Bluetooth speaker provides 360-degree audio – as well as listening to voice commands with Amazon’s voice assistant Alexa. The Echo can be connected to the smaller Echo Dot as well as a variety of smart devices. Once connected, it can set alarms, recall a grocery list, make calls, and more.

The Philips Hue ecosystem can work seamlessly with smart speakers including Alexa, IFTTT, and even Siri. This allows you to control the lights, brightness, and even color of the bulbs by either voice or app. In addition to letting you create flexible lighting throughout your home, the Philips Hue can be programmed to set colors or brightness levels with alarms and music.

Never be left in the dark when the power goes out with SmartCharge LED lightbulbs. These energy efficient bulbs have a battery backup that provide a minimum of 3.5 hours of additional light during a power outage. Easy to install, SmartCharge bulbs can be turned on and off with the regular wall switch – even when the power is out.

While there are a number of Wi-Fi enabled doorbells on the market, the Honeywell Skybell Trim regularly tops ranking lists. The built-in 1080p camera includes full-color night vision, motion sensor alerts, and free cloud recording with no monthly fees. Easy to install and weather resistant, it can be used with the free SkyBell app.

There are a number of features that make the Ecobee the best smart thermostat on the market. The Ecobee is Alexa-enabled; this allows it to be voice controlled, used as a speaker, and even used to control other smart devices. The Ecobee also has multiple sensors that can be placed throughout the home to help reduce hot and cold spots.

The TP-Link HS100 is a feature-rich smart plug that can help manage energy usage throughout your home. The HS100 can be programmed into both Alexa and Google home groups and routines, making it possible to turn the plugs on and off by voice command. The extremely useful Away Mode allows you to schedule days or times when the plug is powered on or off, while the Kasa app allows you to monitor your daily, weekly, or monthly energy use.

by Author, August. 27, 2019

Investing in real estate is one of the most common ways to build wealth and long-term financial independence. While there are plenty of people who have gotten rich flipping or renting houses, the reality is far riskier. The following are five things that every person should know about buying an investment property.

1. Think with your head – not your heart

House hunting for a primary residence is driven by emotions: how a home feels, what design features we prefer, or imagining our families living there. When choosing an investment property, however, it’s important to take emotion out of the equation. This is not a place you’ll be living with your family for many years; it is an investment that will either be rented or renovated and sold. Make smart, logical decisions about price, neighborhood, and even design finishes to maximize your return on investment.

2. Avoid a flip to prevent a flop

HGTV shows like Fixer Upper have many potential investors convinced they can quickly and easily flip a house for a major profit. Unfortunately, many flips turn into flops, with investors losing thousands of dollars due to unforeseen renovation costs. Instead, look for a home that needs very minor repairs or updates that can be completed quickly.

3. Secure your financing

The rules for mortgages and investment properties are significantly different than those for primary residences. In addition to qualifying for different terms and conditions, many lenders require mortgages for investment properties to have higher down payments. To ensure you are getting the best loan possible, consider working with a mortgage broker to help find the right loan for your investment.

4. Calculate your expenses and earnings

Considering every detail beforehand can help potential investors avoid pitfalls – or getting in over their heads. Calculate earnings as well as expenses beforehand. Check local listings for comparable properties to find out how much you can expect to bring in for rent. Expect about 50% of the income generated to cover expenses – not including the loan. Fixed expenses include property taxes, HOA fees, and insurance; variable expenses are unplanned issues such as plumbing problems or replacing appliances.

5. Select a low-cost first property

Even if you have one million dollars to invest, consider starting with a low-cost property. Most experts agree that your first investment should cost no more than $150,000; starting with a low-to-mid range property can help investors stay in their “safe zone”; even if you don’t meet your expected profits, there’s lower risk of losing everything.

by Author, August. 27, 2019

Finding your dream home might seem like the most stressful part of the home buying process, but for many buyers finding the right lender can be worse. From filling out multiple applications, fielding calls and emails from various lending officers, and trying to get years of financial paperwork in order, the mortgage process can take all the fun out of finding your new home.

Utilizing the services of a mortgage lender is one of the best ways to simplify the mortgage process. Whether you’re a first time home buyer, have complex lending needs, or simply don’t have the time to hunt for the perfect lender, a mortgage broker can be a valuable ally in the home buying process. The following are five facts about working with a mortgage broker.

1. A mortgage broker is a middleman between buyers and lenders

Mortgage brokers act as middlemen between lenders and buyers; they help their clients navigate the mortgage process. Because they work with multiple financial institutions, they can help buyers find the best rates, terms, and conditions for their mortgage. Because their dedicated job is finding loans for their clients, brokers know how to find the best mortgages and competitive rates. They are particularly helpful for those with complicated credit histories, people who are self -employed or work seasonally, or those purchasing a second home or investment property.

2. Mortgage brokers are paid on commission

. One of the most commonly asked questions about mortgage brokers is how they get paid. Most mortgage brokers charge a commission of 1% of the loan, which is due at closing. Other brokers may negotiate “no-fee” mortgages where the fees are rolled into the loan.

3. A mortgage broker is like a loan concierge

Paying a 1% fee for something you can do yourself might seem like a tough pill to swallow. A mortgage broker, however, is like a loan concierge who is designed to make the entire process as fast and easy as possible. They handle everything from shopping around for different lenders, negotiating interest rates, preparing paperwork, collaborating with the underwriting department of the lender, and keeping in contact with the closing and title companies. This keeps the transaction running smoothly – and quickly – to closing.

4. Besides the fee, there are few drawbacks

Besides the fee, there are few drawbacks to utilizing the services of a mortgage broker. As real estate professionals, they are often privy to loans and rates that regular buyers working with traditional lenders are not. In addition to saving you money, brokers can help save you time and make the whole experience less stressful.

5. Referrals are the best way to find a good broker

Ready to find a mortgage broker? Ask friends, family, coworkers, and even your real estate agent who they have had a good – or bad – experience with. Ask questions about their experience, the level of service you an expect, and their preferred communication style; this ensures you aren’t fielding multiple phone calls a day when you’d prefer to be reached over email. Likewise, don’t be afraid to interview multiple brokers before making a decision!

by Author, August. 27, 2019

For those who have served in the Armed Forces, home loans guaranteed by the Department of Veteran Affairs often have the most favorable terms and conditions. Low down payments, competitive interest rates, and cheaper terms often make them a better option than conventional mortgages. However, a small minority of service members and veterans take advantage of the VA loan program; according to National Mortgage News, less than 12% of service members use VA loans.

Is a VA loan right for you? The following are four of the unexpected advantages of a VA loan.

Low interest rates and fewer fees

VA loans are designed to make homeownership affordable for service members and veterans. First, no down payment is required for purchase up to $417,000; even without a down payment, no mortgage insurance is required. Next, restrictions are placed on the kind and amount of closing costs that are allowed, making closing more affordable. Finally, VA loans have competitive interest rates – even for those with high debt or low credit scores. For most lenders, for example, VA loans qualify for the same interest rates as conventional borrowers with a 760 credit score and 20% down payment.

While the rates and fees are often better than a conventional loan, VA loans do have a funding fee. This can range from 1.5% to 3.3% of the total amount of the loan. However, the funding fee is added on to the loan; this means borrowers do not have to pay the funding fee upfront. Likewise, those with a service-related disability can have the funding fee waived.

Avoid overpaying with a VA-certified appraiser

The VA requires that all properties are inspected by a VA-certified appraiser before purchase. This helps service members avoid overpaying and helps ensure the house does not have any unexpected problems. The VA's Minimum Property Requirements include a list of safety, structural, and health requirements a property must meet; while the inspection requirements might seem stringent, they are designed to protect service members and their families from bad deals or shoddy workmanship.

Available help to avoid defaulting on the loan

Why are default rates on VA loans so low? Because unlike conventional loans, borrowers with VA loans have access to a number of programs for assistance and advice in the event they cannot make payments on their mortgage. Whether it is a sudden illness, lost job, or other unexpected financial problem, VA Regional Loan Centers offer financial counseling to service members designed to keep their homes out of foreclosure. This often takes the form of revised repayment plans; in extreme cases, the VA may opt for a deed in lieu of foreclosure, transferring the ownership of the property to the government and releasing the service member from financial liability.

