The Younger Generations Are Interested In Owning A Home

The Younger Generations Are Interested In Owning A HomeThe real estate market has been red hot this year, with many people looking to purchase a home because of record-low interest rates. This includes younger individuals, as younger generations are interested in owning a house for the first time. The past couple of years have been anything except normal, and the housing market has taken off, with demand far exceeding supply. Why is this taking place?

Record Low-Interest Rates Are Driving People Into the Market

Even though there are many reasons why people are interested in purchasing a home, incredibly low-interest rates are one of the biggest reasons. Many people are interested in taking out a home loan with a 30-year term. Potential homebuyers think that they may never see interest rates this low again. As a result, many are looking to capitalize on this opportunity before it disappears. This is increasing competition for homes on the market, driving up their values.

Interest Is Skyrocketing Among Younger Individuals

Record-low interest rates are appealing to just about everyone, but it is a particularly attractive option for young homebuyers. Many are just beginning their careers and are looking for ways to build wealth. One of the best ways to do so is through homeownership. Many research bureaus have noted that there is a sharp increase in younger individuals looking at houses. 

Many Are Facing An Uphill Battle

Even though there are many young individuals and families looking for houses, there are a number of challenges they will need to overcome. One of the biggest challenges is that there is a historic shortage of inventory. Even though potential homeowners might be able to lock in a low interest rate on a loan, they might not find a house they can purchase. It is difficult for young home buyers to compete against older individuals and families who can make a cash offer. If a bidding war takes place, younger homeowners rarely have the cash to come out on top. 

Asking For Help Is Key

Even though today’s mortgage rates are attractive, it is critical not to overpay for a house. Asking for help from a professional can help potential homeowners make the right decision. 

 

Understanding Your Debt To Income Ratio: What It Means

Understanding Your Debt To Income Ratio: What It MeansIf you are looking for a home, you might need to finance it using a lender, such as a bank or a credit union. There are a number of factors that will influence whether your mortgage application is approved. Then, these same factors will play a role in the terms the lender might offer you. One of the most important factors is called the debt to income ratio, or DTI. It is important to understand how this will impact your mortgage application.

What Is A Debt To Income Ratio?

Your DTI is important to the lender because this allows the lender to figure out the likelihood of you paying your mortgage on time. The less debt you have, the more financial stability you have to pay a potential mortgage. 

To calculate your debt to income ratio, you need to calculate all the bills you have for the upcoming month. For example, if you have rent and a car payment, you add these numbers together. Then, you divide this number by your gross monthly income. If your rent is $900 and your car payment is $200, your total debt is $1100. Then, if you earn $3300, divide $1100 by $3300. This is about 33 percent.

Student Loan Debt Is A Driving Factor

With many members of the younger generation getting ready to purchase a house, it is important to understand the impact of student loan payments. Because a lot of potential home borrowers have student loans to pay back, their debt-to-income ratios will be significantly higher. This could make it harder for younger borrowers to get qualified for a mortgage, particularly one with favorable terms.

How To Improve Your Mortgage Application

Before you apply for a home loan, you should try to improve your debt to income ratio by paying down your existing bills. For example, if you have credit card debt, this will be included in your debt to income ratio. Try to pay this off before you apply for a mortgage. You should try to pay down your student loans as much as possible before applying for a mortgage as well. The less debt you carry, the more likely your mortgage application will be approved. 

 

How To Transfer The Funds To Buy A House

How to Transfer Funds to Buy a HouseIf you have made an offer on a house and gotten it accepted, congratulations! This is a major step, but you might be wondering how you actually pay for a house. The days of showing up to the closing table with a personal check are in the rearview mirror, as nobody wants a check for a house to bounce after the other person has already walked away with the keys. Furthermore, even if you are buying a house with cash, you certainly do not want to show up with a briefcase full of dollar bills. Here is how you will actually pay for the house. 

