Self Employed and Seeking a Mortgage? How to Ensure That Your Lender Knows You’re Able to Pay

Self Employed and Seeking a Mortgage? How to Ensure That Your Lender Knows You're Able to PayWhether you’re a freelance web designer who spends their days working from a coffee shop or a small-business entrepreneur with a team of staff, if you’re a self-employed individual and you’re thinking about buying a new house you may face some difficulty getting approved for a mortgage.

In today’s blog post we’ll share how you can provide paperwork and other evidence to show your mortgage lender that you’re a quality applicant who has the ability to make their payments.

Have Your Accountant Prep Your Paperwork

As a general rule of thumb, if you’re in business you should invest in the services of an accountant to handle your tax preparation and other financial matters so that you don’t miss anything important.

If you have an accountant, let them know that you’re applying for a mortgage and ask them to create a package that includes your business financials as well as your past two or three years of income tax documents.

Watch Your Debt-to-income Ratio

Your debt-to-income ratio is one of the primary factors calculated during the mortgage application process and if you don’t have a regular paycheck or salary this is how your lender will assess your ability to pay.

In short, this number is the percentage of your monthly gross income that is used to pay debts, taxes, insurance, and other items. Add up your car payment, loan payments, credit card payments, child support and any other regular debts and divide this number from your monthly income. If this number is too high, your application may be declined.

Ensure You Have A Clean, Stable History

Your credit rating – and that of your business – will be intensely scrutinized by any potential lender in order to determine whether or not you present a significant risk of missing a payment or defaulting entirely.

Maintaining a positive credit history can be challenging as an entrepreneur, especially if you’re in the early stages of your business and you’re relying on loans or other financing to help fund your operations. Try to make sure that every bill is paid and avoid situations that can leave a blemish on your credit report.

Seek The Advice Of A Mortgage Professional

Even if you have your past taxes and a clean credit history you may still face a bit of an uphill battle in getting that mortgage approved. It’s best to seek a mortgage professional’s advice as early on in the process as you can, as they work with self-employed individuals regularly and will be able to help you craft your application. Good luck!

Shopping Around: How to Compare Mortgages from Different Lenders or Underwriters

Shopping Around: How to Compare Mortgages from Different Lenders or UnderwritersBuying a home is a major financial transaction, especially if you’re going to need mortgage financing to help cover the purchase cost.

The only way to know if you’re getting the best deal on a mortgage is to shop around, but with so many different lenders vying for your business it can be very tough to choose which mortgage is the best fit for your own situation.

In this post we’ll share how you can compare mortgages from different lenders or underwriters so that you can get the best possible deal on your mortgage loan.

Start By Comparing Interest Rates

The most important factor in your mortgage is the interest rate that you’ll be required to pay so this should be your starting point.

While most lenders will keep their rates competitive with one another, you may find that there are discounts available based on your credit or financial history. You might also find that some lenders are willing to adjust the rate based on how long of a mortgage term you’ll need, and how much you’re investing in your down payment.

Get An Estimate Of Your Total Closing Costs

While the number that you’re likely focused on is the total monthly payment that you’ll be making for the next few years, you’ll also want to find out how much in fees and closing costs you will have to pay in order to take out the mortgage.

Every lender charges different fees and the amounts can vary wildly, so be sure to get an estimate on these costs to find out how they’ll affect your home purchase.

Watch Out For Early Payment Penalties

Finally, you’ll want to keep an eye out for early repayment penalties as these can cause you a headache later on if you decide you want to pay your mortgage off a bit faster. The ideal mortgage is one that allows you to repay the principal amount at any time without facing a penalty, but depending on the other terms that you require you might need to shop around a bit before you find a mortgage like this.

You may find that comparison shopping can be a bit overwhelming with so many different mortgage options, terms and interest rates to choose from. If you have questions or you need help sorting through it all to determine which mortgage suits you best, contact your local mortgage professional today to book a quick consultation.

Setting Your Budget: How to Analyze Your Finances to Determine How Much Mortgage You Can Afford

Setting Your Budget: How to Analyze Your Finances to Determine How Much Mortgage You Can AffordWhether you’re buying a home for the first time or you’ve decided it’s about time that you upgraded to a larger, more expansive house, if you’re making a real estate purchase you’ll need to be aware of how much you can reasonably afford to borrow in a mortgage. In today’s post we’ll take a look at a few ways that you can analyze your financial situation to help decide how much mortgage you can truly afford.

Prepare An Honest Monthly Budget

The first step in understanding how much of a monthly payment you can afford is to create an honest monthly budget which includes all of your family’s income and spending. Although you won’t have to pay them every month, it’s also important that you include costs that show up irregularly like car repairs, Christmas gifts or tuition bills as these still need to be paid. The more information you can place in your budget, the more accurate your financial picture will be.

