What Financial Preparations Should I Make Before Applying For A Mortgage?

What Financial Preparations Should I Make Before Applying For A Mortgage?Getting a mortgage isn’t an easy thing to do. Before a lender will put down tens of hundreds of thousands of dollars, it wants to know that the borrower can handle the loan so that it will get paid back. to this end, there are three things that a potential homebuyer can do to prepare for the mortgage approval process.

Managing Debts

For many homebuyers, managing their credit score is the biggest challenge. Mortgage lenders like buyers with strong credit. While getting strong credit usually isn’t something that can be done overnight, paying bills on time, all of the time can help to build a positive profile.

Using as little credit as possible is also helpful, since high utilization of existing credit lines can harm a borrower’s score. Having less debt can also reduce monthly payments, making it easier to qualify for a larger mortgage.

Managing Income

Lenders look for two things when it comes to a borrower’s income:

  • Stable incomes are preferred, so being able to prove the income with a W-2 form or other documentation is usually required. Self-employed people will typically need to prove their income with their tax returns, so taking high write-offs can make it harder to qualify.
  • A borrower’s income should be significantly higher than his total monthly debt payments. Lenders divide a borrower’s monthly payments including their proposed mortgage into the gross monthly income. If the payments exceed a set percentage, the lender will shrink the mortgage until it considers the payment affordable.

Managing Paperwork

To qualify for a mortgage, borrowers typically need to submit a comprehensive file of supporting documentation. This can include tax returns, pay stubs and bank and investment account statements.

Since lenders frequently want some historical data, it can be a good idea for people considering applying for a mortgage to start collecting documentation months before they actually begin the mortgage application process. That way, they will have everything the lender wants and when the lender needs it.

3 Considerations When Making A Down Payment

3 Considerations When Making A Down Payment One of the challenges you will face when deciding how much money to put down on your new home is whether to put down a larger down payment or to take a bit of money from your down payment and use it to pay “discount points” to lower your interest rate.

There are pros and cons to doing both and each borrower’s situation will be different so it’s important to understand which option is best for your individual need.

Some Factors You Should Consider Include:

  • Cost Of Borrowing – generally speaking, to lower your interest rate will mean you pay a premium. Most lenders will charge as much as one percent (one point) on the face amount of your loan to decrease your mortgage interest rate. Before you agree to pay discount points, you need to calculate the amount of money you are going to save monthly and then determine how many months it will take to recover your investment. Remember, discount points are normally tax deductible so it may be important to talk to your tax planner for guidance.
  • Larger Down Payment Means More Equity – keep in mind, the larger your down payment, the less money you have to borrow and the more equity you have in your new home. This is important for borrowers in a number of ways including lower monthly payments, potentially better loan terms and possibly not having to purchase mortgage insurance depending on how much equity you will have at the time of closing.
  • Qualifying For A Loan – borrowers who are facing challenges qualifying for a loan should weigh which option (discount points or larger down payment) is likely to help them qualify. In some instances, using a combination of down payment and lower rates will make the difference. Your mortgage professional can help you determine which is most beneficial to you.

There is no answer that is right for every borrower. All of the factors that impact your mortgage loan and your overall financial situation must be considered when you are preparing for your home mortgage loan.

Talking with your mortgage professional and where appropriate your tax professional will help you make the decision that is right for your specific situation.

What’s Ahead For Mortgage Rates This Week – January 18, 2022

What's Ahead For Mortgage Rates This Week - January 18, 2022

Last week’s scheduled economic reporting focused on inflation with monthly and year-over-year readings on overall and core inflation. Federal Reserve Chair Jerome Powell was confirmed for a second term as Federal Reserve chair.  The University of Michigan released its monthly survey on consumer sentiment and weekly readings on mortgage rates and jobless claims were also released.

Inflation Rises in December; Nears Fastest Growth Pace in 40 Years

Year-over-year inflation rose to a pace of seven percent in December and approached its fastest growth rate in 40 years according to the Bureau of Labor Statistics. Analysts expected year-over-year inflationary growth of seven percent as compared to November’s pace of 6.80 percent. Month-to-month inflation slowed to

0.50 percent as compared to November’s month-to-month growth rate of 0.80 percent.

