What To Know About Your Debt-To-Income Ratio When Buying A Home

September 15, 2022 by

What To Know About Your Debt-To-Income Ratio When Buying A HomeWhen you apply for a mortgage, your lender will do some quick math to figure out how much of a loan you can afford. Your lender will consider many factors, and one of the most important ones is your debt-to-income ratio. It is usually shortened to DTI, and understanding this formula can help you better understand how big of a house you can afford. 

An Overview Of A DTI

Your DTI represents the amount of money you spend compared to the amount you make. Your lender is going to have very strict DTI requirements when deciding whether you can be approved for a mortgage. The lender wants to make sure you are not taking on a loan that you cannot afford to pay. If you cannot pay back your mortgage, your lender ultimately loses that money. Generally, your lender will want to see a lower DTI as they go through your application.

Front-End DTI

Your front-end DTI includes all expenses related to housing. This includes your homeowners’ association dues, your real estate taxes, your homeowners’ insurance, and your future monthly mortgage payment. In essence, this will be your DTI after your lender gives you a potential loan. 

Back-End DTI

Then, your lender is also going to take a look at your back-end DTI. This the first two other forms of debt that could go into your DTI. A few examples include car loans, student loans, credit card debt, and personal loans. Generally, this is the most important number because it is debt that you already carry when you apply for a mortgage. Your lender can always make adjustments to your home loan to fix your front-end DTI, but your lender does not have any control over your back-end DTI. 

What Is A Strong DTI?

Every lender will take a slightly different approach, but lenders prefer to see a total DTI somewhere around 32 or 34 percent. If you already have this much debt when you apply for a mortgage, you may have a difficult time qualifying for a home loan. On the other hand, if you don’t have a lot of debt, your lender may qualify you for a larger home loan. 

 

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The Quick and Easy Guide to Determining How Big of a Mortgage Your Family Can Afford

September 14, 2022 by

The Quick and Easy Guide to Determining How Big of a Mortgage Your Family Can AffordAre you shopping around for a new house or apartment? One of the key considerations you will need to make is figuring out how much you want to invest in your new home. Below you’ll find our quick and easy guide to determining just how much “house” you can afford. Let’s get started!

Start By Making A Proper Budget

The first thing you’ll want to do is sit down and get a full budget put together. The easiest way to get the process started is to begin with two lists: income and expenses. For the income list, write down the amount of money your family brings in each month after taxes. If you have side income sources or extra income that tends to fluctuate over time, use the average amount for the past six months.

For the expenses list, write down all the spending that you do each month. Start with the major, stable items like rent, utilities and the like. Then work your way through to discretionary spending like dining out and other sources of entertainment. If it helps, go through your bank and credit card statements to ensure that you are not missing anything.

Once you have an accurate budget, you’ll know exactly how much you can afford to pay toward your mortgage payments each month.

Figure Out How Much You Can Put Down

Next, you’ll need to think about how much cash you want to pay as a down payment on your home. The larger the down payment you can afford, the smaller amount of mortgage financing you’ll need. While it might seem like a good idea to put as much as you can down, there are some things to consider. Any money you put against your down payment is going to be unavailable to you, which reduces your financial options. You’ll also lose the opportunity to invest it, which means missing out on potential returns over time.

Determine How Much House You Actually Need

Finally, give some thought as to how large or luxurious a home you want to buy. For example, if you have a small family and don’t need a large four- or five-bedroom house, you can instead opt for a smaller but more luxurious home. Conversely, if space is a priority, you may want to forego the high-end options to ensure you have enough room.

When you’re ready to explore your mortgage options, we’re ready to help. Contact your trusted mortgage professional at your convenience. We’re committed to helping you purchase the home of your dreams.

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The Minimum Credit Score For VA Home Loan Approval: What To Know

September 13, 2022 by

The Minimum Credit Score For VA Home Loan Approval: What To KnowWhen you are applying for a home loan, you need to make sure that you meet the minimum credit score requirements. If you decide to go with a traditional loan, the credit limit can be high, making it hard to qualify for a home loan. In contrast, you might be able to qualify for a VA home loan with a much lower credit score. What do you need to know?