Qualify for more than one loan

VA eligibility is not a one-time deal; service members can take out VA loans multiple times – and may even be able to have VA loans on two homes simultaneously. Because service members routinely relocate, they are able to take advantage of VA loans multiple times. Second loans may be taken out simultaneously depending on how much “entitlement,” or the amount the government will guarantee, is left on the benefit.

For service members, VA loans can make homeownership achievable. With favorable rates and terms and programs to help stay out of foreclosure, these loans are an excellent option for members of the Armed Forces.

by Author, May. 23, 2019

Buying a home is a major financial decision. Nearly two thirds of Americans have invested in real estate; according to the U.S. Census Bureau, 63.7% of Americans own their home. For many, however, it can be difficult to decide when it’s the right time to buy their first home.

If you have a steady income, good credit history, and plan on staying in the same area, it can be tempting to invest in real estate by purchasing a home. However, some of us are simply better off renting. The following guide can help you determine whether or not you are ready to purchase a new home.

Your finances are in order

Purchasing a home is, primarily, a financial transaction. Because of this, it is imperative that your financial affairs are in order before taking the first steps towards homeownership. There are several basic financial benchmarks that should be met before purchasing a home; you should have a steady income, a good credit score, a low debt-to-income ratio, and enough saved for both a down payment and closing costs.

You are ready to settle down

Whether you want a yard for a dog, more space for a growing family, or simply the ability to paint the walls whatever color you want, buying a home affords you many freedoms that renting does not. Home ownership, however, seriously impacts ease of mobility; moving again within the first several years after purchase can cause homeowners to lose money. Before buying, be prepared to stay in the same home for at least three to five years in order to recoup the costs associated with closing and moving.

You can save money by buying

In many areas, purchasing a home may actually help lower your monthly payments and bills. If the amount you pay in rent each month is similar to what a mortgage payment for a similar property would be, buying instead of renting can help you save money – and build equity. The biggest difference is in upfront costs; while renting often requires fees for security deposits or background checks, closing on a home comes with thousands in closing costs.

You can fix a leak

One of the most important – yet often overlooked – aspects of homeownership is the necessary skills to maintain and repair the house. If a faucet breaks at 2 am or the hot water heater suddenly stops working, there is no longer a superintendent to call; instead, you as the homeowner are responsible for identifying – and repairing – any maintenance issues that may arise. Likewise, regular upgrades to paint, flooring, appliances, and landscaping should be made to keep the home looking its best.

The bottom line

Buying a home is a major financial decision – that ultimately comes down to personal choice. While there is no “right” time to buy a home, having a strong financial history, or saving enough for both the down payment and unexpected repairs can help make purchasing your new home an enjoyable – and profitable – experience.

by Author, May. 23, 2019

Applying for a mortgage is more complicated than simply filling out a pile of paperwork. For many borrowers, there are choices to be made when it comes to the type of loan they would like to receive.

Two of the most common types of loans issued are FHA and conventional loans. The following guide can help home buyers compare these two loans and decide which loan is right for them.

Conventional loans

Conventional mortgage loans are often the better choice for buyers with strong credit histories who are planning on putting at least 20% down towards their new home. Good candidates for conventional loans:

• Have a credit score of at least 640
• Plan on making a down payment of at least 5%-20%
• Have high DTI ratio
• Purchasing a higher-priced home

However, there are disadvantages to conventional loans.

• PMI required if down payment is less than 20%
• Reserve funds often required
• Minimum 620 credit score
• Higher interest rates
• More difficult to qualify for

FHA loans

The Federal Housing Administration, or FHA, was created in 1934 to help more Americans become homeowners. To accomplish this goal, FHA loans have lower qualification requirements than most traditional loans.

Advantages of an FHA loan include:

• Down payment requirement of 3.5% for those with a credit score of 580 or higher
• 10% down payment required for those with a credit score of 500 or higher
• Lower interest rates than conventional loans
• Gift funds can be used for down payment or closing costs
• Reserve funds not required

Disadvantages of FHA loans include:

• Lower maximum loan limit
• MIP required for the life of the loan if less than 10% is put down
• Condos must be FHA approved

When FHA loans are better

FHA loans are easier to qualify for, particularly for those with past credit problems. FHA loans are also ideal for those with good credit scores who do not have a lot to put down on a home. With just 3.5% down required for those with credit scores above 580, FHA loans are often the best choice for first-time home buyers. When conventional loans are better For buyers who have great credit scores and significant savings for a down payment, conventional loans are often better. While FHA loans have fewer upfront costs, borrowers may end up paying more over the life of the loan because of FHA-issued insurance. Putting more than 20% down on a conventional loan helps borrowers avoid mortgage insurance altogether; if insurance is required due to a down payment of less than 20%, the PMI is automatically cancelled once the LTV reaches 78%. Conventional loans also offer more options such as 10, 15, 20, 25, and even 40-year fixed rate mortgage options.

The bottom line

Both FHA and conventional mortgages have advantages and disadvantages. Speaking with a mortgage professional, such as a local mortgage broker, can help buyers determine which loan is right for them.

by Author, May. 23, 2019

Defaulting on a previous loan, carrying significant debt, or missing a series of payments can all have a negative impact on a person’s credit score. While buying a home with a medium to low credit score is still less than ideal, there are more avenues than ever for those with a low credit score to become homeowners. The following tips can help guide potential buyers with low credit scores through the loan application and approval process.

1. Check your credit score

   There are a number of websites that allow consumers to check their credit scores for free. Checking your own credit score does not count as an outside credit check and will therefore not effect your score. There are three major bureaus that evaluate credit scores; lenders often use the median, or middle score, to determine a borrowers credit worthiness.

2. Fix errors on your credit report

   Credit reporting is not perfect. Many borrowers are surprised to check their credit and find there are several errors on their credit report. Consumers can dispute everything on their credit reports, from old addresses to late payments. Having errors fixed usually can help improve a person’s overall credit score; improving a score by even 10 or 20 points can make a big difference to a low credit score.

3. Maximize your FICO scores

   In addition to disputing errors, there are several other ways to maximize your FICO score. First, pay down the balance on any credit cards to improve your credit utilization ratio. For example, if you owe $600 on a credit card with a $1000 limit your credit utilization ratio would be 60%, which is considered high. Paying down the balance improves this ratio and can improve your credit score. Likewise, try to have any collection accounts removed; while paying a collection amount itself does not improve your credit score, many creditors offer “pay to delete” programs.

4. Look for low credit score lenders

   Some lenders specialize in finding loans for low credit score applicants. FHA loans, for example, allow borrowers with credit scores as low as 500 to purchase a home with as little as 10% down. For those with credit scores above 580, FHA loans only require 3.5% down. Because lenders are able to set their own terms and requirements, borrowers may need to contact multiple lenders before finding one that can work with their credit score.

5. Show financial stability in other ways

   If you have a bad credit score, there are other ways to show a lender you’ll be able to make the monthly mortgage payment. Being able to make a large down payment can reassure lenders – and help reduce the costs associated with PMI, or private mortgage insurance. Likewise, having no late payments in the last 12 months shows lenders you are re-establishing your credit history – even if your score doesn’t yet reflect that. Finally, having a low debt-to-income, or DTI, ratio can reassure lenders you can afford your new mortgage. Most lenders look for a DTI that is 43% or less; this lowers the risk that the borrower will not be able to afford payments and default on the loan.

   Buying a home with a low credit score may be more difficult, but it is not impossible. Taking the time to review your credit score, fix errors, and rebuild credit history can all help improve the odds of being approved for a loan.

by Author, May. 23, 2019

While finding the perfect property might seem like the most difficult part of the house hunting process, many potential buyers are taken aback by how difficult securing financing can be. From shopping rates and terms between multiple lenders to hunting down the correct documentation, the loan application process can feel like a second job during an already stressful time.

Enter a mortgage broker. A mortgage broker is a real estate professional whose entire job is to help you find the best deal while guiding you step-by-step through the loan process. While hiring a mortgage broker is an added expense, they are truly a buyer’s best friend during the financing process.

The pros of using a mortgage broker

A mortgage broker acts as a liaison between potential buyers and lenders during the loan application and approval process. Homeowners hire a broker who works on their behalf to shop mortgage rates and terms among different banks and lending institutions.