Housing costs, food, and automotive sectors drove inflation in December. Shortages of computer chips used in vehicles slowed production and increased demand for vehicles. New car prices rose by one percent and used-car prices rose by 3.50 percent month-to-month.

Core inflation, which excludes volatile food and fuel sectors, rose by 5.50 percent year-over-year in December and surpassed the expected reading of 5.40 percent that was based on November’s core inflation rate of 4.90 percent. Rents rose by 0.40 percent for the third consecutive month. Food prices rose by 0.50 percent month-to-month and costs for clothing and furniture also rose.

Federal Reserve Chair Jerome Powell was confirmed for a second term and addressed the Fed’s plans for slowing inflation. Mr. Powell said, “The economy no longer needs or wants the very highly accommodative policies we’ve had in place to deal with the pandemic and its aftermath.”

Energy prices fell by 0.40 percent in December and decreased for the first time since April.

Mortgage Rates Rise. Jobless Claims Mixed

Freddie  Mac reported higher mortgage rates as the average rate for 30-year fixed-rate mortgages rose by 23 basis points to 3.4

Initial jobless claims rose last week with 230,000 first-time claims filed as compared to the prior week’s reading of 207,000 initial claims filed. Analysts expected first-time claims to decrease to 200,000 initial claims filed. Ongoing jobless claims fell to 1.60 million continuing claims filed as compared to the previous week’s reading of 1.75 million ongoing jobless claims filed.5 percent; rates for 15-year fixed-rate mortgages rose 19 basis points and averaged 2.62 percent. The average rate for 5/1 adjustable rate mortgages rose 16 basis points to 2.57 percent. Discount points averaged 0.70 percent for fixed-rate mortgages and 0.30 percent for 5/1 adjustable rate mortgages.

The University of Michigan’s consumer sentiment index for January reported lower consumer enthusiasm for current economic conditions with an index reading of 68.8 as compared to the expected reading of 70.0 and December’s index reading of 70.6.

What’s Ahead

This week’s scheduled economic reporting includes readings on housing markets and sales of previously-owned homes. Readings on building permits issued and housing starts will be released along with weekly readings on mortgage rates and jobless claims.

Maintain A Home’s Value With These Helpful Home Maintenance Tips

Maintain A Home's Value With These Helpful Home Maintenance Tips A home is an investment, so it is important to treat it as such. The best time to capitalize on a home’s value is when it is sold. Therefore, it is important to take care of it with some simple home maintenance tips. There is a common misconception that if something is working well, it does not need to be fixed; however, it is always better to prevent problems from happening than to fix them after they have appeared. The average homeowner should spend between one and four percent of a home’s value per year to keep it in excellent condition. There are several key home maintenance tips that homeowners need to keep in mind. 

Paint The Interior And Exterior

There is never a second chance to make a first impression, and a home’s paint job will be responsible for a significant portion of that first impression. A fresh coat of paint can make a home look like new. At the same time, it is usually better to hire a professional to paint the house to make sure it looks as great as possible. 

Clean The Gutters And Roof

Many homeowners forget about the roof of the house because it is difficult to see the entirety of the roof from the ground. On the other hand, a damaged roof can lead to expensive repairs, particularly if the roof begins to leak. Therefore, homeowners need to clean the gutters and roof regularly. That way, water has an easier time running down the roof, through the gutters, and away from the house. This can prevent serious problems from happening.

Stay Up To Date On HVAC Maintenance

Homeowners should service the furnace and ductwork regularly. It can be expensive to replace an HVAC unit, and routine maintenance is critical for making sure it lasts as long as possible. Furthermore, an efficient, working, maintained HVAC unit can be an attractive asset to a potential buyer. Service the HVAC unit at least once per year.

Take Care Of The House

These are a few of the most important home maintenance tips that homeowners should keep in mind. They can go a long way toward preserving the value of a house.