Wire Transfer To The Closing Attorney

When you purchase a house, you will send the funds for the down payment and the closing costs to your closing attorney. Typically, the seller has a preferred closing attorney they want to use, and you should be contacted by the closing attorney several weeks before the closing date. They will also give you a finalized document specifying exactly how much money you need to wire to the office to cover the down payment, any fees, and the closing costs. You will also need to go to your bank to arrange the wire transfer. The bank will also verify you have enough money in the account to cover the expenses. 

Monthly Mortgage Payment Gets Drafted Automatically

If you are financing the purchase of a house through another lender, you will need to set up an automatic draft payment with the lender. Even though there are some lenders who will allow you to send a physical check every month, most will encourage you to set up an automatic draft payment out of your checking account. After the sale closes, you will typically have at least one month before you need to make your first mortgage payment. The lender will help you arrange the mortgage draft payment prior to that time. 

Make Sure To Wire The Money Prior To Closing

You should try to wire the money to the closing attorney before the closing date. That way, you will offer any hiccups along the way. If you don’t wire the money in time, the sale could fall through, which can create complications you would rather avoid.

An Overview of Amortization: It Plays A Role In Monthly Mortgage Payments

An Overview of Amortization: It Plays A Role In Monthly Mortgage PaymentsEven though this may sound like a fancy word, amortization is simply a long word for a straightforward topic. Furthermore, it plays a significant role in the determination of monthly mortgage payments.

Before taking out a home loan, homeowners need to understand how their payment schedule works and what this means for the future of the home loan.

Amortization refers to the way monthly payments are calculated to make sure that homeowners pay the same amount every month throughout the life of the loan. Even if homeowners do not stay in the house for the life of the loan, amortization will still play a significant role in the amount of money they receive if they decide to sell the home.

Amortization Plays A Major Role In Calculating Monthly Payments

First, amortization plays a major role in calculating monthly payments because it ensures that homeowners pay the same amount of money over the life of the loan. Even though there is interest on the home loan, and inflation will play a role in the value of money during the life of the loan, the monthly payment is going to stay the same. This is particularly beneficial to homeowners who are still working and believe that their income is going to go up during the life of a 15 year or 30 year mortgage. Even if their income goes up, and even if inflation plays a role, their monthly mortgage payments will still stay the same thanks to amortization.

Amortization Divides Interest And Principal In Monthly Payments

On the other hand, amortization also plays a role in calculating interest versus principal in monthly mortgage payments. At the beginning of the loan, the majority of each monthly payment goes toward interest on the loan. At the end of the loan, the majority of each monthly payment goes toward principal. This also means that if homeowners decide to sell their home at some point during the loan, they might not get as much money as they think because most of their monthly payments have gone toward interest and haven’t built up any equity. This is another key factor homeowners should keep in mind when it comes to amortization.

What Homeowners Must Do When Behind On Mortgage Payments

What Homeowners Must Do When Behind On Mortgage PaymentsThere are lots of homeowners who fall on rough times from time to time. For example, some people may be in the midst of changing jobs. Other people might be going back to school. When this happens, it can be hard for homeowners to keep up with their mortgage payments. Even though they might be thinking about waiting for the bank to do something, this would be the ultimate mistake.

There are ways to handle late mortgage payments as long as homeowners reach out to the lender to discuss their options. What should homeowners do if they start falling behind on their mortgage payments?

Let The Lender Know Why They Are Falling Behind

If lenders do not hear anything from the homeowners, they are not going to know what is going on. Therefore, they may end up taking drastic action. The first thing that homeowners need to do is to let the lender know that they are falling behind on their mortgage payments. That way, the lender understands that the homeowner knows he or she is behind on the mortgage. Then, let the lender know why the mortgage payments will be coming in late. For example, there might be an unexpected medical expense that took the mortgage payment that month. Or, the homeowner might be looking for a new job. These are all understandable reasons why the mortgage payments might be late. 

