5 Things to Avoid During the Home Loan Process

When you’re pre-qualified for a home loan or beginning the mortgage application process, there are some actions you should avoid taking. These things could potentially delay your mortgage closing or even put you at risk of not being approved at all. Here are some things to avoid before your loan closes.

Avoid Making a Large Purchase

You’ll want to avoid making any large purchases regardless of whether it’s in cash or on credit. A large cash purchase will take away from your savings which you’ll need for a down payment and closing costs and a large credit purchase will increase your debt-to-income ratio and credit utilization which are used to qualify—or disqualify—you for a loan. It’s in your best interests to save large purchases for after your mortgage has closed.

Avoid Opening or Closing Lines of Credit

Your credit can be pulled at any point during the mortgage process up through the date of closing. Opening a new line of credit or closing an existing one can negatively impact your score which, in turn, negatively impacts your chances of getting approved. You want your credit to remain as stable as possible when applying for a mortgage, especially if you’ve already been pre-qualified. Pre-qualification doesn’t guarantee approval, and if your credit score changes, there’s a chance you may not be approved. You can continue to use your existing credit cards as normal but be sure to pay these bills on time and not rack up your spending.

Avoid Missing Credit Card, Bill, or Loan Payments

Payment history plays a huge role in determining your credit score which is an important part of determining your eligibility for a loan. It is essential that you pay your bills and other financial obligations on time. Just one late payment can negatively impact your credit score. You should pay especially close attention to your spending during the loan process to ensure you aren’t spending more than you’re able to pay off in a timely manner.

Avoid Starting a New Job

Situations where you are suddenly out of work can be unexpected and out of your control. However, if you’re employed but considering changing fields, seeking employment elsewhere, or becoming self-employed, it’s best that you wait until your mortgage has closed before doing so. Lenders examine your employment history to ensure you’ve had steady employment and income. Unemployment may result in disapproval, particularly when you’re applying on your own rather than jointly, and a change in jobs can require additional documentation which can slow the process down.

Avoid Making Large Deposits

When you’re waiting for mortgage loan approval, you should avoid making any sizable deposits. Payroll deposits and transfers between accounts are generally fine, but other larger deposits (generally over $1,000) must have an explanation. If you do deposit a notable amount of money, your lender will likely ask for an explanation and proof of its origin which can slow down the loan process or even lead to a denial if you aren’t able to properly disclose information about the deposit. In any case, it’s best to hold off on depositing larger amounts until after your loan has closed. If you’ve received or are anticipating receiving a gift to go towards your down payment, it’s best to discuss this with your loan officer at the start of your mortgage application so you can properly document it and avoid any issues in processing your application.

When you work with a knowledgeable mortgage professional, they are able to walk you through the process and make sure you avoid any missteps that could slow down or jeopardize your loan approval. Contact one of our experienced loan officers today to learn more and start your home loan journey!

Does Your Credit Score Spook You?

Your credit score affects more than just your mortgage rate. It also plays a role in how much you will get approved for, what you need to put down, and what you will pay for your private mortgage insurance. While it is not impossible to buy a home with a lower score, you will need to keep in mind how it will affect your qualification. Those with higher scores are more likely to receive a lower rate. Most lenders view a potential home buyer with a high credit score as more dependable and less likely to default on mortgage payments.

It’s best to know and understand your credit score in the months leading up to applying for a mortgage, even if you know your score is in good shape. This will give you time to either improve your credit or ensure that you keep it as high as possible before you apply. Here is an estimated breakdown of how credit scores are judged:

  • Excellent = 720 and above
  • Good = 690 – 719
  • Fair = 630 – 689
  • Poor = 629 and below

Taking steps to build you credit can help put you in the best possible position when you apply for a mortgage. Some of the best ways to build your credit are:

  • Make your rent, credit card, and any loan payments on time
  • Check for errors on your credit report and try to resolve them
  • Keep your credit utilization below 30%
  • Work with a credit counselor or loan officer

If you are not able to improve your credit score in time to apply for a mortgage, there are loan options you may still qualify for. For example, FHA loans are popular among first time home buyers with less than excellent credit scores. When you begin the mortgage process, your Loan Officer will order a credit report and will help you explore all your options to find the best fit for you! Contact one of our highly trained Loan Officers to learn more!