 

A Guide to Financing Home Improvements and How Mortgage Refinancing Can Help

A Guide to Financing Home Improvements and How Mortgage Refinancing Can HelpIf you’re planning to remodel or renovate your home in the near future – whether to provide a better living environment or as part of a house flip – you’ll need to find a way to pay for your home improvements. There are several different possible sources of renovation money, each with their own advantages and disadvantages. One option that is gaining popularity is mortgage refinancing.

How does mortgage refinancing work, and how does it compare to other renovation financing options? How can you use a mortgage refinance to get the most out of your renovation? Here’s what you need to know.

Home Improvement Investments: Which Renovations Generate The Best Returns?

If you’re considering a mortgage refinance in order to fund your home improvements, you’ll want to concentrate on doing renovations that increase your home’s value. Otherwise, you’ll be taking on more debt without gaining anything in return.

If you want to max out your return on investment, re-finishing your kitchen is your best strategy. Remodeling Magazine’s annual cost-to-value renovation analysis shows that new appliances, a new coat of paint, and new surface finishes in the kitchen generate the biggest returns. Meanwhile, swimming pools and home offices tend to generate the lowest returns because they appeal only to a select group of buyers.

Your Options For Financing Home Improvement Projects

Financing for a home improvement project is a critical consideration. Unless you can afford to pay $20,000 out of pocket for a remodeling project, you’ll need to secure financing of some sort.

Your options for home improvement financing include home equity lines of credit, renovation mortgages, and refinancing. A HELOC may not be an ideal solution, as repayment requires discipline, while a renovation mortgage (or home renovation loan) is typically used only for foreclosures and other properties requiring major renovation work.

Mortgage Refinancing: A Smart Option For Savvy Borrowers

If you’re looking to simply make improvements to your existing home, a mortgage refinance is likely your best option. A straight refinance gives you a lump sum of cash that you can use to pay for renovations upfront.

There’s also a “refinance plus improvements” arrangement, which can provide you with extra capital as you need it. Under this model, you can get up to 80% of your home’s post-renovation appraisal value – however, you’ll only get the money as the renovations are completed and inspected. With a straight refinance, you’re not out of pocket for any length of time.

Making smart home improvements is a great way to boost your home’s value and improve your living conditions. An experienced mortgage professional can help you to find financing for those renovations without a hassle. Contact your local mortgage advisor to learn more.

Does Shopping Around for A Mortgage Pre-Approval Hurt Your Credit Rating?

Does Shopping Around for A Mortgage Pre-Approval Hurt Your Credit Rating?Smart homebuyers know that mortgage rates and terms can vary widely among lenders. While your credit score and history will influence what rates and terms you’re offered, there’s a wide range of flexibility, which means shopping around for a pre-approval makes sense. At the same time, it’s important to minimize credit inquiries to protect your credit rating.

What is Mortgage Pre-Approval?

Mortgage pre-approval is often mistaken for mortgage pre-qualification. Pre-qualification is a process whereby the borrower personally submits their financial information to the lender. Pre-approval is the process whereby the lender does their own vetting regarding the income, debt and credit of a potential borrower. Pre-approvals will involve a hard “hit” to the credit score, due to the inquiry.

Pre-Qualification Doesn’t Guarantee Pre-Approval

Note that just because you are pre-qualified for a certain amount, that doesn’t guarantee pre-approval. So it’s important to go ahead and get the official pre-approval before shopping for a home. This will make you a more attractive homebuyer to sellers. 

Mortgage Hard Inquiries Make Credit Scores Dip

When lenders do a true pre-approval inquiry, it will make the credit score dip temporarily. This is an automatic process that happens because it looks like the person is looking to get more credit, which they are. Small drops from hard inquiries are temporary and will bounce back up in a short period of time.

Mortgage Inquiries Don’t Count

However, mortgage inquiries now don’t count on a credit rating, anymore. Lenders know that borrowers will be shopping around for the best rates and terms. As long as the inquiries take place in a short period of time, the inquiries will count only as one single hard inquiry, rather than multiple hard inquiries. In the event that multiple hard inquiries are noted on a credit report, as long as they are all from the same type of lender—a mortgage lender—it won’t count against the borrower.