Your Down Payment Plays A Huge Role

As you might imagine, the amount you can invest in your down payment plays a significant role in how much mortgage financing you will need. Every dollar that you can place in your down payment today is one less dollar that you’ll need to borrow and pay interest on over the amortization period of your mortgage. Take some time to consider how much you can put down, and see if there’s any way you can bump this figure a bit higher.

What Interest Rate Will You End Up Paying?

Small changes to your mortgage interest rate can have significant impacts on how much you are required to pay back over the life of your mortgage. As you’re shopping around, be sure to consider how long your interest rates are valid for and try to determine the lowest rate you might qualify for. You may also find it helpful to use an online mortgage calculator which can help you to understand how your interest rate impacts your monthly payments.

Consult A Mortgage Professional To Learn More

While building a quick budget to analyze your family’s expenses is easy, factoring in all of the various items that a lender will consider might be harder than you expect. If you have questions about the mortgage process and whether or not you’re ready financially, contact your local mortgage professional today.

Speeding Up the Close: Five Tips on How to Close Your Mortgage Loan Faster So You Can Start Moving In

Speeding Up the Close: Five Tips on How to Close Your Mortgage Loan Faster So You Can Start Moving InWhen a seller accepts an offer from a buyer, the process of obtaining the property has just begun. The buyer now has to conduct an inspection, get approval from an attorney and obtain a mortgage – all of which can be time consuming. Here are a few ways that you can speed up the mortgage process and close the deal sooner.

Make Sure That You Have Money For Closing Costs

Do you have the money needed for a down payment and to pay other closing and prepaid costs? If not, you won’t be able to close until you find the funds to pay those costs – and this could delay the closing on your home indefinitely. Before you arrange the mortgage, make sure you have enough cash on hand to pay closing costs.

Get Conditional Approval Before Making The Offer

If you have not been conditionally approved for a loan before making an offer, you can’t be sure that a lender will give you a loan for the amount of the purchase price. In addition, starting the process from scratch could push back the closing timeline. Having your mortgage conditionally approved means the mortgage process is already underway when you make your offer, which saves you time.

Have Your Documents Together

Get your bank statements, pay stubs and other documents together before the seller accepts your offer. Having everything that the lender needs right away decreases the time needed for a lender to assess your application before extending the loan.

Work With An Experienced Mortgage Lender

Your mortgage lender may be able to move everything along by staying on top of the loan approval process. By ensuring that documents are being processed in a timely manner, an experienced lender can reduce the closing time from months to weeks.

Create A Timeline For Repairs The Seller Is Obligated To Make

It is not uncommon for a seller to be obligated to fix certain issues with the house before the new owner takes possession. However, it is important to put these repairs the contract along with a mandatory completion date. Otherwise, the seller could drag his feet with no contractual obligation to finish any repairs before he sees fit to do so.

Closing on a home loan can take anywhere from 30 to 120 days depending on work that needs to be done on the home and how well prepared a buyer is. Contacting and working closely with your mortgage lender or broker can result in a speedy and painless close. Contact an experienced mortgage professional today for more information about closing a mortgage.

Children Leaving the Nest? 3 Pieces of Sage Advice You Can Share About How to Manage a Mortgage

Children Leaving the Nest? 3 Pieces of Sage Advice You Can Share About How to Manage a MortgageWhen your children are about to step out into the world on their own, you want to help them on their way. This especially holds true when it comes to buying a house. As your sons or daughters prepare to take the plunge into home ownership, make sure they follow three crucial tips that will help them during the mortgage process.

Don’t Bite Off More Than You Can Chew

One of the biggest mistakes that homeowners make is choosing a home that is beyond their price range. Your children need to remember that they are going to be paying for their home for a long time. A crushing house payment could be difficult to manage.

In order to find a reasonable mortgage, you need to look at the numbers. The bank, or mortgage lender, will generally look at a client’s income, debt, and the current mortgage rate to determine an acceptable amount when purchasing a home. Your children can look at their own budget, lay out all of their costs, and determine how much spending room is left for a house payment.

Choose A Shorter Term For A Mortgage

When the time comes to sign the dotted line, the mortgage lender will offer various payment terms for your child’s home loan. Twenty-five to thirty years is the typical term for most mortgages, but the sooner the mortgage is paid, the better. Advise your children to choose the shortest possible term while still living within their means.

Make Extra Payments When Possible

Your children can pay their mortgage off sooner by making extra payments. While this may seem like a challenge, it can be accomplished with careful budgeting.