The VA Does Not Have A Minimum Credit Score Requirement

One of the major benefits of applying for a VA home loan is that you do not need to worry about meeting a minimum credit score requirement. There is no minimum credit score you need to qualify for a VA home loan, as there are lots of factors that the lender will consider when reviewing your application. Your credit score is only one factor. At the same time, you are encouraged to have a credit score between 580 and 660 to increase your chances of being approved for a home loan.

There Are Other Benefits Of Applying For A VA Home Loan

In addition to the lack of a credit score requirement, there are other benefits of applying for a VA home loan. For example, you do not have to worry about putting any money down. While you might be able to get a lower interest when if you decide to put money down, you are not required to do so. You also do not have to worry about paying PMI, even if you do not put 20 percent down. This is just another way that a VA home loan can help you save money.

A VA Home Loan Could Be The Right Option For You

With so many benefits of applying for a VA home loan, it makes sense to do so; however, you need to make sure that you meet the eligibility requirements. For this reason, you should work with a professional who can make sure you qualify for a VA home loan for your next purchase.

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Should You Buy Mortgage Points?

September 7, 2022 by

Should You Buy Mortgage Points?When you take out a home loan, you might have the option to purchase mortgage points. Essentially, this is money that you pay to the lender upfront in exchange for getting a lower interest rate over the life of the loan. If you got a great deal on the house, you might have some extra cash on hand. Should you use that money to buy down the interest rate? This is a math problem that you need to calculate for yourself.

How To Do The Math

If you want to figure out if the mortgage points are worth it, you need to do some math. For example, you may need to pay an extra $3,000 at closing to qualify for a lower interest rate. You need to figure out how long it will take you to get that $3,000 back in terms of interest savings. So, if you save $30 per month on interest in exchange for that $3,000 upfront, it will take you 100 months to get that $3,000 back. After that, you will come out ahead. That is about eight years. So, if you plan on staying in the home for eight years (or more), then it might be worth it. If you sell the house before that point, or if you decide to refinance your home loan, then you will lose that money.

Other Factors To Consider

There are other factors to consider as well. For example, if you decide to buy discount points, it might be tax deductible, but this is something that you need to talk about with an accountant. Furthermore, if you are not getting the lowest interest rate because of a low credit score, you might want to buy discount points as well. Finally, if you want to reduce your monthly payment, mortgage points might be a smart way to get a lower payment.

Do not forget that you need to think about other options for that cash. There is a chance that you might need that cash for another bill, such as tuition or a car repair, so think carefully before buying discount points. 

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Understanding Your FICO Score and Why Small Credit Mistakes Can Cause Huge Headaches

September 2, 2022 by

Understanding Your FICO Score and Why Small Credit Mistakes Can Cause Huge HeadachesMany people all over the world are dealing with issues involving debt or poor credit history, but most aren’t necessarily aware of what exactly makes up their credit score. Unfortunately, it might seem like it’s the big stuff that counts when it comes to credit, but little things can have a significant impact on your financial health. If you’re looking to improve your understanding and your finances, here’s what you need to know about small mistakes and your FICO score.

Making Late Payments

The due date on your bills might seem like an advisory, but whether we’re talking about a student loan, a credit card payment or your telephone bill, late payments can add up. Your payment history constitutes 35% of your total FICO score, which means that even a couple of late payments can have a marked impact on your overall credit. Instead of leaving this to chance, set aside a day each month before your bills are due to ensure they’re all paid off.

Applying For New Credit

It’s often the case that a store will offer special deals if you sign up for their own in-house credit card, but this can cost you big since the amounts you owe make up 30% of your credit score. Also, because lenders will often assume that you’ve run out of credit if you apply for a new card, applying for new credit can be a red mark against your FICO score. 

Forgetting Credit Altogether

It might seem like the best possible option for avoiding credit issues is to avoid using credit altogether, but your credit history constitutes 15% of your FICO score. This means that you should have at least one credit card in your possession so that you can use it to build a history of lending success. While you won’t want to use more than 30% of your credit limit, it’s important to show proven experience in paying back your lenders.