The bottom line is that it’s wise to get multiple quotes when shopping for a mortgage. It’s more important to have a long-standing history of paying bills on time and managing credit well, than it is to worry about mortgage “hard inquiries.” Your real estate agent will help you to navigate getting multiple quotes in a short time span. Contact your agent to learn more.

Understanding How Home Equity Works and Why Buying a Home Can Be Your Best Investment

Understanding How Home Equity Works and Why Buying a Home Can Be Your Best InvestmentWhen delving into the world of real estate and investment property, there are many terms that will come up that require further explanation. Whether you’ve never heard the phrase ‘home equity’ before or you have a little familiarity, here are the ins and out of what it means and how this asset can help your financial outlook.

All About Home Equity

Essentially, home equity refers to your portion of the value of your home, and the amount of this figure is important because it is included among your assets when determining your net worth. If this sounds confusing, think of it this way: if you have completely paid off the cost of your home, the value of your home equity is this total amount. Of course, because most people seek a lender to borrow money from when they purchase a home, their home equity would consist of their down payment and whatever amount they’ve paid down on the mortgage since purchase.

An Example Of Home Equity

To provide further clarification, let’s use the example of a house that has been purchased for $300,000. In the case that a down payment of 20% has been provided at the time of purchase, the equity in the home would be $60,000. Since this amount is the percentage and cost of the house that’s been paid down, this is the amount of the house that is actually owned and this will be figured among an individual’s assets.

How Home Equity Works

As you pay the amount that you owe on your home each month, you are paying off your total debt and thereby increasing your equity. Since this amount of money is considered an asset that belongs to you, it can be used down the road to buy another home or invest in other important things like education or retirement. While paying off the amount owed on a home is a considerable investment, if the value of your home increases, this means that you’ll still owe the same on it but your home equity will have automatically increased.

As an asset that is part of your financial net worth and can be used down the road to fund other investments, home equity is a very useful term to know when it comes to purchasing a home. If you’re on the market for a home and are considering your options, you may want to contact one of our local real estate professionals for more information.

What’s Ahead For Mortgage Rates This Week – January 10, 2022

What's Ahead For Mortgage Rates This Week - January 10, 2022

Last week’s economic reporting included readings on construction spending and labor sector readings on jobs and unemployment. Weekly reports on mortgage rates and jobless claims were also released.

Construction Spending Unchanged, Falls Short of Expectations

The Commerce Department reported that construction spending rose by 0.4 percent in November to a seasonally-adjusted annual pace of $1.63 trillion and  9.30 percent year-over-year, Residential construction spending drove spending higher; month-to-month spending rose by 0.90 percent in November and was 16 percent higher year-over-year. Analysts expected overall construction spending to rise by 0.70 percent from October to November.

High demand for homes continued to drive residential construction spending, but spending on office construction fell by 32.10 percent year-over-year. Work-from-home options increased as employers and workers faced covid-related challenges.

Mortgage Rates Rise; Jobs Data Mixed

Freddie Mac reported higher average mortgage rates last week as rates for 30-year fixed-rate mortgages rose 11basis points to 3.22 percent. The average rate for 15-year fixed-rate mortgages was 10 basis points higher at 2.43 percent. The average rate for 5/1 adjustable rate mortgages was unchanged at 2.41 percent. Discount points averaged 0.70 percent for 30-year fixed-rate mortgages and 0.60 percent for 15-year fixed-rate mortgages. Discount points for 5/1 adjustable rate mortgages averaged 0.50 percent.

First-time jobless claims rose by 207,000 claims filed as compared to the prior week’s reading of 200,000 initial claims filed. Analysts expected 195,000 new claim filings. Continuing jobless claims rose last week with 1.75 million ongoing claims filed; 1.72 million continuing jobless claims were filed in the prior week.

The government’s Non-Farm Payrolls report for December reported 199,000 public and private sector jobs added, which fell far short of the expected reading of 422,000 jobs added and November’s reading of 249,000 jobs added. Analysts said that the spread of the omicron variant of the covid virus slowed job searches and hiring.