One of the major benefits of working with a broker are connected with savings – helping to save buyer’s time, money, and frustration during the loan application process. Most brokers work with a network of five to ten lenders; they can analyze the rates and terms from a variety of trusted lenders to help find buyers the best fit for their financial needs. While a buyer would need to fill out five different applications to find out five different rates, a broker can find out the rates and terms on their behalf, leaving buyers to fill out a single application for the lender they choose.

As lending professionals, brokers are also knowledgeable about a variety of specialized mortgage programs such as low or no downpayment loans or home renovation incentives. They examine a buyers credit report, employment history, assets, and debts to help ascertain what kinds of loans they qualify for.

Once they find their clients the perfect loan, mortgage brokers are on hand to guide them through every step of the application and approval process during escrow. Brokers speak “legalese” and work with lenders everyday; this level of expertise can be comforting, particularly to first-time buyers.

Are there cons to using a mortgage broker?

As in any industry, there can be unscrupulous mortgage brokers; some take illegal incentives from lenders, while others may not be able to help you strike the best deals. Luckily for homeowners, however, the last housing downturn drove most of the dishonest brokers out of the industry. Asking questions before hiring a broker can ensure you work with an honest, trustworthy professional who has your best interests at heart – and will help you get to closing day with minimal stress.

by Author, May. 02, 2019

It is a common misconception that you have to be a United States citizen in order to receive a mortgage. However, there are specific requirements that foreign nationals must meet before buying a home.

Documentation and qualification requirements

Documentation required for foreign national buyers will vary based on their residency and work status.

• Permanent resident alien: Permanent resident aliens will need their green cards and social security numbers; the loan application process for permanent resident aliens is very similar to that of regular US citizens.
• Non-permanent resident alien: Non-permanent resident aliens can finance a home by producing their social security number as well as their work permit (Employment Authorization Document) or employer-sponsored visa. Non-permanent residents will need to provide documentation proving they have been living and working in the country for at least three years.
• Immigrants granted asylum: Immigrants who are not residents but have been granted asylum or refugee status can apply for financing like a lawful resident alien.
• Non-US citizens without lawful residency: Non-US citizens without lawful residency are not eligible for Freddie Mac, FHA, or Fannie Mae loans.

Financing for permanent residents

Both permanent and non-permanent resident aliens can obtain financing for a home. Many permanent residents can qualify for Freddie Mac, FHA, or Fannie Mae loans, sometimes with as little as 3% down. If the work permit of a non-permanent resident alien is set to expire within a year, lenders will evaluate their ability to get financing based on the likelihood they will remain employed in the country; those who have renewed their visas at least once are often better able to satisfy the requirements for financing such as FHA loans.

Foreign national loans for non-citizens

Foreign nationals looking to buy an investment property or vacation home in the United States still have financing options. Many private lenders offer foreign national loans; however, this type of financing often comes with high interest rates – and even higher down payments. Foreign nationals can expect to put between 30 and 50% down on a home in the US when not a permanent resident. Utilizing a mortgage broker is often the best option for finding the best terms and rates for a foreign national loan.

What about credit scores?

Many foreign national buyers face a lack of credit data when applying for financing for a new home. “Thin files”, or non-traditional credit reports, are one way to show a loan applicant’s financial health. A 12-month history of school payments, utility payments, or savings deposits are all examples of financial transactions that can act as trade lines.

by Author, May. 02, 2019

A mortgage broker can be your best friend during the lending process. These real estate professionals are familiar with a variety of lenders, speak the “legalese” that helps make understanding contracts and paperwork easier, and want to help their clients get to closing with minimal stress and frustration. The following guide can help potential buyers as they make the decision to work with a mortgage broker.

What is a mortgage broker?

A broker is a certified financial and real estate professional who works as an intermediary between buyers and lenders. While individual buyers are only able to access loans directly from credit unions, banks, and other lenders, brokers are able to help their clients apply for wholesale loans.

One of the primary jobs of the broker is to do the mortgage shopping for their clients. During this process the broker will collect financial information including credit reports, employment history, and debts and assets from their clients; they use this information to help them find a lender with the most favorable terms and conditions. Doing this often saves buyers considerable time and money as they are not filling out applications with multiple lenders.

How are mortgage brokers paid?

Mortgage brokers work independently from financial institutions and are not paid by a specific bank or credit union. Most mortgage brokers charge origination or brokers fees that are paid when buyers close on their home; these fees are rolled into the total loan and are not paid separately. Because brokers can help their clients save by accessing wholesale rates, in many cases using a broker still saves buyers money in the long run.

What are the advantages of working with a mortgage broker?

There are a number of advantages to working with a mortgage broker versus a lending officer at a single institution.

• Brokers have knowledge of a variety of available loans, lenders, and options
• Brokers comparison shop for their clients, saving them time
• Brokers can access wholesale mortgage rates

Because mortgage brokers work with a variety of lending institutions, they are often able to help their clients find the best rates and terms for their new home. This is particularly true of buyers with low credit scores or other credit problems; mortgage brokers can direct their clients to lenders who are more likely to work with those with past credit problems.

How can I find a mortgage broker?

One of the best ways to find a mortgage broker is by asking a real estate agent. Like brokers, real estate agents work in the industry every day; they often have a wide network of brokers whom they have worked with in the past and trust. The following are a few examples of questions to ask before hiring a broker.

• What experience do you have as a mortgage broker?
• Can you provide references?
• What is your process for working with clients?
• How will you be paid?
• Do you require payment upfront or take your fees at closing?

Working with a mortgage broker is an easy way to simplify the lending process while ensuring you are getting the best rates, terms, and conditions on your new mortgage.

by Author, May. 02, 2019

For those with significant debt, it can be difficult to imagine a debt-free future. However, working with a financial planner is often the best way to manage debt; financial planners can also help with other services including investment and portfolio management, estate planning, and tax preparation.

Budget planning

Budget planning is one of the primary ways a financial planner can help manage debt and prepare for a healthy financial future. Clients should bring bank statements, bills and utilities, loan statements, pay stubs, and tax returns to create a full picture of their finances. Financial planners will then review cash flow, expenses, and debts to create a budget plan that allows for paying off debt, monthly expenses, savings, and flex spending.

Restructuring Debts

There are different types of debt; some loans, such as mortgages, have low interest rates and are considered benign, while toxic credit card debt or predatory loans have high interest rates and fees. Financial advisors can analyze a client’s debt and create a payback strategy that prioritizes delinquent accounts.

A financial advisor may also be able to restructure debt. During restructuring, existing debts can be combined or new loans can be taken out to pay off loans with high interest rates. For example, homeowners may be able to channel the equity in their home into a second mortgage; the second mortgage can then be used to pay off multiple credit cards or other loans at once. In addition to helping to lower monthly payments and reduce any fees incurred from high-balance accounts, restructuring debt can help improve client’s credit scores – and even lead to lower insurance premiums.

Setting long-term goals

In addition to creating a plan to pay off debt at quickly as possible, financial planners can help their clients set long-term financial goals. Creating college savings accounts for children, saving for retirement, or diversifying investment portfolios are common long-term goals for many families. Planners can help their clients create a roadmap forward including achievable goals – and red flags to look out for along the way.

Finding the right financial planner

While some commission-based advisors sell insurance policies or investment packages, most financial advisors are paid an hourly rate. Look for a Certified Financial Planner (CFP) or a Chartered Financial Consultant (ChFC), both of whom are certified to give advice on both finances and insurance. Likewise, planners who are a member of the National Association of Personal Financial Advisors (NAPFA) are fee-only advisors who do not work on commission. This ensures you have an advisor who has their client’s best interest at heart, particularly when debt restructuring is involved.

by Author, May. 02, 2019

A mortgage pre-approval is what separates home browsers from home buyers. It signals that you’re serious about buying a home and ready to take the next steps in the process.

If you watch house hunting shows on TV, it seems simple to walk into a bank or mortgage broker and receive a pre-approval letter. Like a lot of things, though, the process in real life is a little more complicated than how it looks on TV.

Here’s what you need to know about the mortgage pre-approval process:

Choosing a lender or lenders

The first step in the pre-approval process is to select a lender to issue the pre-approval letter. Shop around for lenders offering the best rates, or work with a mortgage broker to choose one.