Ask The Lender To Go Over The Options

Next, the homeowner also should discuss with the lender all of the options when it comes to late mortgage payments. There are lots of options available. If there is a one-time unexpected expense, the lender might simply break up that payment and spread it out over the upcoming payments without charging any extra interest. Or, the lender might be willing to simply add a few months to the mortgage in exchange for not charging a late fee. These are a few of the many options the lender has at his or her disposal.

Do Not Ignore Late Mortgage Payments

The only mistake that homeowners can make with late mortgage payments is not communicating with the lender. As long as the lender understands what is going on, homeowners should have options at their disposal.

 

How Much Income Should People Spend On A Mortgage?

How Much Income Should People Spend On A Mortgage?When people are looking for a home, this is an exciting process. There is always something fun about looking at potential homes and envisioning a future there. This is a big decision. At the same time, it is just as important for people to think about how much of their money they should be spending on their mortgage. There are a few rules of thumb that people should keep in mind. 

The 28 Percent Rule

One of the most common rules that financial advisors and lenders are going to talk about is going to be the 28 percent rule. This rule states that people should not be spending any more than 28 percent of their pre-tax income on their monthly housing payments. This includes not only the mortgage but also any potential homeowners association fees, real estate taxes, and home insurance payments. Once people figure out how much they can afford on their monthly mortgage payment, they can work backward to see how large of a house they can afford. 

The 36 Percent Rule

The other rule that homebuyers are going to hear is the 36 percent rule. This is a rule that pertains to all debt. Therefore, this rule includes not only the monthly mortgage payments but also any car payments, credit card payments, utilities, and student loans. In general, no more than 36 percent of someone’s pre-tax income should be going toward debt. This is very important for taking out a home loan because it is going to impact someone’s debt to income ratio. If the debt to income ratio is too high, then potential homeowners are going to have a hard time getting a great deal on a mortgage. Furthermore, they could even be denied completely. 

Find The Right House

For those who are looking for a home, this is an exciting time. At the same time, it can also be hard to find the right home when people don’t know exactly what they’re looking for. When potential homeowners understand what their budget is, this process gets much easier. Therefore, everyone needs to think about how big of a monthly mortgage payment they can afford. This will help them make the right decision.

 

3 Budgeting Tips to Help Make Your New Mortgage Payments Easier

3 Budgeting Tips to Help Make Your New Mortgage Payments EasierBuying a new home is an exciting time, but excitement can easily turn to stress if there isn’t enough money to pay the monthly mortgage bill. The added expense can take some time to get used to, but there are ways to make the payments easier, especially in those first few months when money is the tightest.

Prioritize The Mortgage Bill And Pay It Immediately

This may seem like a counterintuitive tip for anybody looking for help making mortgage payments, but it is easily the best one and the one that provides the most trouble for homeowners.

Late mortgage payments come with hefty fees that make it harder and harder to pay the next mortgage bill in full and on time. It’s a slippery slope that can end in foreclosure if the mortgage bills go unpaid for too long.

Don’t Get Carried Away With Household Spending

What’s the first thing most couples do after finally purchasing their first home? If they moved in from a smaller apartment, filling in the empty space will probably be at the top of their list.

Spending sprees are all too common after moving into a new home. There are extra rooms that need to be furnished and extra space that needs to be filled in with a larger television or another sofa.

These purchases will severely limit the mortgage budget and could lead to late payments right from the start for anybody who gets carried away. Put a budget in place for new furniture and stick to it so that there is always money for the mortgage.

Limit Spending In The First Few Months

The biggest change for anybody moving into a new home may be the extra expenses they aren’t used to paying. Water, power, heat, air conditioning, internet and cable are all things that could be included when renting and once those bills start coming in, it can be alarming.

It doesn’t matter how careful they are, budgeting can take a huge hit if new homeowners are expecting to pay the same as they were in their previous home. Always wait the first few months before making any purchases to get used to the new monthly bills that will be waiting.

Making successful mortgage payments starts with getting a mortgage you can actually afford. Make sure you consult with a trusted mortgage professional who will be able to help you find the best deal and get a mortgage that won’t break the bank each month.