Making one extra payment a year will shorten the length of the loan and put more equity into the home. Whether your children plan on staying put or want to buy another home down the line, they’ll appreciate it when they have paid off a considerable chunk of their mortgage.

Getting a mortgage is a rite of passage and a milestone that thousands of Americans encounter every year. Make sure that your children get the best mortgage available by following these tips. For more helpful information, or to make sure your children are getting a good deal, contact a trusted mortgage professional today.

Is a 40-Year Mortgage Worth It? How to Decide Whether or Not This Longer Term is Right for You

Is a 40-Year Mortgage Worth It? How to Decide Whether or Not This Longer Term is Right for YouThere are different timetables for mortgages. The most common types are 15-year and 30-year mortgages. However, a mortgage broker can establish unique timetables for a homeowner, such as a 40-year mortgage.

Friends may recommend going for a long-term timetable, but what do professionals think of a 40-year mortgage? Here is what you may want to consider to see if a 40-year mortgage is appropriate for you.

The Monthly Rates Will Be Low

Compared to a 15-year or a 30-year mortgage, the monthly payments for a 40-year mortgage will be lower. Since the mortgage is spread over 10 years beyond a conventional 30-year mortgage, homeowners will see much lower mortgage payments per month. This can be very attractive for homeowners who need to control their housing costs per month.

Long Term Costs

But, many brokers will tell a homeowner the extra 10 years is not worth it. Because the homeowner will need to pay interest rate charges each month for 10 extra years beyond the typical 30-year mortgage window, the homeowner will end up paying more in interest for a 40-year mortgage. Even with a low, fixed interest rate, homeowners are still extending their home payments by a whole decade, which will add up in the end.

Always Fixed

Under housing laws, a 40-year mortgage must always be a fixed-rate mortgage. This can be attractive for many homeowners since it guarantees that the mortgage payment per month will be the same for the next 40 years. For those on a budget, knowing ahead of time what they owe per month for 40 years can help them prioritize their payments.

Home Of One’s Dreams

Since the 40-year mortgage will calculate as a lower monthly payment for an already credit qualified candidate, a broker will be more willing to offer a larger mortgage to the candidate. This means that many people who utilize the 40-year mortgage have a larger pool of homes to choose from. Of course, it is important to find a home within a reasonable budget.

Understanding the ramifications and specific issues with a 40-year mortgage can help a homeowner candidate better decide if it is right for them. Like any housing finance option, there are advantages and disadvantages, so knowing how the 40-year mortgage works is important. This information should enhance the home shopping experience and help the candidate and the broker find the best home under the most appropriate financing option.

Can One Missed Mortgage Payment Affect Your Credit Rating? Yes! Here’s What to Do if You Miss One

Can One Missed Mortgage Payment Affect Your Credit Rating? Yes! Here's What to Do if You Miss OneMost people don’t know whether or not a single missed mortgage payment can have serious consequences for their credit score.

The good news is that there are things that can be done to mitigate the damage and help anyone who has missed a payment repair their credit. What are some options to help homeowners get back in the good graces of their creditors?

Own Up To The Mistake

The best thing to do is to admit that the payment was missed and immediately make amends for it. For the most part, mortgage lenders are sympathetic to the fact that people miss payments for reasons that may be beyond their control.

By calling the lender as soon as it appears that a payment may be late or not forthcoming at all, it is easier to make arrangements to roll that payment back into the mortgage or take other steps to decrease the odds of a negative remark being made on a credit report.

Don’t Let A Single Missed Payment Turn Into Multiple Missed Payments

While a single missed payment can hurt a credit score, it is important to not compound the mistake by missing more payments. In some cases, someone may decide to make up for the late payment before making any further payments.

However, that only makes the mistake worse because a borrower will be considered late on all subsequent payments. It is better to make the most current payment on time and make the late payment the secondary priority.

Hire A Third-Party If Necessary To Negotiate A Loan Modification

It is important to not let emotion get in the way of negotiating a modification to a mortgage. When a borrower hires a credit counselor or a bankruptcy attorney to talk his or her creditors, the negotiations can stay professional and on topic.

In most cases, a lender will be willing to make modifications for those who need them because it is better to get the money from the borrower willingly instead of having to go through a foreclosure proceeding.

While a missed mortgage payment can be bad news for a credit score, it is possible to make amends for the missed payment while minimizing long-term damage to a borrower’s credit score. By owning the mistake, staying current on all future payments and working with a third-party, it may be possible for a lender to forget that the missed payment ever happened.