Just like getting a second opinion from a doctor, having more than one pre-approval is sometimes beneficial. You might find that one lender qualifies you for a higher amount than another, or that one is easier to work with.

Again, a mortgage broker can help with this part of the process by selecting the lender for you and working as an intermediary in the pre-approval process.

Submitting the application

The goal of the pre-approval is to provide an accurate estimate of your financial picture and how much you can realistically spend on a home. To do that, lenders need to know how much you make, what your expenses are, and how much debt you already have.

Be prepared to provide the following as part of the pre-approval process:

• Pay stubs
• W-2
• Bank account statements
• Federal tax returns from the past two years
• Statements from 401K, IRA, and other investment accounts if applicable
• A gift letter, if you’re using funds from a relative to help cover the down payment

The lender will also run your credit report. We recommend pulling a report for yourself a few months before pre-approval so you can correct any errors you find or figure out how to boost your credit score if needed.

Obtaining the letter

Once the pre-approval screening is complete, you’ll receive a letter stating how much that lender would be willing to give you to buy a home. Think of it as the maximum you should spend on a home and try to stay under the listed amount if possible.

Most mortgage pre-approvals expire within 60 or 90 days, so you might need to go through the process again if you do not apply for a mortgage within that time frame.

by Author, March. 20, 2019

Tax deductions and other benefits should never be the sole reason for buying a home. However, the perks of doing so are pretty nice — especially if you know what to do and when to do it.

Here are a few ways you can make the most of your home purchase when it comes to taxes:

Mortgage Interest Deduction

This is the most commonly-known tax benefit associated with buying a home. As of 2019, homebuyers can deduct the interest on up to $750,000 of mortgage debt if they are married and file jointly. Those who file individually can write off up to $375,000.

Before the most recent tax reform bill, the caps were $1 million for joint filers and $500,000 for individuals. You may still qualify for these brackets if you purchased your home before 2017. Check with your accountant to see if you do.

An added bonus? You can also deduct up to $10,000 in state and local property taxes on your federal return.

All About IRAs

First-time homebuyers can withdraw up to $10,000 from a traditional IRA or 401K retirement account to use toward a down payment without penalty. If you’re buying a home with your spouse, they can also withdraw up to $10,000.

Both IRAs are a little trickier. You can withdraw money from them at any time, but it will only be tax-free if the account is at least five years old.

Either way, remember that your retirement accounts are not unlimited piggy banks. They should only be used as a last resort for down payments, and you should build the funds back up as quickly as possible once you buy the house.

Moving and Home Improvements

Federal deductions and IRA withdrawals are available to all U.S. home buyers. Beyond that, some states offer specific programs or incentives to make buying a home there even more attractive from a tax perspective.

Check with your realtor or mortgage broker to find out whether your state offers tax credits for first-time home buyers, moving expenses, or home improvements. And, when it comes time to do taxes, make sure to complete all details related to your new home so that you don’t miss out on any tax-related opportunities.

by Author, March. 20, 2019

A good mortgage broker can mean the difference between getting a great deal on your dream home and paying too much on a house you don’t love. Like any relationship, it requires an understanding of each party’s goals and objectives to be successful.

At Pacific Mortgage, we have decades of experience working with all types of clients. Based on that experience, we put together a few ideas for how any can work more effectively with a mortgage broker:

Be honest — and expect honesty in return

Trust is at the heart of any successful relationship. Mortgage brokers can only help you get the best home loan if they know what your financial circumstances are and what you’re looking for in a home.

Some of this information will be revealed through your financial documents, but it’s better to be upfront rather than give a false impression only to have the truth come out later. We’re working for you, and we want to do everything we can to help you land the home of your dreams.

As a client, you should always expect a high level of professionalism from your mortgage broker. They should always be honest about their fees, their professional qualifications, and the lenders they work with. If possible, ask to speak with a previous client or another reference before signing with a broker.

Keep in touch

Homes come and go quickly, especially in today’s market. You need to be ready to move on a house if the opportunity arises. This requires good communication with your realtor and mortgage broker.

A good broker should hold up their end of the bargain when it comes to communication, but you need to do the same. Let your broker know the best way to reach you, then respond as quickly as possible to any messages or calls you receive.

A delay in response could mean a delay in purchasing your home or moving along in the closing process. Buying a home is a fixed-term process. The questions and requests won’t last forever, and a little inconvenience is usually worth it in the end.

by Author, March. 20, 2019

As a realtor, there’s nothing more frustrating than helping a buyer find a home, only to have the process fall apart at closing. Time is money in the real estate business, and there’s nothing worse than losing both with a failed closing.

No matter where you work or what type of real estate you sell, there are a few things you can do to help your buyer close on their purchase transaction:

Keep Them Organized

From an organization perspective, buying a home is one of the most complicated things that a person ever has to do. A successful closing requires income and asset verification, a completed inspection, proof of insurance, and a lot of other documents along the way.

It’s a lot to keep track of, especially for families and busy professionals. As a realtor, you go through this process every day and can help keep your clients on track.

Little things like offering to make copies or creating a Dropbox folder to store mortgage-related documents on the cloud are not technically part of your job, but they go a long way toward ensuring that you’ll receive your paycheck at the end of a successful sale.

Raise Red Flags

As a realtor, you’ve probably seen it all when it comes to home closings. It’s your job to help your buyers see red flags when they arise and figure out how to address them.

For example, if you see something questionable on the home inspection report, make sure you let the buyer know so you can begin working with the seller on a solution. They might not know what to look for, especially if it’s their first time buying a home. You can provide guidance on which issues are worth pursuing and which are not.

The earlier you catch problems, the more likely it is that they’ll be addressed before closing. Being proactive also increases the likelihood that buyers will refer you to others in their network who are looking for a realtor.

by Author, March. 20, 2019

It is an amazing turn of events that we have experienced in the last four months. There was near universal expectation for the US Federal Reserve (FED) to hike rates three or more times in 2019. Instead, the FED’s tone changed dramatically last December and most analysts now anticipate zero or one rate hike this year (one bank, RBC, anticipates three though). Due to this, mortgage rates have come down as much as half of a percent. For home owners who had just recently purchased a home, this is a great opportunity to lower the mortgage payments or switch to a fixed rate. And for home buyers, it’s an opportunity to move into a price range that seemed to be just out of reach a few months ago.

Mortgage Lenders have come out with a number of interesting new programs which allows for ‘alternative’ ways to document income. The law still requires lenders to document the borrower’s ability to repay the mortgage. That has not changed. For many self-employed individuals though it has been hard the square the challenge of minimizing tax liabilities with buying the home or investment property they know they can afford. These new programs are more flexible in the type of documentation needed to document income. Using business and/or personal bank statements in one alternative way but not the only. Good to excellent credit is needed and rates are higher, but not massively so. The number of programs available has increase significantly which has held the rate premium in relative check.

While I’m cautiously optimistic about the near and midterm, I cannot but wonder when our massive US budget deficit is going to bite and push interest rates higher, even if the FED lower their rates again. Higher risk will demand higher rates for buyers of US treasuries pushing the cost of government debt higher, which will create all sorts of other challenges.

And by the way…

The relationship between the FED and mortgage rates is a bit confusing. The FED does not set interest rates for home mortgages, rather they set the interest rate for banks to borrow money from it. The FEDs policy decisions on rates however has a big but indirect impact on the US Treasury Bond rates and Mortgage Backed Securities (MBS) market rates. It is the US Treasury rate market (the rates the US Government pays to borrow money) and through it the MBS market that the FED’s impacts on mortgage rates is felt. So, the relationship between the FED and mortgage rates is indirect. Sometimes, the FED raises rates and the actual mortgage rates go down in the short term. The best gage to anticipate mortgage rates is the 10 year US Treasury rate. They rarely diverge.

-Stephan

by Author, March. 20, 2019

While being self-employed or owning your own business is a dream for many, it can create hurdles when attempting to buy a house. However, obtaining a loan is not impossible for self-employed buyers. Bank statement programs can be one of the most effective ways for potential buyers without regular income to obtain a mortgage.

Who can qualify

Self-employed professionals with an irregular income stream or significant write offs each year may benefit from bank statement programs. Entrepreneurs, freelancers, seasonal workers, small business owners, artists, promoters, or consultants are just some of the careers that could benefit from applying for a mortgage through a bank statement program.