Types of Mortgage Loans

There are many mortgage types. The one that is best for you is dependent on your particular situation and needs. It’s important to understand what options are available and what makes each one unique. Here are some of the primary home loan types.

Conventional Home Loans

Conventional home loans are what most often come to mind when we think of mortgages. They are loans that either need no mortgage insurance or are be insured by a private company. Conventional loans can either be conforming or non-conforming. Conforming loans meet the guidelines set by Fannie Mae or Freddie Mac, the government-sponsored entities that back most mortgage loans. The most common type of non-conforming conventional home loan is a jumbo loan which is used when the loan amount is higher than the loan limit set by Fannie Mae and Freddie Mac. Jumbo loans allow a borrower to purchase a higher priced home.

Conventional loans can either have a fixed or adjustable rate. As the names suggest, fixed-rate loans have interest rates that stay the same for the whole life of your loan while adjustable rate mortgages may allow you to get a low introductory interest rate that may increase over time. Fixed-rate loans are generally best for buyers planning to stay in their homes long-term.  An adjustable rate may be a good option if you’re looking to keep your loan for a shorter period.

Government Loans

The U.S. government is not a mortgage lender but does offer certain programs through various agencies in order to better serve borrowers in unique circumstances. These programs are available only though approved lenders such as First Home Mortgage.

Some of the most common government loans include FHA, VA, and USDA loans. The Federal Housing Administration insures FHA loans which are geared toward borrowers with limited savings and lower incomes. The Department of Veterans Affairs insures VA loans which allow service members and their spouses to purchase a home with little to no down payment. The U.S. Department of Agriculture insures USDA loans to home buyers with low to moderate income who are buying in certain designated rural areas.

Renovation Loans

Renovation loans are just that, loans to fund the cost of renovating your home. These loans are available to existing homeowners as well as to homebuyers who have found a home to purchase that needs fixing up. Common repairs and remodels covered by renovation loans include garages, driveways, roofs and gutters, room additions, plumbing and electrical, basement finishing, landscaping and fencing, doors, windows, and decks, patios, and porches.

Two of the most common renovation loans are FHA 203(k) and FNMA HomeStyle loans. The Federal Housing Administration offers FHA 203(k) loans which cover the purchase of a primary residence and the repairs in one mortgage. There are two types of FHA 203(k) loans: Standard and Streamline. Standard FHA 203(k) loans give borrowers the flexibility to finance major rehabilitations that cost a minimum of $5,000, while the Streamline FHA 203(k) provides financing for minor repairs and renovations up to $35,000. A FNMA HomeStyle loan allows the purchase and renovation of either a primary residence, second home, or investment property in a single mortgage up to the lending limit with a minimum down payment of 5%.

The best way to determine the mortgage type that’s best for you is by talking to a knowledgeable professional. Contact one of our experienced loan officers today to learn more about loan types and find the option that’s right for you!

Home Loan Milestones

Buying a home may seem like a daunting process but being prepared can ease your mind. It is important to understand what to expect when preparing to buy a home, and what to expect during the home buying process. Below we’ve provided a short outline of the five main milestones of the home buying process.

Pre-Qualification

You’re ready to buy a home, congratulations! The very first step to take if you are ready to start your new home search is to get pre-qualified. This is a no-cost, no-commitment, 10-20 minute analysis that will give you a great starting point for your new home loan. Especially during times of social distancing we’ve made this process even easier by offering pre-qualification applications to be taken over the phone or by completing an online form. This will allow us to determine an estimate of your maximum monthly mortgage payment and how much you can borrow. Pre-qualifying for a loan before you go home shopping helps you set a budget and strengthen your negotiating position when making an offer.

Application

Once you have found a home, you will make an offer to buy it from the seller. A real estate professional will conduct negotiations and a contract will be submitted to purchase, accompanied by the pre-qualification letter. Once your offer is accepted, you will receive your initial disclosure package and you will begin the application process. You will most likely need to provide your loan officer and processor with updated income and asset documentation, such as pay stubs and bank statements. To ensure your loan stays on track, you’ll want to have your docs completed quickly and thoroughly.