Understanding the ‘Qualified Mortgage’ or QM and Why It’s Important to New Home Buyers

Understanding the 'Qualified Mortgage' or QM and Why It's Important to New Home BuyersAre you shopping for a home or a new mortgage? If you are interested in finding the best possible financial product, it is important to consider the benefits of selecting a Qualified Mortgage. With so many different types of loan products to choose from and financial terms to learn, schooling yourself on the mortgage market before you buy your first home or apply for your first refinance mortgage may seem like a daunting task.

Luckily, there are resources that are designed to help you learn the basics of products and terms so that all consumers have the power to inform themselves before securing a loan.

What is a Qualified Mortgage?

There are many different categories of home loans that individual loan products can fall into and one of these categories is simply referred to as a Qualified Mortgage. Qualified Mortgages, also referred to as the QM in the industry, is a product that has been approved as a qualified product because it has stable features that benefit you as a borrower.

All lenders who are interested in offering a Qualified Mortgage must make a good-faith effort to assess your income and your debt-to-income ratio to ensure that you are able to repay the loan before you take the loan out. All lenders must meet a long list of certain requirements that are free of harmful features that could affect a borrower’s ability to pay.

Common Requirements of Qualified Mortgages

The main purpose of a qualified mortgage is to protect borrowers from forms of predatory lending. The standards that the loan must meet are set by the Federal government. In addition to assessing the borrower’s ability to pay before approving an application, lenders must meet loan product requirements that are very specific in nature. Some of the harmful features that a QM product is not permitted to have include:

– Negative Amortization: This feature affects consumers by allowing principal to increase over time.

– Interest-only Periods: Where payments are only applied to interest on the money borrowed.

– Balloon payment requirement: A requirement where borrowers must pay a large payment at the end of the loan term.

– Long Terms: Loans cannot have terms longer than 30 years.

– A Large Debt-to-Income Ratio: There is a limit in how much income that can go to monthly debt payments. This limit is 43% for a QM.


How Can a QM Benefit a New Home Buyer?

As you can see, there are safeguards built into a Qualified Mortgage that are designed to protect you from entering into a long-term binding loan contract that puts you in an unfair position. There are also legal protections that are designed to protect lenders who are committed to designing qualified mortgage products. You can sign a loan that you can afford to repay, have payments applied to your principal as well as interest, and become a homeowner without unnecessary stress. If you are interested in learning more, contact your mortgage professional to review interest rates and loan terms.

Starting to Shop for a Mortgage? How to Assess Your ‘Debt-to-Income Ratio’ and Why This Number Matters

Starting to Shop for a Mortgage? How to Assess Your 'Debt-to-Income Ratio' and Why This Number MattersThose who are looking to buy a home may want to start by shopping for a loan first. Having financing ahead of time may make it easier to get sellers to take a buyer seriously and help move along the closing process. For those who are looking to get a mortgage, the most important factor for having a mortgage application approved is the debt-to-income ratio of the borrower.

What Is a Debt-to-Income Ratio?

A debt-to-income ratio is simply the percentage of debt compared to the amount of income that a person brings in. If a person brought home $1,000 a month and had $500 worth of debt, that person would have a DTI of 50 percent. To improve the odds of getting a home loan, experts recommend that potential borrowers keep their DTI under 43 percent.

What Debt Will Lenders Look At?

The good news for borrowers is that lenders will disregard some debt when calculating a borrower’s DTI. For example, a health insurance premium would not be considered as part of your DTI while, and income is calculated on a pre-tax basis. This means that a borrower doesn’t have to factor in taxes when calculating their qualifying income.

What lenders will look at are any installment loan obligations such as auto loans or student loans as well as any revolving debt payments such as credit cards or a home equity line of credit. In some cases, a lender will disregard an installment loan debt if the loan is projected to be paid off in the next 10-12 months.

What Is Considered as Income?

Almost any source of income that can be verified will be counted as income on a mortgage application. Those who receive alimony, investment income or money from a pension or social security will have that money included in their monthly income when they apply for a loan. Wage income is also considered as part of a borrower’s monthly qualifying income. Self-employed individuals can use their net profit as income when applying for a mortgage. However, many lenders will average income in the current year with income from previous years.

How Much Debt Is Too Much Debt?

Many lenders will only offer loans to those who have a debt-to-income ratio of 43 percent. However, government backed loans may allow borrowers who have a DTI of 50-55 to qualify for a loan depending on their income and other factors. Talking to a lender prior to starting the mortgage application process may be able to help a borrower determine if his or her chosen lender offers such leeway.

A borrower’s DTI ratio may be the biggest factor when a lender decides whether to approve a mortgage application. Those who wish to increase their odds of loan approval may decide to lower their DTI by increasing their income or lowering their debt. This may make it easier for the lender and the underwriter to justify making a loan to the borrower.