Many people think that bad credit is the result of overspending and huge debt amounts, but your FICO score is largely determined by your payment history and your available credit. If you’re trying to buy a home in the near future, contact your local real estate professional for more information.

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Consider A Home Renovation Loan To Navigate A Challenging Housing Market

September 1, 2022 by

Consider A Home Renovation Loan To Navigate A Challenging Housing MarketToday, there are many people who are having a difficult time purchasing a house. Even though interest rates have gone up, sales are still happening quickly. Therefore, it can be difficult for people to qualify for a mortgage, purchase a house, and get to the closing table before the property is sold. One potential way to get around the hot housing market is to consider a home renovation mortgage. How can a home renovation mortgage help you? 

A Renovation Loan Can Help People Buy A Less Desirable Home

If you want to close on a home, you might be interested in a house that is not as desirable as some of the others. That way, you don’t have to worry about a bidding war. A renovation loan can help you purchase a less desirable home. If you are interested in buying a home that requires some repairs, but you do not have a lot of cash available for repairs, a renovation mortgage is a special loan that gives you the money you need to repair the house.

How Does A Renovation Loan Work?

Typically, the amount of money you can borrow for a renovation loan will depend on the value of the home after the renovations are completed. Therefore, the appraisal process is a bit different. This is the only type of mortgage that will give a homeowner credit for the future value of the property. Therefore, you can borrow more than you would be able to with a traditional mortgage. You can use the extra cash to perform repairs, which can increase the value of the home.

How Many Renovation Loans Are There?

Just as there are different types of conventional loans, there are different types of renovation loans as well. Each has a different set of requirements, but all of them require you to use the extra money to repair the home. Furthermore, all the work you do on the house has to add to the value of the property. If you have questions about how you can use the money that comes with a renovation loan, you should reach out to a professional who can help you. 

 

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Expenses To Consider When Buying A Home

August 31, 2022 by

Expenses To Consider When Buying A HomeWhen you are in the process of buying a home, it can be intimidating to take a look at so many factors. A home has a big price tag, and you need to make sure that you budget accordingly. Fortunately, this is not a process that you have to go through on your own. There are several items that all experts will say that you have to consider as you budget for your next home purchase.

The Down Payment

Your biggest expense is probably going to be your down payment. In general, it is a smart idea to put 20 percent down on your house. That way, you can avoid having to purchase private mortgage insurance. If you are purchasing a house for the first time, you might be able to put less money down, but you might face a higher interest rate and private mortgage insurance (PMI) payments if you do so.

The Earnest Money Payment

You should also be prepared to put down some earnest money. The exact amount of earnest money, also called due diligence money, that you have to put down will vary depending on the market. You should have a trusted professional who will let you know how much earnest money you should include with your offer. This is money that you use to hold the house in your name as you decide whether you want to go through with the purchase. If you end up buying the house, your earnest money will be put toward your down payment. 

Closing Costs

You should also budget money for closing costs. Some of the items that will be included in your closing costs include a loan origination fee, a title examination, title insurance, an attorney’s fee, an escrow deposit, and a possible survey. In general, you should plan on budgeting approximately two percent of the loan’s value for closing expenses. 

Don’t Forget About Possible Home Repairs

After the inspection, you may have a few items that you need to repair. You may want to have some extra money on hand to cover some quick repair costs. If you budget accordingly, you can streamline the process of buying a home, helping you get to the closing table more quickly.

 

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The Importance Of Pre-Approval During The Homebuying Process

August 26, 2022 by

The Importance Of Pre-Approval During The Homebuying ProcessIf you want to buy a home in the near future, you are probably aware of just how competitive the housing market is. You need to put yourself in the best position possible to be successful by getting pre-approved for a home loan. This is a very important step, particularly when you compete against people making cash offers. Learn more about the importance of getting pre-approved below, and make sure your offer is taken seriously.

A Pre-Approval Letter Shows You Are Serious

The first reason why you need to get a pre-approval letter is that it will show any potential seller that you are serious about buying the home. One of the reasons why settlers like to accept cash offers is because they know the sale will go through. Without a pre-approval letter, the seller may not know if you will be approved by a reminder for a home loan. By showing a pre-approval letter, the seller will know that you will get financing for the home, and they do not necessarily need to worry about the sale falling apart.