Processing

In this step of the process, your appraisal and title work will be ordered. Once all necessary documentation is collected, the processor will review everything for completion and accuracy. He/she will verify information on the title work, appraisal, credit report and any additional docs needed. Once the processor has completely reviewed the full application package, he/she will pass it on to the underwriter. Your loan officer will keep you informed, answer any questions and navigate you through every step of the way.

Underwriting

Once your loan gets to this milestone, the underwriter will review the entire loan package to determine if your loan meets the guidelines for approval. Your underwriter will review your disclosures, credit, asset documentation, employment, appraisal and additional documents along with the loan program’s guidelines and regulations. Once conditions have been met and any contingencies on the loan have been cleared, the underwriter will give the clear to close/final approval and the loan is sent to closing.

Closing

You are now in the final home loan milestone, closing! This is the best part! A date, time and location should have already been confirmed for closing. At least 3 days prior to closing, you will receive your closing disclosure (CD). This document will show you your closing costs, terms of the loan and how much money you need to bring to settlement. Closing may look a bit different due to COVID-19 restrictions. You may be asked to wear masks, wait in your car, or sign documents without other parties present. Once documents are signed, funds will be distributed, and ownership of the property will transfer from the current owners to you. The house is finally yours!

It may seem like a long process, but we strive to make it as seamless as possible. If you are ready to start your home buying process, contact one of our loan officers today!

Things to Consider Before Buying a Vacation Home

Vacation homes can be a great investment, whether you plan to use them to rent out, for after retirement, or simply to stay in on vacations. Buying a second home is a big decision, and it’s imperative you take the time to consider the various financial and lifestyle implications associated with this big purchase. Here are a few questions you should be asking yourself when contemplating buying a vacation property.

Can I Afford It?

Whether or not you can afford a vacation home should be your top concern before seriously pursuing the idea. Think about the state of your finances. Are you saving enough for retirement and any emergencies? Do you have enough for a down payment? Can you still meet your other important long-term financial goals? What is your debt-to-income ratio? A debt-to-income ratio is calculated by adding up all your monthly bills and dividing them by your monthly pre-tax income. The lower your debt-to-income ratio, the more income you have to save and spend on other things and the more likely a lender is to let you borrow money. When you look at all your outstanding debts—the rent or mortgage for your primary residence, student loans, any alimony or child support, other recurring payments—do you have enough to live on if you add in a new vacation home mortgage? If your debt-to-income ratio is on the higher side, it’s probably not the best time to buy another home.

Beyond the mortgage, it’s important to take into account the other expenses you would incur. Even if you’re only staying in the home part-time, you’ll still have things like utilities, possible HOA dues, insurance premiums, maintenance fees, taxes, and other bills and expenses to take care of all year long. Can you afford to pay these bills for a vacation home on top of your primary residence?

Is This the Right Location?

When it comes to a vacation home, you could pick just about anywhere in the country or even the world to buy. Make sure wherever you pick is somewhere you really like and either see yourself visiting often or believe will have lots of demand for renters. Consider visiting and renting in your desired location a few times in order to better gauge whether it’s the right place to put down roots more permanently. You should also think about localized taxes and ordinances that may be different than what you’re used to at your primary residence.

Why Do I Want to Buy a Vacation Home?

Sure, we’d all like to have a vacation home, but it’s important to ask yourself why exactly you want one. Is it somewhere you’ll visit regularly? Will you be saving money by owning instead of renting when vacationing? Are you buying it as an investment property to rent out? Is this where you’d like to retire someday? Will you get enough use out of it now or in the future to make it a worthwhile purchase? Having another home may seem ideal in theory, but it’s not always the most practical decision depending on your lifestyle and needs. It’s important to weigh the pros and cons of vacation homeownership before making a decision.

Is This the Best Time to Buy?