Required documentation

Applying for a traditional loan can lead to mountains of paperwork, particularly for those who are self-employed. Bank statement programs are much simpler and only require 12-24 months of bank statements and deposits. Because tax statements and returns are not required, hard-to-document income or significant write offs are not an issue.

How it works

Bank statement programs are simple; the lender will review deposits from 12-24 months to create an average monthly income. For example:

• January: $5,300
• February: $8,400
• March: $3,500
• April: $4,200
• May: $9,500
• June: $5,250

The six-month average income for this example is around $6,000. The lender figures their loan pre-approval amount based on this monthly average.

Finding a bank statement program

While the basic requirements for bank statement programs are the same, the exact requirements vary from lender to lender. Just like traditional mortgage rates can vary from lender to lender; contacting multiple banks or lenders can help you find a program that offers the best terms, rates, and down payment amounts for your small business.

Owning your own business doesn’t have to preclude you from owning your own home. Bank statement programs can offer those without stable monthly income the ability to purchase their own home – while focusing on their business instead of on the paperwork.

by Author, Feb. 01, 2019

For most people, buying a home is the largest investment they will ever make. Applying for a mortgage is the most time-consuming – and sometimes most difficult – part of the home buying process. Credit score, employment history, debt, and loan-to-value ratio can all affect what kinds of rates and loans are offered.

Types of mortgages

The three most common types of mortgages are prime, subprime, and Alt-A mortgages. Prime mortgages are offered to borrowers with good credit scores and minor debt; they are considered low risk and typically receive the lowest interest rates. Subprime mortgages are for borrowers with low credit scores who are considered high risk; the higher interest rates help banks compensate for the added risk when issuing these loans. Alt-A loans are somewhere in between prime and subprime both in terms of risks and interest rates.

Basics of Alt-A loans

Alt-A loans are known for being low-to-no documentation loans. Instead of providing extensive documentation, borrowers simply need to state their income, assets, and expenses. This can benefit those without consistent monthly income such as small business owners.

Another feature of Alt-A loans is that they have low down payment requirements and a corresponding higher loan-to-value ratio. While most prime mortgages have LTV ratios of 80%, the LTV of an Alt-A loan can be as high as 100%.

The debt-to-income ratio for Alt-A loans is usually higher than the standard. While most loans require a DTI of 36%, Alt-A loans can exceed 43%.

Who benefits from Alt-A loans?

Alt-A loans are good options for borrowers with good financial and credit history but lower income. Entrepreneurs, freelancers, and other seasonal workers may benefit from Alt-A loan terms due to their inability to document a consistent income; this type of loan can also benefit small business owners whose net income may be lowered by extensive tax deductions.

The bottom line

Alt-A loans are an excellent mortgage choice for those with good credit, but without a steady, documentable income. While they can be high-risk loans for lenders, Alt-A mortgages can help small business owners, entrepreneurs, and other self-employed workers buy their dream homes.

by Author, Feb. 01, 2019

Owning a home is a major investment. However, there are a number of tax programs, deductions, and incentives available for homeowners that can help make the cost of owning a home more affordable. Many homeowners miss deductions each year because they were not aware of all of the available savings opportunities; the following tips can help homeowners save money this tax season.

1. Stay organized

Most deductions for homeowners require detailed records or receipts for tax-related expenses. Saving receipts and statements throughout the year can help make things easier when tax time rolls around. To avoid having filing cabinets overflowing with paper, consider scanning and digitally saving documents.

Thinking about throwing away old documents? Plan on holding onto tax-related documents for several years; should you be audited by the IRS, they will typically ask to see three years of documentation to back up deductions.

2. Start itemizing

A major way homeowners miss out during tax season is by taking the standard deduction instead of itemizing. For tax year 2018, $24,000 is the standard deduction for married couples, $12,000 for individuals, $18,000 for head of household. If your itemized deductions are more than this amount, you could save even more on your taxes. Eligible deductions can include mortgage interest, property taxes, contributions to charity or religious organizations, and medical expenses not covered by insurance.

3. Track when you work from home

If you own a home-based business, you may be able to deduct some of the expenses associated with working from home. Office equipment, utilities, and even Internet costs may be deducted for a qualifying home office.

Employees may also qualify for this deduction if they meet specific criteria. The primary requirement is that working from home is for the employer’s convenience; taking advantage of a work-from-home program a few days per week is unlikely to qualify.

4. Make energy efficient updates

Adding green upgrades to your home can be rewarding at tax time. Energy efficient updates such as installing solar energy systems can qualify for a tax credit for 30% of the cost of installation. The tax credit won’t be around forever; the reimbursement amount for residential upgrades will decrease to 26% in 2020, then to 22% in 2021 before the program ends in 2022.

Have additional questions?

Have additional questions about what deductions you may quality for? Don’t hesitate to ask a real estate or tax professional for help. They will be able to guide homeowners when it comes to understanding the at-times complicated process of filing an itemized deduction.

by Author, Feb. 01, 2019

Refinancing can help homeowners reduce the amount of interest they pay, lower monthly mortgage payments, or take advantage of the equity in their home. However, refinancing may not be the best decision for every homeowner. The following guide can help you get ready to refinance your home.

Reasons to refinance

There are three major reasons to refinance: to take cash out, to lower payments, or to shorten the terms of the mortgage.

- Take cash out

Refinancing is a great way to take advantage of the equity you’ve built in your home. A cash out refinance allows homeowners to refinance for a higher amount than what is currently owed on the loan; the difference can be pocketed tax-free. The results from refinancing can be used to pay off other high interest loans, finance a home improvement, and more. Because mortgage rates are typically lower than other loans – and mortgage interest is tax deductible – this can be a good way to take advantage of the equity in your home.

- Lower payments

There are two ways it is possible to lower monthly payments by refinancing. The first is by refinancing with a lower interest rate. Interest rates are variable and tend to follow overall economic trends. If you purchased your home with a high interest rate, refinancing with a much lower rate can lower how much interest you’ll pay over the life of the loan – as well as lowering the monthly payments.

Refinancing can also be used to get rid of private mortgage insurance, or PMI. PMI is required for most traditional loans when the down payment was less than 20%. Refinancing once this amount has been paid towards the mortgage can eliminate the need for PMI and significantly reduce monthly payments.

- Shorten terms

Shortening the terms of a loan may increase each month’s mortgage payment – but significantly reduce how much interest is paid over the life of the loan. Because more each month is paid towards the principal of the loan versus interest, it also helps build equity in the home faster.

Homeowners with a $200,000 30-year loan at 3.5% interest would pay approximately $123,000 over the life of the loan. Cutting the terms of the loan in half to 15 years decreases the amount of interest paid to about $57,000.

Things to consider before refinancing

Refinancing is not a smart option for every homeowner. Consider these four things before refinancing your home.

1. Credit score. Make sure your credit score is as good – or better – than it was when you applied for your mortgage. If your credit score has gone down you may not be able to refinance at a better rate.
2. Current monthly payment. Refinancing can, in some cases, increase your monthly payment. Likewise, refinancing may not reduce your monthly payment by enough to be considered worthwhile.
3. Home value. Lenders will not issue a mortgage for more than your home is worth. If home prices in your area are going down or the appraised value of your home is less than before, refinancing may be difficult.
4. Debt to income ratio. Debt to income ratio, or DTI, shows lenders how much of your income goes towards paying off loans and other debt. Lending institutions are unlikely to refinance a mortgage if your DTI is higher than 50%.

by Author, Feb. 01, 2019

While most home buyers assume they have to work directly with a bank to secure a mortgage, there are others ways to help them find the most competitive rates. Mortgage brokers represent more than 10% of all home loan originations; an increasing number of buyers choose to work with brokers in order to help them find the best rates and terms for their mortgage.

How banks work

Banks use their own money to fund mortgages; your loan becomes a part of the lender’s portfolio of investments and can be sold to other investors. Loans that originate from a bank are known as direct loans because they work directly with consumers.

Loan officers, processors, underwriters, and funders all work for the same company. Most loan officers receive commissions for originating loans, and they are only authorized to offer you rates and loans from their specific lending institution. Rates and terms are often inflexible or not negotiable, limiting available options.