ADP reported 807,000 private-sector jobs added in December, which surpassed expectations of 375,000 jobs added and November’s reading of 505,000 private-sector jobs added. The national unemployment rate fell to 3.90 percent as compared to the prior month’s reading of 4.20 percent. The unemployment rate is based on the number of unemployed workers actively seeking work and does not include workers who stopped looking for work.

What’s Ahead

This week’s scheduled economic reports include readings on inflation and retail sales and weekly reporting on mortgage rates and jobless claims.

3 ‘Must Know’ Pieces of Advice for First-time Home Buyers

3 'Must Know' Pieces of Advice for First-time Home BuyersWhen delving into the realities of home ownership, there can be many factors involved that make it difficult to determine what you need to know and what can wait until later. If you happen to be a first-time buyer who’s looking for the best tips for purchasing a home, look no further than the following three pointers to set you on the right path.

Get Familiar With Your Credit Score

If you haven’t looked at your credit report for a long time, it can be a daunting task to request this information. Fortunately, your credit report is free from AnnualCreditReport.com and it will prepare you for what lenders are going to see. By taking this important step, you will be able to determine any delinquent accounts or balances owing that have gone to collections, and hopefully have these cleaned up before they can become a problem for your mortgage.

Determine The Price You Can Pay

While you may have a price in mind for what you’re willing to pay for a home, it’s important to determine your debt-to-income ratio before putting in an offer. Your DTI ratio can be determined by taking your total monthly costs, adding it to what you would be paying for a home and dividing it by your monthly gross income. If it’s a housing price that will work for you, this amount should equate to less than 43%.

Organize Your Housing History

If you have a good history as a tenant, the next step will probably be the easiest of all, but it’s very important in order to prove you’re a responsible candidate for home ownership. Once you’ve acquired a Verification of Rent from any applicable landlord in the previous year, you’ll want to ensure that you have money in the bank. While RRSP’s can make a good impression, make sure you have liquid assets available so you can convince the lender your home investment is manageable.

There are a lot of things to know when it comes to buying a home, but if you’re a first time buyer the most important thing is to ensure that your finances are organized and that you’re not diving into more house than you can afford. By taking the time to determine your debt-to-income ratio and looking into your credit, you can ensure a positive first-time buying experience. If you’re wondering about homes for sale in your area, you may want to contact your trusted real estate professionals for more information.

Understanding The Differences Between Conforming Loans And Jumbo Loans

Understanding The Differences Between Conforming Loans And Jumbo LoansPotential homeowners need to understand the different types of loans available. This is a major financial decision, and it is important to evaluate the benefits and drawbacks of each option. The majority of home loans fall into two categories. The first is called a conforming loan and the second is called a jumbo loan. There are a few significant differences between them.

How Is The Size Of A Home Loan Determined?

First, it is important to understand how the size of a home loan is determined. Homebuyers usually need to put money down before they will be granted a home loan. First-time homeowners may be able to qualify for a home loan with only 3.5 percent down, but most people will be asked to put 20 percent down. Otherwise, they could be asked to purchase private mortgage insurance. The remaining balance of the sale is the size of the loan financed by the lender. 

What Is A Conforming Loan?

A conforming loan is any loan that is beneath the federally set limit. Typically, a conforming loan comes with a lower interest rate than a jumbo loan. Therefore, home buyers who have a proposed loan amount at or near the federal limit, or those who have flexibility in the size of the down payment, are better off securing a conforming loan so they can save money. 

What Is A Jumbo Loan?

A jumbo loan is any loan that is above the federally set limit. While a jumbo loan can still allow homeowners to secure a house, it usually comes with higher interest rates. Before taking out a jumbo loan, potential homebuyers need to talk to the loan officer about their other options. There might be ways to avoid taking out a jumbo loan. 

Work With A Professional Loan Officer

Anyone interested in taking out a home loan has to work with a professional loan officer who can explain the different options available. In addition to deciding on a fixed-rate versus an adjustable-rate mortgage, applicants need to figure out if they qualify for a conforming loan or a jumbo loan. The differences between these two loans can equate to thousands of dollars over the life of the loan.