Avoid buying a home during peak tourist season, be it winter for a mountain property or summer for something by the water. Current owners are likely looking to recoup their investment during the busy season and are less likely to put homes on the market. Wait for the final weeks of peak tourism or later. For properties with summer as their high season, the time between Labor Day and Thanksgiving is perfect to search for your dream property as you take ownership early enough to get an idea of what future summers might be like and still make repairs and do maintenance work before winter sets in. For winter vacation homes, aim to search in the spring (but don’t wait too long to start looking, as some particularly remote properties may get boarded up for the summer months).

If you’re thinking about buying a vacation home, reach out to one of our experienced loan officers today to explore your financing options!

5 Tips for Building Equity in Your Home

Equity can be defined as the difference between the current market value of a property and the principal balance of all outstanding loans. This is calculated by subtracting your mortgage balance from the market value of your home. Building home equity is important because it can be converted into cash if need be through a home equity loan or a line of credit or cash. In order to increase your home’s equity, you must increase your home’s value, lower your mortgage debt, or both. Here are 5 methods for doing just that.

Make a Big Down Payment

Down payments provide instant equity, and the bigger the down payment, the more equity you have to start with. As an added bonus, if you’re able to put down at least 20%, you can avoid having to pay private mortgage insurance, also known as PMI. However, it’s important to assess your finances and financial goals when determining the ideal amount of money to put down for you and your situation.

Pay More on Your Mortgage

Your mortgage payments are made to cover both principal and interest. Most mortgages are on an amortization schedule where you make payments of equal installments over a specified period of time until your loan is paid off. Generally, a larger portion of your payment goes towards interest in the beginning and more goes towards principal over time. If you can afford to, consider paying more than you have to. In doing so, you decrease your outstanding loan balance faster, thereby increasing your equity. You’ll want to make sure the extra money you pay goes to cover the principal, not interest. There are a few ways to pay extra money on your mortgage, including adding a fixed sum to your payments each month, switching to a biweekly mortgage schedule, scheduling extra payments at regular intervals, and using extra money such as tax refunds and tax gifts.

Refinance to a Shorter-Term Loan

Choosing or refinancing to a shorter loan term can help boost your equity. Typically, with 15-year mortgages, you not only get a lower interest rate but a larger portion of your payments go towards principal rather than interest. This increases the amount of equity you build each month compared to that of a 30-year mortgage. It’s important to note that payments are also higher with a shorter-term loan, so you should consider whether there’s room in your budget for larger payments.

Improve the Property

Remodeling and home improvement projects can boost your equity. According to Remodeling Magazine, the average payback on the most common upgrades is $0.64 for each dollar spent, or a 64% return on investment. Smaller projects, such as garage door replacements, do a particularly good job of increasing your equity, especially when you pay with cash rather than through a loan. Unless you’re remodeling with the intent of selling, it’s important to think about how much the improvement will enhance your living experience within the home. You should consult with a real estate agent or other home professional to determine which renovations will net you the highest return.

Wait for Your Home’s Value to Rise

If you’re not in a rush to build equity, one thing you can do is simply be patient and wait. The housing market fluctuates and therefore so does your home’s value. Local market conditions will naturally impact the value of your home; when home prices increase and demand goes up in your area, your home value will rise with it. Conversely, if the market slows, your value may go down and you may lose some equity with it. These market changes are largely out of your control, but they’re worth keeping in mind. If you’re curious, you can consult an appraiser or use an online estimating tool to get an idea of your home’s current value at any given time.

If you are considering purchasing or refinancing, please contact one of our experienced loan officers today to get you started!

 

 

Source: https://www.bankrate.com/home-equity/how-to-build-equity-in-your-home/

https://www.nerdwallet.com/blog/mortgages/6-ways-to-build-your-home-equity/

When is the right time to buy your first home?

Purchasing your first home is an exciting adventure with plenty of benefits. Homeownership can provide valuable tax breaks and offers an opportunity to build equity rather than spending rent money with no potential return. It is also an important personal and long-term financial decision, so it makes sense to prepare ahead of time and be sure you are ready.

Consider Your Income

Stable income is a vital factor in qualifying for a home loan. Even if you are in a non-traditional career, keep track of all your monthly income. This will help you and your lender to determine how much home you can comfortably afford. When planning a new budget, take all of your monthly bills into account as well as any additional maintenance and living expenses you’ll have in your new home.