Getting Pre-Approved Gives You A Budget

You also need to get a pre-approval letter because it will give you a budget with which to work. Even though it is fun to take a look at different houses and imagine what your life might look like, you need to know how much money you can spend on a house. The lender will let you know the maximum amount that you are approved for, and you can quickly narrow down your search and find the right home to meet your needs.

Get Pre-Approved Before You Start Your Housing Search

The housing market is constantly changing, so you need to take advantage of every opportunity given to you. If you want to make it easier to navigate a difficult housing market, you need to get pre-approved before you start the housing search. Remember that you do not necessarily need to get a loan from the lender that gave you a pre-approval letter, but the seller needs to know that you have been approved by at least one lender if you want your offer to be taken seriously. A pre-approval letter does exactly that.

 

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Mortgage Shopping And Your Credit Score

August 17, 2022 by

Mortgage Shopping And Your Credit ScoreThe vast majority of people have to take out a home loan to purchase a house. This means applying for a mortgage. Unfortunately, shopping for a mortgage can actually hurt your credit score. Any potential lender will probably have to do a hard pull on your credit. This could temporarily reduce your credit score by a few points. Those few points could make the difference between qualifying for a mortgage and getting denied one. Fortunately, there are ways for you to shop for a mortgage without hurting your credit.

Check Your Credit Score First

First, you need to check your credit report before you start shopping for a mortgage. By law, the major credit bureaus are required to give you at least one free credit report every year. This is your opportunity to take a look at your credit report and correct any inaccuracies that might be present. That way, you can correct these issues before you apply for a mortgage instead of after. This can save you a significant amount of time during the shopping process. 

Get Pre-Qualified For A Home Loan

You should also get pre-qualified for a home loan before you start shopping in earnest. When you get pre-qualified for a mortgage, you receive an estimate of how much money you can borrow to purchase your home. This means that the lender will run a soft inquiry on your credit report, which will not impact your credit score. Pre-qualification is not as strenuous as the full approval process, and you will eventually have to go through the full application process to get your mortgage; however, getting pre-qualified is a great starting point.

Submit All Applications Rapidly When You Find The Right Home

After you apply for your first mortgage, you will have 45 days to talk to other lenders. As long as all of your other hard credit pulls take place within about six weeks, subsequent applications should not have an impact on your credit score. This means that you need to have all of your documents together, which will allow you to expedite the process. That way, you can find the best deal you can on a mortgage without unnecessarily impacting your credit score. 

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The Top Reasons To Downsize When You Retire

August 12, 2022 by

The Top Reasons To Downsize When You RetireIf you plan on retiring in the near future, you might be thinking about moving. The kids might be grown, and you might not want to take care of such a large house. If that is the case, you should consider downsizing. When you downsize your home, you trade in your larger home for a smaller one. What are some of the top reasons why you should do so?

1. Bulk Up Your Retirement Account

The first reason why you should downsize is that you will free up more resources you can contribute to your retirement accounts. If you have been in your house for a long time, there is a great chance that you have paid off almost the entirety of your mortgage. Furthermore, your home may have even gone up in value by tens of thousands of dollars. Therefore, when you sell your house, you should receive most of the proceeds from the sale. You can use the proceeds from that sale to buy another house with cash and still have money left over to add to your retirement account. 

2. Reduce Your Overhead Expenses

You can also reduce your overhead expenses if you downsize your home. Your home insurance and property taxes should go down if you purchase a smaller house. You will probably have to spend less money on utilities, routine maintenance, repairs, and upkeep if you trade in your larger house for a smaller one.

3. Find The Right Location

If you decide to downsize your house, you will also have more flexibility regarding where to live. It is easier to fit a smaller house in an ideal location than a larger one. If you are willing to purchase a smaller house, you should have more options available to you, and you can find the perfect location for your retirement.

Consider Downsizing In Retirement

If you are getting ready to retire soon, you should consider downsizing. This is a great opportunity for you to free up a bit of extra cash for retirement and find the perfect location for your home. Consider taking a look at some of the houses available in your local area, and don’t forget to reach out to a professional with any questions. 

 

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