How mortgage brokers work

Mortgage brokers are licensed financial professionals; they are often referred to as wholesale lenders because they offer loans through institutions that do not deal directly with consumers.

Brokers are often smaller than banks; they can provide customers with one-on-one attention and a more personalized experience. Brokers guide buyers through every step of the process, dealing with some of the daunting details and paperwork that can arise during the loan process.

Because brokers work with a variety of lenders and institutions, they are often the best option for buyers with more complicated applications. Those who may have trouble qualifying for a traditional mortgage, want to avoid PMI, have bad credit, or are looking for VA, FHA, or jumbo loans may have better luck working with a broker versus a single institution.

Most commonly asked questions about mortgage brokers

The role of mortgage brokers in the real estate process is often misunderstood. The following are three of the most commonly asked questions about mortgage brokers.

1. Are there drawbacks?

   Unscrupulous mortgage brokers might try to direct you towards a lender that offers them a larger commission. However, the vast majority of mortgage brokers are trusted professionals who genuinely want to help homeowners find the best rates and terms for their loan.

2. How do I choose the right broker?

   Potential buyers should shop around for a mortgage broker the same way they would shop around for a lender. Ask friends and family for referrals – as well as your real estate agent. Realtors have the most experience working with both brokers and lenders and can direct you to one or most brokers whom they have enjoyed working with in the past.

by Author, Jan. 11, 2019

In December, the federal reserve raised interest rates for the fourth time in 2018. Rates rose a quarter of a percent to a range of 2.25 percent to 2.5 percent.

While this raise is not likely to impact those with fixed-rate mortgages or long-term rates, it does impact those with adjustable rate mortgages (ARM’s) or home equity lines of credit (HELOC’s). Likewise, the Fed’s decision to raise rates can have an impact on a range of consumer credit interest rates.

Changing rates can impact homeowners, home buyers, and other consumers in a variety of ways. The following are three things you should know about changing federal mortgage rates:

1. ARM and HELOC rates are likely to rise

   If you have an ARM or a HELOC, plan to see an increase in your monthly payments. Because these types of loans are subject to varying rates, they can be impacted – for better or worse – by rising or falling federal rates. Those with hybrid ARM loans set to adjust within the next year should consider refinancing now to avoid increases to their rates or payments.

2. Lower rates don’t always mean a better market

   Many buyers associate low interest rates with a better market. However, the opposite is often true. At the height of the housing bubble, interest rates peaked between 5.5 and 7 percent; both homeownership and sales fell along with interest rates for the next several years. Instead, most potential buyers list a lack of savings for a down payment rather than interest rates as their primary obstacle to buying a home.

3. There’s no guarantee where rates will go

   While experts predict that rates will continue to rise in 2019, there is no guarantee where rates will be by the end of the year. Global economic growth, geopolitical unease, presidential trade policies, and the U.S. economic expansion cycle can all impact – negatively or positively – mortgage rates. Homeowners looking to refinance at the lowest rate possible should consider locking in a rate sooner rather than later.

by Author, Jan. 11, 2019

Federal Housing Administration, or FHA, loans are an increasingly popular choice; they allow buyers to purchase a new home even when they may not have the cash up front to do so normally. FHA loans are backed by the government, protecting lenders against defaults. Available with both fixed and adjustable rates, FHA loans are becoming more commonplace. The following are six things that real estate professionals need to know about FHA loans.

1. Loan amounts are based on net, not gross, income

   Many first time buyers calculate how much they will be able to afford based on their gross income, or how much they make before taxes, insurance, Medicaid, and more. Instead, help buyers calculate a loan amount of their net monthly income; the monthly payment should not exceed 31% of their monthly take home income.

2. FHA loans require mortgage insurance

   Potential buyers should be aware that FHA loans require monthly mortgage insurance. This may significantly increase their monthly payment – and change how much they are able to afford. Most FHA require that this insurance is paid for the entire life of the loan, unlike conventional loans in which PMI is only required until 20% equity has been reached.

3. Not much cash is needed to close

   Closing costs can be a major hurdle for those trying to buy their first home. Borrowers taking out an FHA loan can roll closing costs into the loan; likewise, gift funds can be used to help cover closing costs.

4. Max loan amounts vary

   The max loan amounts for FHA loans vary by location. Buyers should verify with a lender about the max amount allowed in their specific area. In Hawaii, for example, the maximum amount allowed is $721,050; in Phoenix, Arizona, it is significantly less at $271,050.

5. The lender is still in control

   While FHA loans are guaranteed by the government, the lender is still very much in control. Banks have their own FHA underwriting guidelines, lender overlays, and mortgage rates. Just like with a traditional mortgage, buyers should shop around to find the best rates and lender.

6. Sellers may be leery of FHA loans

   Many sellers falsely view FHA loans an as risky; in a multiple offer scenario or in a competitive market, sellers may go with other loan types to avoid credit issues or closing delays. Help potential buyers make their offers stronger by offering to take the home as is or offering the full asking price.

by Author, Jan. 11, 2019

Buying a home is the biggest purchase most people will make in their lifetimes. Unfortunately, many first time buyers often begin scheduling showings or visiting open houses before they are ready to buy. There are a number of ways agents can guide buyers – even if they aren’t ready to buy today.

Common reasons clients aren’t ready to buy

1. Finances aren’t in order

   Not being financially ready is the primary reason buyers aren’t able to immediately purchase a home. Whether it is not having a preapproval letter from a lender, not having enough for the down payment, or being unable to cover closing costs, make sure to frankly discuss the financial aspects of homeownership as early as possible. Help first time buyers get their finances in order by encouraging them to check their credit scores, build their credit in other ways, and save aggressively towards a down payment.

2. Starting their search too early

   Many first-time buyers are ready to start scheduling showings months before they are ready to put in an offer. Even if they are still saving towards a down payment or are not relocating to the area for six months or more, they may view starting the search early as a way to avoid “missing out” on their dream home. Rather than skipping showings altogether, take time to discuss their wants and needs for their first home; take them to two or three homes that are indicative of what they can get in their preferred neighborhood or at their price point, but save the serious searching for when they are ready to buy.

3. Buyers can’t agree

   Working with first-time buyers can sometimes leave you feeling more like a couple’s counselor than a realtor. He wants to be centrally located downtown, she wants to be in the suburbs. She wants a sprawling ranch, he wants a classic colonial. He wants low maintenance, she wants a large yard. When these types of disagreements occur, discuss the pros and cons of their conflicting styles; oftentimes the best advice is to encourage them to take more time to discuss their specific wants and needs before continuing their home search.

by Author, Jan. 11, 2019

From buying a home to applying for student loans, your credit score can impact whether you can move forward on your financial journey. If you are trying to repair a bad score or maintain a good one, it’s important to know what factors go into compiling the score.

More than 27 million credit scores are calculated each day, based primarily on the following factors:

This is by far the most important factor in calculating a credit score and accounts for about 35 percent of the overall score. The best indicator of how you’ll handle a new loan or credit card is your behavior with past accounts.

Missed payments and late payments can drive your score down quickly. The best way to improve or maintain a good score is to make consistent, on-time payments on all existing loans and credit cards.

After payment history, credit utilization, or how much of your available credit you are using, is the next most important factor in determining a credit score. It accounts for about 30 percent of your credit score. In short, just because you have a high credit limit does not mean you should max out a credit card — even if you pay the bill in full each month.

Credit bureaus like to see an overall utilization rate of less than 10 percent, and no more than 30 percent. Of course, things happen that might constitute a higher utilization from time to time, but this should be the exception and not the rule.

Credit history includes the age of your oldest and newest credit accounts, the average age of your accounts, and whether you’ve used the accounts recently. You can’t change time, but you can control this credit score factor by applying for and opening new credit accounts only as you need them.

It might seem tempting to open a new credit card to take advantage of a promotion or discount, but is the benefit really worth the ding to your credit score? Credit history accounts for about 15 percent of your overall credit score.

Somewhat vaguer than the other factors, this one accounts for about 10 percent of your credit score. Credit reporting bureaus are looking for evidence that you can be responsible with all types of credit, including loans, mortgages, and credit cards.

Your credit score can also go down every time a bank or credit card company checks your credit before issuing a new account. This is unavoidable if you want to open a new account, but try to keep the inquiries to a minimum, especially on credit cards.

by Author, Sept. 26, 2018

Whether you want to lower your mortgage payment or access some cash for home renovations, refinancing your home is a great way to access your home’s equity.