Think About Your Lifestyle in the Next 5 Years

Are you planning on staying at the same place of work, or seeking a different career that might cause you to move? Are you considering sharing your space with a partner or having children in the near future? Purchasing a home is a major investment that involves certain costs, so if you think you’ll be moving or need a larger home soon, it might make sense to wait until you can buy something you’ll be living in longer. An exception to this is purchasing a home you plan to fix up and add equity to, in which case you could still move without a loss.

Learn About Where You Are Planning to Buy

Knowing which areas or neighborhoods you want to live in can help you narrow your home search. You may already be familiar with where you want to live, which makes the process easier. If you are relocating and planning to purchase somewhere new, it is good practice to tour the area you are planning to move to and learn as much about it as you can ahead of time.

Review Your Credit

Building your credit score up to a healthy level can help you obtain the best possible interest rate on your home. Paying down your debt and utilizing other methods to boost your score before purchasing a home can lead to significant long-term savings. That said, there are programs available for borrowers with a range of credit scores, so if you are unsure about your score a Loan Officer can advise you on your options.

Plan for Your Down Payment

The traditional 20% down payment is no longer the only feasible choice. There are several programs that may allow borrowers to pay little or no money out of pocket at the time of closing. Review how much of your savings you can put towards a down payment, and talk to an experienced loan officer about different loan programs to learn which is the best fit for you.

Feel Free to Ask Questions

Realtors and Loan Officers are all about customer service and building client relationships. They are happy to speak with you and answer your questions. Even if you are unsure whether now is the right time for you to buy, reaching out for advice from experienced professionals can give you peace of mind and a solid plan of action if you decide to wait.

Here at First Home Mortgage, we continue to provide the highest level of customer service while adhering to social distancing guidelines. Our innovative communication technologies allow us to exceed your expectations while keeping everyone as safe as possible. If you are considering purchasing or refinancing a home, please contact one of our Loan Officers today!

Mortgage Calculators

Here at First Home Mortgage we strive to deliver excellent customer service from the start. We provide tools and resources to better prepare you for purchasing or refinancing your home. Whether you’re buying a home for the first time, you’ve purchased before, or you are refinancing, you will have questions and concerns. “What will my mortgage payment be?”, “How do I know it’s a good time to refinance?”, “What can I afford?” – these are all very important questions that will be the basis of your journey. With these questions in mind, we have provided 9 different mortgage calculators to help you get started!

Mortgage Payment

Repayment of a mortgage loan requires the borrower to make a monthly payment back to the lender. That monthly payment includes both repayment of the loan principal, plus monthly interest on the outstanding balance.

Proceeds from Sale of a Home

How much profit will you make if you sell your home? This is largely dependent on two things: the amount you still owe on the home and what you will have to pay for selling the home.

Compare Two Mortgage Loans

When purchasing a home, the mortgage you choose and the options you want with it will have a significant impact on how much your home costs you in the long run.

Time to Refinance?

The decision to refinance a home mortgage can involve many factors. You might want to take cash out of your home and apply it elsewhere or obtain a lower rate to lower your monthly payments.

Debt to Income Calculator

Your DTI is the percentage of your gross income used to cover your mortgage and other debt payments. This ratio and your credit score are two key factors used to determine if you qualify for a loan.

Rent vs Buy

Deciding whether to rent or buy relies on many factors. Take into consideration the difference in monthly rent vs. mortgage payment, home value, rent increases, interest rate, and taxes to name a few.

Home Affordability

Your ability to obtain a loan for a new home purchase is based on several aspects. Lenders typically focus on three key ratios: Loan-to-Value ratio, Housing Ratio and Debt-to-Income ratio.

Adjustable Rate Mortgage Analyzer

ARMs typically offer home buyers the advantage of having a lower mortgage payment during the initial period of the mortgage. Once the initial period expires, the rate will reset at current interest rate levels.

Compare a Bi-Weekly Mortgage to a Monthly Mortgage

One popular strategy for accelerating the payoff of a loan is to make ‘Bi-Weekly’ payments. Under a Bi-Weekly mortgage plan, you will make payments to your lender every two weeks instead of monthly.

While we consider these calculators to be very helpful and educational, everyone’s personal situation varies and reaching out to one of our Loan Officers will give you more accurate sense of what you would be facing! Find a Loan Officer in your area today!

DTI Ratio: What it Means for Your Mortgage, and 5 Ways to Improve it!

What Does DTI Ratio Mean for your Mortgage?

Debt to income ratio is a calculation of the percentage of your monthly debt payments, compared with your gross (pretax) monthly income. Monthly debt payments include mortgage payments, car payments, and any other minimum loan or card payments. Living expenses like gas, groceries, and utilities are not included.

Debt to income ratio is an important factor in qualifying for mortgages and other loans. The ideal DTI ratio for a mortgage is 36% or below. If your DTI ratio is too high, you may not qualify for the home loan you want. The lower the ratio – the better!

5 Ways to Lower Your DTI Ratio

  1. Pay off Debts Ahead of Time. Paying off a debt means you’re no longer paying a monthly bill on it. Paying off smaller debts first, or debts with a high payment compared to their balance is recommended to get the best results.

 

  1. Refinance larger loans over a longer period of time. This would apply to large loans such as student loans. You can extend the length of the loan to reduce your minimum monthly payments, which will also reduce your DTI ratio. Just keep in mind that repaying a loan over a longer period can result in more interest paid over the life of the loan.

 

  1. Transfer credit card debt to a lower interest card. There are often credit card offers available with an introductory period of lower or no interest. You can transfer existing debt to a low or no interest card in order to reduce your minimum monthly payment and the total amount paid over time! At the end of the promotional period, you can always transfer again to a lower interest card!

 

  1. Look for ways to increase your monthly income. With the world of Etsy and YouTube channels, there are plenty of ways to earn extra income in addition to your monthly income. If you have a specific hobby or craft to share, it can gain you extra funds every month.

 

  1. Consider a 401k loan. You can take funds out of your 401k to pay off debt, and then repay the loan over time at zero interest. You will however need to pay taxes on the 401k loan amount. This can save a substantial amount on a high interest loan. Just be sure to repay the 401k loan to yourself as soon as possible to keep your retirement savings on track!

Reducing your DTI improves your overall budget, can help your credit score, and puts you in the right position to purchase a home you can comfortably afford. If you have any questions about your DTI in regard to purchasing or refinancing a home, please contact one of our experienced loan officers today!

Down Payment Tips for Gen Z

Are you a Gen Zer unsure about your financial responsibility when it comes to buying a home? Buying a home doesn’t have to be an overwhelming process or a financial drain. How should you prepare?

 

1. Down Payments

Down payments seem to be the biggest obstacle first time home buyers think they will face when buying a home. According to Freddie Mac, 60 percent of adults ages 18 to early 20s don’t know and overestimate how much they will need to put down on a home. However, according to NAR (National Association of Realtors) the actual down payment median for first-time home buyers was 7% in 2019.

2. 20 Percent Down Myth

Because millennials still hold on to the “20 percent down” myth, it’s no surprise Gen Z are following suit. 60% of Gen Zers want to hold off on buying until they have enough down payment and can manage a mortgage payment, but first-time home buying comes with perks, including low down payment options.

3. Homebuying can be within reach despite challenges

With financial education at home, strong economy and job market, home buying is an attainable goal for Gen Zers. Being optimistic about their financial futures, many prefer to own verse rent and want to purchase a home by the age of 30.

A 2019 Freddie Mac study showed low down payment options shrink the time it takes “mortgage ready” young millennials to achieve home ownership. With this information, we can assume it applies to Gen Z adults. Bottom line, low down payment options can give a much more motivating time frame of 3 to 5 years instead of 15 to 20 years to get into your first home.

Are you ready to take that next step into home ownership? Let one of our loan officers walk you through the process, contact us today!

 

 

Source: https://sf.freddiemac.com/articles/insights/four-reasons-lenders-should-begin-educating-gen-z-about-down-payments-now?utm_source=eloqua&utm_medium=email&utm_campaign=2020-02-13_LN_NEWSLTTR_

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