Self-employed borrower naturally have the goal of reporting as little net income as possible which can conflict with a 2nd goal: qualifying for a real estate purchase or refinance! We can help you to make the right decision to achieve both by working with borrowers and CPAs to achieve both goals. It’s not only the bottom line number that matter, it’s the details inside the tax return that can decide the achievement of your financial goals. There are a few steps you need to take to make sure that you’re ready to refinance. The more prepared you are up front, the smoother the process will go. Here are a few helpful tips:

Any home refinance is going to involve a lender running your credit report. Before any bank looks at the report, you should check it to make sure there are no surprises. You can obtain a free copy of your credit report once a year from each of the three major credit bureaus (Experian, Equifax, and TransUnion).

Once you have the reports, work on correcting any errors you see and make sure that the report presents a stable financial picture. Lenders like to see a low debt-to-income ratio and plenty of available credit. You may decide that you need to hold off on refinancing for a few months while you pay down or consolidate other debt.

Your home will be formally assessed as part of the refinancing process, but doing your own research ahead of time will help you know where things stand and how much you stand to save by refinancing.

Sites like Zillow are great resources for checking out home values and recent sales in your area. Mortgage lenders typically like to see that you owe less than 80 percent of your home’s value. If your research shows that you owe more than that, you might want to focus on paying down your mortgage balance or waiting until home values increase before refinancing.

Once your credit report is in order and you’ve determined what your home is worth, the last step in preparing for a refinance is gathering all of the paperwork necessary to make it happen. If you bought your home a while ago, you might have forgotten about all of the documents needed to complete the sale.

You’ll need pay stubs for proof of income, bank and investment statements, and tax returns from the past two years. If you receive income child support, alimony, or other sources, be prepared to provide those documents as well.

by Author, Sept. 26, 2018

Buying a home is the largest purchase that most of us will ever make, and it’s not one that should be taken lightly. Working with a financial planner can help make this daunting task seem doable by giving you a roadmap to work from.

One of the biggest ways financial planners help their clients is in the mortgage qualification process. Here are some of the ways they can do that:

Understand Debt to Income Ratio

A financial planner can help you make sense of how much you can realistically afford each month based on your existing debt and other monthly expenses. It’s helpful to have this conversation and know where things stand before you start looking at homes. Otherwise, you might fall in love with a house that you can’t realistically afford and end up on the path to default or foreclosure.

Down Payment Saving Strategies

As home values continue to rise, putting 20 percent — or even 10 percent — down on a home seems like a daunting task. But, putting in a little extra cash up front can help you avoid paying private mortgage insurance as part of your loan.

A financial planner will assess your income and expenses and help you determine how much you can realistically save each month. Once you know that, you can determine how long it will take to amass a down payment and when you will be ready to begin the mortgage qualification process.

Credit Score TLC

Like applying for any loan or line of credit, qualifying for a mortgage requires a check on your credit report. A poor credit score or sketchy credit history could mean the difference between qualifying and not qualifying or between a low interest rate and a high one — so it’s in your interest to put your best financial foot forward.

A financial planner will review your credit reports from all three reporting bureaus and help you address any errors or problems that you uncover. It can be an arduous process, but one that’s well worth it in the end.

by Author, Nov. 07, 2018

Buying a home represents a major investment; for many potential buyers, it will be the most significant of their life. Because of this, it is important to go into the homebuying process prepared, organized, and intentional. The following steps can help potential buyers prepare to look for a house, apply for a mortgage, and successfully close on their new home.

1. Financially prepare for the mortgage process

   Without question, the most important part of the home buying process is applying for and securing a mortgage. To increase the chance to get the best rates on the market, begin financially preparing for the mortgage process up to a year in advance. Stop applying for new lines of credit at least one year before applying for a new mortgage – and keep the moratorium on new financing in place until after closing. Likewise, regularly check your credit score for inconsistencies and accuracy. While scores above 700 can ensure financing, a credit score of 750 or higher ensures the best rates. “Below 660 or 680, you’re either going to have to pay sizable fees or a higher down payment,” said Barry Zigas, director of housing policy for the Consumer Federation of America.

2. Determine what you can afford

   For most potential buyers, monthly mortgage payments and other expenses should add up to less than 30% of their gross monthly income. Exceeding this can cause buyers to become “house poor”; this occurs when the majority of monthly income is spend on mortgage payments, insurance, utilities, and other expenses, leaving little to no room for other monthly expenses or building savings.

3. Save for down payment and closing

   A down payment of between 3 and 20 percent is recommended for most buyers. Having enough money in savings to start with a large down payment can help reduce monthly mortgage costs or make a costlier home more affordable. If you are unable to put a large enough amount down on a home, the lender may require PMI, or private mortgage insurance, on the loan.

   Cash will also be required for closing. Average closing costs are between 2 and 5 percent of the cost of the home; purchasing a $150,000 home can cost between $3,000 and $7,500 at closing. A recent national survey found that the average buyer pays $3,700 at closing. Responsibility for closing costs can also be negotiated as a part of the real estate contract.

by Author, Nov. 07, 2018

Anyone who has applied for a credit card, auto loan, mortgage, or other type of financing has heard the term FICO score. Despite this, few fully understand what this credit score means or how it is determined. The following guide can help consumers better understand the country’s most widely recognized credit-scoring model.

The history of FICO

FICO stands for Fair Isaac Corporation, a predictive analytics company that was founded in 1956. The group began creating credit risk scores in 1981; these three-digit scores represent “the likelihood that you will pay all of your (debt) obligations on time for the foreseeable future,” said Barry Paperno, former consumer affairs manager for FICO.

How are FICO scores created?

FICO credit scores can range from 300 to 850, with some industry-specific scores going to 900. The scores are based on credit reports, or the statements generated by consumer credit reporting bureaus based on your credit activity and current debt.

FICO scores are broken down into five categories. Each category has a percentage value that indicates how much it affects the overall score.

• Payment history (35%): Your history of paying bills on time, late payments, or bankruptcies
• Amounts owed (30%): How much debt you carry, including credit card debt and installment loans such as student loans or mortgages.
• Credit history length (15%): The age of your accounts and how often they are used
• New credit (10%): How many recent inquiries have been made of your
• Credit mix (10%): The different accounts you have, such as banking, credit cards, or mortgages

Why are FICO scores important?

• Credit scores are used to assess how likely a person will be to repay their debt; for this reason, financial institutions heavily rely on credit scores when offering loans. Borrowers with high FICO scores can often secure better interest rates and other terms of the loan. FICO scores are also sometimes used by insurance providers, landlords, and other companies as a way to ascertain a person’s financial dependability.
• “If your scores are high, then you’re likely to get approved with competitive rates and terms,” said credit expert John Ulzheimer. “If your scores are low, then you could be denied or approved with less-advantageous terms.”

Why are there different FICO scores?

• While there are several dozen forms of FICO scores, they can generally be categorized into two groups: base FICO scores and industry-specific FICO scores. Base FICO scores are the most widely used. Industry-specific FICO scores are used for certain credit products, such as auto loans or credit cards.
• “Despite widespread use of the term ‘FICO score’ as a single score, FICO is actually the brand, with dozens of scores falling underneath that brand,” Ulzheimer said. This creates multiple editions of each scoring model; while lenders can choose which scoring model to use – leading to slight variations in FICO scores – the base criteria remains the same."

by Author, Nov. 07, 2018

Don’t let rising interest rates keep you from purchasing the home of your dreams. High rates might change the type of home you buy, but they should not be enough to make or break a decision to buy in the first place.

Here are a few things to keep in mind as you are considering whether or not to buy a home as interest rates rise:

Rates are still historically low

If you purchased a home today, the interest rate would be around 4.6 percent, which is still well below where rates were before 2008. Markets change over time, but your interest rate will remain constant.

You can always refinance to get a lower rate, but you’ll never have one higher than the one you lock in at closing. With a strong economy, rates are likely to continue rising, so waiting to buy a home will cost you even more down the road — both in interest rates and higher home values.

You have more room in your budget than you think

As you already know, the higher the interest rate, the more you’ll pay for your home each month. But the difference might not be quite as big as you’d expect.

For example, $200,000 mortgage with a 30-year fixed rate at 4 percent interest has a monthly payment of $954.83. At a 4.5 percent interest rate, the payment goes to $1,013.37; at 5 percent it becomes $1,073.64.

A financial planner can help you identify changes to your budget to absorb the higher monthly cost while making sure that you don’t overextend yourself in the process.

Fear of missing out

That’s right, FOMO. You might have experienced it in other areas of your life, and it definitely applies to buying a home. When the home of your dreams is on the market, you need to act, regardless of where interest rates might be.

You can’t do anything to change the rates, so don’t let them stop you from landing the home you want. Instead, we can help you find a mortgage lender who can help you get the best rate possible and put you on the right financial track.

by Author, Nov. 07, 2018

Surprises are best saved for birthday parties – not the home buying process. A major hiccup in the loan process is the worst case scenario that keeps both buyers and sellers awake at night. To avoid problems in escrow coming between you and your dream home – or your money – do this to avoid home loan drama.

Do: Keep finances steady

Lenders want to see consistency in your bank statements and credit reports; billed pays on time and direct deposits from paychecks on a regular schedule shows lenders you have the financial means and responsibility to cover the mortgage. Spending beyond your means, carrying too much debt, or even receiving large, unexplained deposits can affect things before closing.

Don’t: Open new lines of credit

While most people know not to buy a car while in escrow, many buyers still attempt to finance new appliances, open new credit cards, or secure other lines of credit before closing. Banks often run a second credit check before closing; avoid major purchases during escrow to keep closing on time.

Do: Make a full disclosure on the application

Underwriters are notorious sticklers; they want to ensure every i is dotted and t is crossed before approving the loan and sending the mortgage into escrow. To avoid a delay in closing, make sure you disclose judgements, liens, debts, accounts, and other information up front

Don’t: Assume closing costs are the same every day

Closing costs can vary widely depending on when in the month closing occurs; changing the closing date may seem easy, but it can leave you saddled with additional prepaid mortgage interest. For short sales or foreclosures, make sure to save a little additional extra cash for closing costs as closing is frequently delayed.

Do: Update mortgage rates

If you received pre-approval weeks – or months – before you found your new home, make sure to ask the lender for updated mortgage rates once you have a firm closing date. Mortgage rates can change significantly in a short time; getting updated information can help you better estimate monthly payments as well as how much you’ll need at closing. Worried about locking in the right rate? Ask your lender about mortgage rate lock.

Don’t: Read the contract at closing for the first time

One of the most tedious, yet important, parts of the closing process is reading and signing the closing documents. When your future home and moving plans in the balance, however, few homeowners take the time to closely scrutinize the documents. Avoid mistakes in the closing documents by asking to read and review them in advance. This can benefit both buyers and sellers as it ensures there are no costly or time consuming errors in the contracts.

by Author, Dec. 12, 2018

Self-employment is on the rise; the U.S. Bureau of Labor Statistics estimates that more than 15 million Americans are currently self-employed. Whether your office is a desk in the spare bedroom, a shared work space, or even the front seat of your pickup, self-employment offers the chance to be your own boss, create your own schedule, and build a business from the ground up.

For all its benefits, self-employment can also have serious downsides – particularly when it comes to buying a home. While it is true that self-employed people have to work harder to get a mortgage, it is not impossible. The following guide can help self-employed buyers prepare for the loan application process.

Good documentation makes the difference

The beginning of the loan process is the same whether you work for a company or own your own business; expect to start by getting a rate quote, filling out an application, and providing documentation of debts and assets.

While self-employed buyers may not have a W2 to show proof of income, debt-to-income and credit requirements remain the same. Plan to show 1040 tax returns and schedules; this can be tricky as many self-employed business owners write off significantly more business expenses than regular employees, affecting net income.

Prepare to pay more

Many lenders consider self-employed applicants to be high risk; because of this, expect to pay for a slightly higher interest rate. While it may seem like a loss at first, consider it to your benefit; a solid history of on-time payments can help you refinance in the future at a lower rate.

Five ways to improve the odds of being approved

There are several ways that self-employed applicants can improve their chances of being approved for a mortgage.

1. Pay yourself a W2 wage rather than taking an owner’s draw from the business.
2. Keep separate business and personal accounts.
3. Maintain good records. Programs like QuickBooks can help owners classify and track income and expenses as well as generate profit and loss statements.
4. Make a larger down payment by tapping into a 401(K) or IRA account.
5. Partner with another small business. Local banks and lenders are more likely to be flexible for other small business owners.

Remember that it isn’t impossible

While being approved for a mortgage is more difficult for self-employed business owners, it isn’t impossible! Even starting at a disadvantage, receiving a mortgage on your dream home is possible through proper documentation, willingness to pay for a higher interest rate, and dedication to building a good relationship with the lender.

by Author, Dec. 12, 2018

Veterans Affairs, or VA, loans are one of the most popular perks of military service. With little-to-no down payment required and competitive interest rates, VA loans have helped more than 22 million service members become homeowners.

While these loans are an excellent option for many current and former service members, they do come with certain stipulations and requirements that set them apart from traditional loans. The following are a few things about VA loans that both borrowers and realtors should know.

1. VA loans can be used more than once

VA loans can be used over and over again – as long as the previous entitlement is paid off. Those who have a VA loan on their current home – or have lost one to foreclosure – are often still able to obtain a new loan.

2. VA loans are only for certain types of homes

3. VA loans aren’t issued by the VA

4. VA loans don’t require mortgage insurance

One of the most appealing aspects of VA loans is they do not require PMI, or private mortgage insurance. While most traditional mortgages require PMI if the down payment is less than 20% of the total cost of the home, VA loans have no such requirement; this means that service members can put less down on a home and save their cash for improvements, upgrades, moving expenses, or closing costs.

5. VA loans have additional fees

While they do not require PMI, all VA loans incur a VA funding fee. This fee helps keep the program going by working to lower costs and is required on both purchase and refinance loans. Funding fees can be rolled into the monthly mortgage payment, and those with service-related disabilities may be able to have their fees waived.

6. VA loans don’t have extra payment penalties

VA loans allow borrowers to make additional payments at any time without incurring additional fees. In addition to helping service members pay off their mortgages faster, it can help save thousands in interest fees over the life of the loan; paying as little as $100 extra a month towards the principal can make a significant difference over the life of a 30-year mortgage.

by Author, Dec. 12, 2018

For most buyers, a new home is the single most expensive purchase they will ever make. Navigating the process can be time-consuming, frustrating, and at times confusing. While it is possible to sort through various loans and rates on your own, mortgage brokers can help you secure the best lender for your new home loan.

The decision to use a mortgage broker can be polarizing; while banks and other lending institutions often advise against them, most realtors prefer to work with mortgage brokers. If you’re preparing to apply for a mortgage, here’s what you need to know about working with a mortgage broker – before you head to the big bank or credit union.

What do mortgage brokers do?

A mortgage broker is a regulated, licensed finance professional who acts as the liaison or bridge between the mortgage lender and the borrower. Because they do not work for a single lender, they can help you find the best loan with the best interest rates and terms across a variety of lending institutions.

The mortgage broker’s expertise is knowing what kinds of issues, like closing on time, will come up on loans that might make it not work at one lender, but may make it work at another.”

Why realtors recommend mortgage brokers

While most potential buyers will only go through the mortgage process a handful of times, real estate agents work with both lenders and borrowers every day. Because of this, they are uniquely positioned to understand the ins and outs of the mortgage process – including the best professionals to work with.

Many realtors have close relationships with one or more mortgage broker. When they recommend a mortgage broker to potential buyers, it is not to receive kickbacks or other perks; agents recommend brokers that they trust, have worked with in the past, communicate well with, and above all else, know that they can help borrowers close on time.

Brokers are mortgage experts; they can help you take the guesswork out of finding the right loan, saving you time and money by helping identify the best rates. Mortgage brokers can also make the entire process less stressful. Because they serve as the liaison between the lender and your realtor, buyers can expect fewer phone calls or emails demanding documents.

Mortgage brokers can save potential buyers’ time – as well as significantly reduce stress during the home buying process. While their services aren’t free, the right broker can make the entire loan application and escrow process easier – and help you close on your dream home on time.

by Author, Dec. 12, 2018